Article | 10 min read

S&OP guide: Meaning, process, and purpose

See how sales and operations planning uses data to zero in on supply and demand problems so that sales soar.

By Donny Kelwig, Contributing Writer

Published January 18, 2022
Last updated March 8, 2022

Most businesses strategize sales through the eyes of the customer. What do customers want? How do we make customers happy? What are the best upsell strategies? These are all worthwhile questions—and the customer is certainly important—but no company can help their customers if they have internal issues in serious need of fixing.

That’s where sales and operations planning (S&OP) comes in. In this piece, we’ll take you through the process and purpose of one of the most important tools you can use for developing and maintaining internal business health.

What is S&OP?

Sales and operations planning is the process by which executive teams from across a business convene to ensure all departments are balanced and functioning. Ideally, this process aligns the company’s financial plan with the supply and demand of the current products. S&OP finds solutions that reduce the inefficiencies which can arise from wasted resources, poor customer service, or over/underproduction.

This may seem like a common-sense concept, but 86 percent of employees and executives say that lack of collaboration and communication is the main cause of workplace failure, so we think it’s safe to say that your S&OP process could use some revision. We bring up communication and alignment issues quite a bit in our blog; that’s simply because these problems are endemic in the industry. Not to mention, recent statistics have found that companies with successful alignment are a whopping 67 percent more effective at closing deals.

86% of employees and executives say that lack of collaboration and communication is the main cause of workplace failure.

These numbers should be a wake-up call for anyone who doubts the power of business communication and planning. Let’s dive into the S&OP process and purpose to make sure your company is one of the few rising to the top.

Sales and operations planning purpose

S&OP drastically improves communication and consistency across companies—but there are numerous other benefits as well. The pros of S&OP go far beyond simply getting everyone on the same page.

With S&OP, companies can:

  • Gain more accurate data, enabling faster, more frequent adjustments in the supply chain and sales pipeline so that problems are fixed in real-time.
  • Optimize resources, reducing waste and increasing efficiency.
  • Improve customer service with better inventory and backlog management.
  • Fight stagnation by finding easy adjustments to internal and external barriers and updating their sales process accordingly.
  • Use unbiased data to create achievable KPIs across all departments.

All these benefits come from the unification of departments and data. When everyone is working from the same consistent numbers, each team is better able to serve the others. When you have strong S&OP, by the time you get to the customer and the sales journey, you’re already ahead of the game.

S&OP process

The S&OP process isn’t just the meeting. The process starts with initial data gathering and ends when the plan is fully implemented. In this section, we’ll take a look at who’s involved in creating an S&OP plan and what the steps of the S&OP process are.

Who’s who in an S&OP meeting?

To go through the S&OP process, you’ll have to know who’s on your team. Here’s a breakdown of the average S&OP meeting room:

Executive management: This is your CEO or meeting leader. This person(s) runs the meeting and serves as a primary decision-maker. They also hold the company accountable for following the approved plan. Additionally, executive management serves as conflict resolution throughout the process and makes final decisions if necessary.

Department leaders: These leaders represent every department in a company. There should be a representative (usually a manager) present for each team. These leaders speak to their department’s performance and make sure their employees are sticking to the plan.

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Demand planner: The demand planner analyzes statistics on past and present demand to create accurate demand forecasting before the meeting. They then present all demand-related information.

Supply planner: The supply planner presents similar information to the demand planner, but they also review supply chain, inventory, and orders regularly to reduce over/under production.

Operations leader: The operations leader works with supply and production to ensure all operations are functioning at a level that will meet the S&OP plan. They also present actual vs. forecast performance regarding inventory and address any backlog.

The S&OP steps

  1. Gather and manage data: Each team collects data for the given time period, including past sales, trend analysis, plan success rates, and accuracy. This data is then formatted into forecasts for the demand planner. The key departments involved are sales, marketing, operations/supply, logistics, and finance. Ideally, your company has software to compile this information on an ongoing basis, but if not, you may want to consider investing in a CRM.
  2. Demand planning: The forecasts mentioned above are validated with accounting for variability, and then adjustments are made to a demand plan. This plan includes customer service policies, promotions, one-time events, and new launches. This step is run by the demand planner, but sales and marketing should influence the finalized plan before the S&OP meeting.
  3. Supply planning: Using the demand plan, the head of supply works with operations to create a supply plan. This includes inventory targets, safety stock, production methods, and possibly liabilities in capacity, inventory, and scheduling. Any necessary pre-launch logistical changes should also be included for presentation.
  4. Pre-S&OP meeting: The supply and demand plans are reconciled and changes are made based on how realistically the plans accommodate each other. Finance is an essential department in this step as all plans need to be kept within a pre-established budget. If a significantly costly obstacle comes to light, this is the time to assess if the company has the funds to move forward with this plan or if certain aspects need to wait for the next fiscal year.
  5. Executive S&OP meeting: Once everything is finalized, the plans are presented at the executive S&OP meeting. By the end of the meeting, there should be an implementable, agreed-upon plan for the entire company.
  6. Implementation: Each team leader works both with their department and cross-departmentally to make the changes required in the plan. Regular evaluation of the implementation is recommended.

S&OP metrics

Going through the S&OP process flow can be difficult, even in the most organized of companies. We recommend tracking the following metrics and KPIs to end your S&OP session with the most complete data:

Total sales: the total sales in your given time period (month, year, quarter, etc.). This includes cash, credit, installment, and conditional sales.

Sales forecast vs. actual total sales: your total sales in comparison to the expected amount of sales for the given time period.

Gross margin: the net sales once you subtract the cost of goods sold and services provided in the given time period.

Working capital: the difference between your current assets and current liabilities in a given time period.

Inventory turnover: the number of times your inventory is sold and replaced in a given time period. Used to determine if you are ordering too much or too little inventory.

Capacity utilization: the percentage of an organization’s potential output that is actually being realized.

Cycle times: the time spent producing an item or providing a service from the start of the first task to the end of the last task. It’s also worth looking at how these times match up with your sales cycle.

Production forecast: the projection of how many end items will be needed to meet the sales forecast.

Tips for collaboration between sales and operations

Now that you’ve learned how to organize an S&OP meeting, how do you make the most of it? Below are a few tips on best practices for alignment and collaboration between sales and operations.

Combine sales strategy with operations

sales operations planning strategy

Your sales team can’t sell backlogged inventory and your operations team can’t meet sales demands if they’re kept out of the loop. It doesn’t matter how incredible your sales team is if they’re selling faster than your ops team can keep up. An underproduction of product to sales ratio only results in angry customers and ultimately hurts your bottom line.

When you’re creating your sales plan, factor in operations. If your primary sales goal for the month is to sell $50,000 worth of your newest product, then your operations team needs to have $50,000 worth of that product ready to go. Similarly, don’t create a sales plan without looking at your current operations situation.

If you have a severe overproduction of one product from the previous month, factor it into your sales plan. Maybe it’s time for a sale or a deal to move the remaining product? Perhaps it makes sense to offer a discounted old product with the purchase of a new product?

However you choose to move forward, it’s crucial to ensure that your sales and operations teams are aligned so that at the next S&OP meeting, you aren’t dealing with unexpected supply issues and disgruntled teams.

Roll out sales and operations planning training

sales operations planning training

We hear a great deal about training for sales and how to better handle and maneuver customers through the sales pipeline. What we don’t hear as much of is internal company training between departments. If you’re investing in training for your employees and managers, make sure you’re addressing internal issues before you start working on external issues.

Especially for non-SaaS B2B sales, if you’re setting up long-term distribution deals, your salespeople need a strong understanding of your company’s supply chain. Otherwise, they’re selling large amounts of products on an ongoing timeline with no knowledge of how that product gets created and no awareness of any supply limitations.

By training cross-departmentally, your teams will work more efficiently and that collaboration will be reflected in your bottom line.

Sharpen the sales and operations execution process

sales operations planning process

Simplification and sharpening are always good moves in any aspect of your business, but especially if you want to improve S&OP. The hardest part of a plan is implementing it, so why make it harder? When you can streamline your sales and operations process, it’s not only easier to understand across departments, but it’s easier for team leaders to execute.

We’ve all been part of the big planning meetings that ultimately go nowhere because the plan never comes to fruition. Those unused plans are a massive waste of time and resources, and they ultimately just make your teams more frustrated when structural change appears agonizingly slow. Keep the plans simple. Assign point plan executors. Make visible changes.

How a CRM simplifies your S&OP

S&OP is all about using accurate data to shape the future of your company—and nothing tracks accurate data like a strong CRM. With Zendesk Sell, data gathering is an automated breeze. Not only can you track numerous KPIs with guaranteed accuracy, but you can also make this data available to every member of every relevant team. When all teams are on the same page and working from the same data, your customers and your profits reap the rewards.

Request a demo of Zendesk Sell today and witness the benefits of fast and accurate data for your sales and operations process.

Improve your sales process

A good sales process is the foundation of any successful sales organization. Learn how to improve your sales process and close more deals.

Improve your sales process

A good sales process is the foundation of any successful sales organization. Learn how to improve your sales process and close more deals.

Read now