Mastering sales and operations planning (S&OP) in modern organizations
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Your Head of Product wants to launch a new iteration of your bestselling product next year. It's great, in theory, sure—but the timeline is unclear right now, and so you can’t align your sales strategy with the launch. This means your supply chain department also doesn’t know when to start sourcing new suppliers. Finance teams also haven’t run their P&L calculations to confirm it’d be a smart move, either. Executives, therefore, have struggled to buy into the idea, so the wheels are off before they’ve even started turning.
Proper sales and operations planning (S&OP) helps solve for this organization challenge. Done well, a strong S&OP process enables your business to make better, data-driven decisions by aligning key stakeholders that spearhead each department—finance, supply chain, sales, marketing, operations, and product—to anticipate demand and plan supply or rollout.
Concurrently, however, today sales forecasting can feel like a shot in the dark. Poor data quality can make it impossible to tell what the future holds, and when departments are siloed and fail to communicate effectively, you don’t have a solid vision and an aligned supply plan on how to get there.
So below we're walking through how to solve these problems with an S&OP framework that encourages collaboration and helps all teams match supply—or delivery—with anticipated demand.
What is sales and operations planning (S&OP)?
Sales and operations planning (S&OP) refers to the alignment of all departments—including sales, marketing, supply chain, and finance—to have your business function effectively. The strategy identifies areas of wasted potential, encourages cross-departmental collaboration, and balances supply with anticipated demand.
The goal of S&OP is to:
- Predict customer demand—and ensure you have the optimal resources to meet said demand,
- (where applicable) Optimize inventory to prevent stockouts while also balancing carrying costs,
- Plan the go-to-market strategy for any new products, or the discontinuation of others,
- Align plans with financial objectives, and
- Encourage alignment and collaboration between all departments overall.
In the past, a traditional approach to S&OP planning was driven by gut instinct. The next iteration relied on spreadsheets with historical data—but these figures often became outdated by the time the executive review happened.
Modern S&OP practices, however involves real-time data and predictive analytics to tell you not just what happened before, but what might happen next—before your own data begins to reveal a trend.
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Sales and revenue leaders, in particular, need to come to S&OP meetings with detailed sales forecasts to make this possible. For this, a full-stack sales performance management (SPM) software to consolidate real-time data from various sources (ERP, inventory management systems, supply chain tools, HR software, etc.) can be very helpful. With an SPM you build a central repository of data that can help with more accurate sales planning thanks to more accurate quotas, territories, and modelling for sales incentives for finance.
The benefits of a strong S&OP framework
The core goal of S&OP is to align your entire organization to balance supply with demand, and function as a more effective company on the whole. Naturally this offers many benefits:
- Improves finances: Some 61% of companies didn't achieve their revenue targets last year. But revenue targets are made easier when all departments are working towards the same goal. When everyone is metaphorically rowing in the same direction, you can limit costs associated with excess inventory, boost profit margins, and benefit from customer satisfaction because supply meets demand. Gallup reports that company-wide collaboration between departments boosts profitability by up to 21%.
- Increases forecast accuracy: S&OP requires input from stakeholders to form accurate predictions. This collaboration in cadences helps you identify potential challenges and advantages that you wouldn’t necessarily have from one department alone.
- Enhances agility: As we touched on, S&OP drastically improves cross-department collaboration which enhances agility and the capability to pivot quickly as market demand requires.
- Boosts productivity: S&OP helps you allocate resources—like labor and production capacity—more efficiently by balancing supply and demand. This reduces waste, lowers operational costs, and ensures you’re running as efficiently as possible.
The S&OP process step-by-step
What's involved in implementing a new S&OP for your organization? Below are five tangible steps that go into how you'll create a sales operations plan.
Step 1: Data gathering and preparation
Before scheduling an S&OP meeting with execs, you'll identify the key stakeholders involved in your sales and operations plan. This usually includes C-suite executives, department leaders, supply and demand planners, and operations leaders.
Each stakeholder should start by gathering data related to the time period you’re planning for. Important metrics to focus on at this stage of the S&OP process include:
- C-suite executives: They'll prepare financial targets, risks, market conditions, and strategic initiatives.
- Sales leaders: should be responsible for reporting on opportunity pipeline, seasonal trends, channel performance, sales plans, and customer insights.
- Production leaders: Must speak to capacity, production schedules, current orders, backlogs, inventory levels, and lead times.
- Finance leaders: Will bring financial goals, budget constraints, gross margin, cash flow forecasts, and capital investment plans.
- Marketing leaders: Can share all promotional activity, brand performance data, new product introductions, and market & competitive intelligence.
If you have prior sales and operations plans, refer back to them in this stage. It can be helpful to know where you went wrong in prior fiscals—whether it was misjudged demand, focusing on the wrong objectives, or overcompensating resources.
From a sales lens, SPM software consolidates data from multiple sources to give revenue leaders an accurate view of sales performance and maximize potential revenue. Forma.ai, for example, has over 600+ prebuilt integrations to sync data from your CRM, HRIS, and ERP systems. Its proprietary data model ingests and manipulates this data that can be seamlessly factored into your sales and operation plans.
Step 2: Demand planning
Demand planning takes the data from the first step in the S&OP framework to forecast demand. This forecast reflects what customers are likely to purchase in the future based on historical data, market trends, and customer inputs.
Sales and revenue operations leaders often spearhead this stage because reps are on the ground and speaking to customers. Use their insights, combined with historical data, you'll forecast revenue over the next S&OP period with these forecasting models:
- Best-case forecast, where projections are optimistic (yet still built on prior figures),
- Worse-case forecast, where projections have conservative assumptions,
- Most likely forecast, which uses data analysis and forecasting tools to determine the most likely outcome.
Aside from first-party data, also consider any external factors that could influence demand in this phase. Legal stakeholders might make you aware of regulatory changes that will make it more expensive to do business in a particular territory, for example. Demand might slow down as a result.
Related to the demand planning phase of the S&OP process, Monte Carlo simulation is a forecasting technique that assumes the probability of an outcome depends on a random variable interference. You can create these three aforementioned forecasts by identifying key variables that influence demand (such as historical sales data, external factors, and pipeline data) and applying a probability distribution to each. You can learn more about advanced was to evaluate sales comp effectiveness here.
Beyond standard sales forecasting, you can also run thousands of simulations on your sales quota or territory data using randomly selected values. Each one painting a picture of what the future might look like—therefore, helping you judge the most likely future demand. Autodesk runs real-time modelling using Forma.ai in this way:
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Step 3: Supply planning
At this stage, stakeholders from other departments come together to evaluate their capacity. This includes resources such as:
- Inventory. Where relevant, what safety stock levels do you need to meet forecasted demand, so you can reduce inventory carrying costs and prevent stockouts?
- Production. Do you have enough production capacity—raw materials, manufacturing capabilities, and labor resources—to meet the forecasted demand?
- People. Do you have enough sales representatives to take advantage of the opportunities? Enough customer service agents to assist an influx of new customers? A robust line of industrial workers to manufacture inventory? This may be where you incorporate sales territory plan data to understand your capacity needs.
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Step 4: Pre-S&OP meeting
Also known as plan reconciliation, the pre-S&OP meeting is where stakeholders come together to analyze forecasts, review the plan, and share their input.
RevOps leaders are most important at this stage. They'll ensure that any plans to change supply and meet demand are financially viable. That said, it’s important for all stakeholders to participate in the pre-S&OP meeting. It’s a chance to align all departments on key data, assumptions, and draft plans before presenting them to senior management or executive leadership in the final meeting.
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Cross-functional alignment at this stage helps identify bottlenecks or challenges that put the plan at risk. As the saying goes, “Two heads are better than one”—sales teams might forecast $50,000 in demand, but if procurement teams are in talks with a supplier that’s about to go bust, you might need to go back and reassess the plan to diversify your vendor base.
Step 5: Executive S&OP meeting
The final stage of the S&OP framework is to present the plan to senior management. Department leaders share their forecast and supply/demand plan. Executives give their input, confirm it aligns with overall organizational goals, and approve the rollout. Each leader then distills the S&OP to their team.
Tools and software commonly used for S&OP
The best sales and operation plans are based on real-time data. Here are popular categories of S&OP tools and software to make that possible:
- SPM software. Creating a source of truth for your sales data that's accessible by all stakeholders, platforms like Forma.ai optimize your spend on sales incentives and compensation, plus offer predictive modeling to measure the potential outcome of changes to your sales strategy—be those changes to incentive pay plans, territory expansion, or new sales quotas.
- Supply chain management (SCM) tools. This software gives real-time visibility into the entire supply chain, including procurement, production, inventory management, logistics, and demand forecasting. Many tools offer capacity planning to ensure that resources are capable of handling demand.
- Enterprise resource planning (ERP) systems. ERP systems integrate various business functions—including finance, sales, supply chain, and operations—into a single platform. Most offer native predictive analytics functionality to distill this centralized data and pull meaningful cross-departmental insights.
- Business intelligence (BI) software. BI tools like Tableau and Sisense analyze large datasets, track key performance indicators (KPIs), and help you visualize trends. They assist in real-time performance monitoring and help judge whether you’re on track to meet demand when your supply plan is implemented.
- Collaboration and communication tools. The rise in remote work means that not all stakeholders are physically together when creating an S&OP. Tools like Slack, Microsoft Teams, and Google Workspace allow you to collaborate in spreadsheets, add comments to documents, and discuss the plan. This enables cross-functional collaboration, real-time feedback, and builds centralized communication hubs.
Key features to look for in S&OP tools
Not every S&OP tool is worth implementing. Here’s a cheat sheet on the features to look for when evaluating new systems:
- Artificial integration (AI). AI-powered demand forecasting tools analyze large datasets to detect patterns and trends. It can also be used in supply chain to provide end-to-end visibility, anticipate maintenance before outages impact your ability to meet demand, and automatically trigger purchase orders based on forecasted demand and available inventory.
- Real-time data. Without real-time data integration, data will be siloed into each department’s system. A single source of truth gives all stakeholders access to the same up-to-date and accurate data, improving consistency across departments and preventing errors due to outdated or inconsistent information.
- Reporting dashboards. It’s not just data that matters—how this information is presented helps people from other departments digest the data. RevOps leaders, for example, likely don’t understand the ins and outs of procurement. The spearhead for the procurement department should rely on S&OP tools that allow them to handpick their most important metrics to share internally with other stakeholders.
- Collaboration features. Even if you don’t have a standalone communication tool like Slack, check that your S&OP tools support collaboration with in-app messaging, threaded discussions, and task tracking features. This lets you view the data point you’re discussing with a stakeholder without switching between tools.
- What-if scenario planning. Nobody really knows what the future holds. If your most-likely demand forecast proves to be wrong because of a situation outside of your control, what-if scenarios let you assess the impact of any changes to your supply plan. This enables agility—you can pivot based on market conditions, even if the original plan didn’t take them into consideration.
Start with a north star goal
S&OP is designed to get every department on the same page. The simplest way to do this is by setting a north star goal. Often formed by leadership, it’s the guiding principle that your organization abides by—whether that’s to become a household name or become known for your outstanding customer service.
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Incorporate stakeholder feedback
S&OP is a team sport; plans only work if everyone is on the same page. But it helps to have one person spearheading the process.
Identify one leader and give them ownership of the S&OP framework. It’s their responsibility to assemble stakeholders, keep the process moving, and act as mediators between supply and demand leaders—who often have different priorities for the S&OP plan. Compromise is often required when each stakeholder is pushing their own recommendations.
Focus on foundational data and continuous improvement
As a RevOps leader, there are multiple things to incorporate into your growth plan. It’s tempting to jump straight into increasing headcount, implementing spiffs, or looking to the newest AI applications for forecasting, but often this means you can inadvertently neglect the basics: a foundation of data upon which to build upon, for instance.
As Seth Marrs, principal analyst at Forrester shares:
Ultimately, ensure you are getting your sales data centralized and that it's good, trusted data before you attempt to implement serious growth initiatives.
Prioritizing amid your current operations
Say you’re planning to launch a new product as part of the S&OP plan. Sales have forecasted a significant increase in demand because of their launch into a new territory. Production leaders say suppliers have a lead time of two weeks, so if you order new inventory now, you’ll have enough space to hold it.
The issue is: You’re still fulfilling a backlog of orders. Over 4,000 customers are already waiting for their products or implementations. Pushing onward and increasing demand could sacrifice the experience of those customers. Your supply chain team is also stretched to its limit—they’re too busy fulfilling the backlogged orders to work on the new product.
In this case: The sales and operation plan should prioritize the backlog. You might need to push back the product launch and reallocate resources to clear the backlog in the meantime.
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