Sales and Operations Management (S&OP) is a subset of supply chain management, and focuses on the best practices involved in managing sales and future sales versus production. Warehousing and returns are not part of this quality subset. While reducing and eliminating errors are always part of any quality plan, S&OP continually measure materials input against finished product output. These figures are measured side by side with sales to come up with future sales projections.
This sounds like simple math. If you sold 100 widgets last month and the month before, and you average 100 widgets a month for a year, you will most likely sell 100 widgets next month. However, S&OP is best used to reduce inventory and meet just-in-time deliveries while enabling the company to maintain or reduce the workforce. Rather than being used as a pure sales tool, it is better at creating cost savings through operations management.
Every supply chain has minimum and maximum required inventory levels. These are obtained through usage figures and profitability studies. Every plant can have too much or too little inventory of parts and supplies. In the past, sales analyses were separate from inventory studies. The sales force was simply told to sell more and more, and to concentrate only on what customers wanted. Many sales organizations offered deals that were not only unprofitable for the company, but set customers up to have unreasonable expectations in the future. Salespeople guaranteed results and faced the consequences later.
Sales and operations management helps eliminate these circumstances. Sales forces are educated in what can and cannot be accomplished for the good of the company as a whole. The idea that “any sale is a good sale” is put to rest. Sales planning is concrete until it is affected by trends in the business that can’t be controlled: competitive advantage, innovations and secrets that competitors create, and other elements. A good S&OP plan, like any other supply chain and total quality plan, has contingencies built in.
Politics and bias come into play in sales organizations. Managers might want to forecast too far out or forecast too optimistically. And, sales forces can revert back toward selling for selling’s sake. To combat these conditions, S&OP needs mandatory boundaries. Set a time frame for initial forecasts and keep it in place for at least a year. Have analysts in place who are not in sales. A system of checks and balances allows everyone to step back for the big picture, and nobody becomes the focus of blame. Of course, there must be accountability. Sales managers take responsibility for implementing and running the program.
A good S&OP plan includes space and time in the plant for special projects and unforeseen inventory needs. Like supply chain plans, the operations plan needs a disaster recovery segment. Operations are severely curtailed in the event of a natural disaster, at the location of the plant or that of critical suppliers. Recently, major auto suppliers began locating next to major auto plants. This is very good for delivery, but very bad if a hurricane wipes out the entire area.
S&OP is like all other business operating plans in some ways, and unlike them in others. In this case, the sales team takes charge and is responsible for the plan’s execution. The sales team is the most direct connection businesses have to their customers (considering customer service and phone operations are sales). Sales people are the traveling representatives, personalities and income producers for every company. A complete and proper S&OP plan recognizes this department as the lifeblood of business.