What Sales and Operations Planning (S&OP) Is and How to Do it Right

Imagine your sales team just had a big win. You finally closed on a deal for a huge order. Just as you're deciding how to celebrate, you learn the bad news: the company lacks the inventory to fulfill that order. You and the customer are both disappointed, and you could lose the customer completely.

This is just one example of why it's vital for your sales department to be aligned with the larger operations of your business. Investing in sales and operations planning (S&OP) is the best way to achieve that.

Sales and operations planning is a process in which both departments — sales and operations — collaborate to ensure alignment. By working together, the departments can set joint revenue and growth goals, then establish the best processes for sales, client onboarding, and product delivery to achieve them.

In S&OP, business departments collaborate to clarify revenue and growth goals, then work together on a plan to make sure the business is equipped to meet those goals. That includes making sure you have the materials and staff necessary to meet forecasted demand, you're aligned on the right products to offer (and any to retire), and you have contingency plans to prepare for any issues that may arise.

Sales and operations planning is important to ensure an organization is prepared to take on the volume of clients it needs. In the State of Sales Report, supply chain issues ranked third on the list of top sales challenges. While it may feel counterintuitive to salespeople, overselling can become a problem if your business isn't set up to handle your orders.

S&OP enables sellers to keep hitting bigger revenue goals while the business continues to run smoothly from an operational standpoint. It can help you scale your sales, preemptively solve client service challenges, and make sure you have the right infrastructure in place to match the volume of clients you bring in.

S&OP is good for the sales team, but it also benefits the entire organization. Some of the main advantages you can expect to see from participating in S&OP include:

1. Fewer surprises: Surprises are bad for business, even if the surprise is achieving higher sales than expected. If you don't have the staff and inventory to fulfill the higher demand, you risk disappointing customers. When you can make educated estimates about what to expect and plan accordingly, everyone benefits. Sales can be confident that the company can deliver on any promises they make, and the product team can ensure they're providing the right product types and quantity to match demand.
2. Stronger internal relationships: When internal departments work together, there's more transparency between them. That breeds trust — everyone knows what to expect of each other and stays informed of any changes to the plan. If the product team falls behind on the product roadmap and loops in the sales team, sales will know to amend their targets before the delay affects their ability to meet them. That helps avoid tension and maintain collaborative relationships across departments.
3. Better decision-making: A tight S&OP process is led by data. When you're reviewing the right data and combining it with the input of multiple departments, you're able to see the bigger picture and make better decisions.
4. Ability to improve business agility: Scenario management is a key part of a good S&OP process, which helps your teams prepare to handle the unexpected. Whether there are unforeseen challenges or a surprise boost in sales, you'll have contingency plans to help make sure you can adapt in real time and meet the needs of the moment.
5. Increased customer satisfaction: Accurate forecasts help ensure you have the right bandwidth and inventory to deliver customer orders fast, leading to a better customer experience. And when you have open communication between sales and product teams, the feedback loop ensures you can improve existing products and add new product lines that match what customers want.

While the details of execution may vary, the core steps of a good S&OP process are consistent across industries and business types. The five main steps of a successful S&OP process are:

First, make sure you're offering the right products for your customers. That starts with data. Analyze which products are performing well for you now and which aren't. Combine your data analysis with feedback from sales on what they're hearing from customers. That will help you determine what improvements to your current product lines will be most valuable to your target market and help you identify any notable gaps in your current offerings.

From there, you can decide which current products to sunset, new product lines to consider, and what improvements to make to existing products. As product decisions are made, keep sales in the loop about what new products and updates are in development and the anticipated timeline. This lets them know their feedback is being heard, and they can ensure their sales goals and approach are aligned with the larger product plan.

Solid sales forecasting starts with gathering and analyzing historical sales data, customer insights, and market trends. With the right data in hand, you can combine predictive analytics with the insights of your sales and marketing teams to develop reasonably accurate demand forecasts.

To better prepare for the unexpected, include as many what-if scenarios as you can imagine in your demand forecasting process and create contingency plans. Think through how you'll manage possible risks like unexpected economic disruptions, spikes in demand, or supply-chain issues.

Treat this as an ongoing process. Your forecasts should be continually refined based on any new data and feedback you receive from cross-functional teams.

Based on your demand forecasts, assess your available inventory, capacity, and production capabilities to determine if they'll match your projected needs. It's important to take steps now to match your staff and inventory levels as closely as possible to estimated demand.

At some businesses, like software companies, your supply considerations will be less about physical materials and more about making sure you have staff with the right skill sets and enough bandwidth to fulfill your plan. At others, like retail businesses, factors like finding the right suppliers and considering any issues that could impact material availability will be important.

Once you've reviewed all the data and put together a strong S&OP plan, the next step is to present it to your executive leadership for approval. Executive buy-in is important to effectively put the plan into action. Set up executive meetings to give higher-ups the chance to weigh in and make sure the plan aligns with overall business objectives. Once the plan has their seal of approval, you can move forward with the support of all key stakeholders.

Finally, put your plan into action. Deploy your S&OP strategy across departments. But don't be rigid in how you approach its execution. Monitor performance as you go, and continually look for opportunities to refine and improve your plan. Make an effort to keep the lines of communication open between departments, so you maintain the benefits of interdepartmental collaboration beyond the planning stage.

S&OP gets real results. Here are a few examples of S&OP in action:

• Financial services: A financial services client used S&OP planning to maintain growth in the midst of an acquisition. They worked to get the teams from their existing company and new parent company in alignment by setting up clear communication channels for everyone to work together. Even while experiencing massive change, they experienced their highest revenue numbers ever, thanks to their S&OP efforts.
• Healthcare: The healthcare division of an enterprise company was struggling to use its data effectively due to disparate data sources, slow processes, and a lack of visibility. They brought together multiple teams to perform an in-depth analysis and invested in a CRM to use as their single source of truth for data. The shift helped them move to a more proactive sales approach while also experiencing significant time savings.
• Enterprise software: An enterprise software company anticipating significant growth developed a process to make sure all departments were well represented in their forecasts. Each team leader was asked to analyze their territory, share where they see potential for growth, and pinpoint what products they anticipate selling the most there. Each of these forecasts would roll up to the next level of the business to be factored into that team's forecasts, all to inform the company's overall plan for the year. Once a plan was established, everyone was given clear information on what they were expected to accomplish and how their part fed into the roadmap of the business. As a result, the company has consistently seen growth year over year.

To get the most out of S&OP, it's important to have a proven implementation strategy. Three of the most important goals in developing a solid S&OP process are:

Employees focused on their day-to-day jobs tend to naturally fall into silos. It takes intention to keep the lines of communication between departments open on an ongoing basis, not just during the initial planning phase. Look for ways to encourage departments to communicate on a regular basis. That may include:

• Scheduling regular meetings: Get periodic meetings on the calendar, so different departments can regularly check in on progress toward meeting shared goals and discuss any changes in the plan. But be careful to only set up necessary meetings, only invite people who have a good reason to be there, and make sure each meeting has a clear agenda and intended outcome. Avoiding unneeded meetings can save everyone time.
• Investing in collaboration tools: To help keep communication going between meetings, invest in technology products that enable collaboration, like a shared customer relationship management (CRM) system that gives every employee access to the same data, along with a communication platform like Slack.
• Establishing shared KPIs across departments: If each team has a different measure of success, they're less likely to work collaboratively. Determining shared key performance indicators (KPIs) for all teams can help keep everyone on the same page in terms of what success looks like.

Proactive planning involves realistic goals based on data. Using the analytics collected in software like your CRM, you can perform accurate forecasting and scenario planning. A data-driven approach to S&OP enables you to make smart choices based on growth goals, rather than reacting in haste. Although you'll always face unforeseen issues that require some level of response, a proactive model helps you circumvent problems before they happen.

Things will never go exactly as you expect, so it's imperative to prepare for the unexpected. Work with the team to brainstorm all the what-if scenarios you can think of. If usage suddenly spikes on the platform, a supplier misses a deadline, or a necessary material faces unexpected shortages, what will you do?

The combined knowledge and experience of employees from each department can help you come up with scenarios likely to occur. And with each year, you'll gain new experiences you can add to the mix so you're even better prepared moving forward.

When evaluating specific products to support your S&OP, a few good features to look for are:

• Integrated data management: To perform effective data analysis for S&OP, you need the ability to bring all the relevant data into one system that offers features to help you make sense of it. Look for a tool that makes it easy to access comprehensive, accurate sales data that employees can access through customized dashboards that show the information most relevant to them. And prioritize software that enables CRM and ERP integration so the systems can communicate and you can easily see the bigger picture.
• AI capabilities and predictive analytics: Technology, and AI in particular, is good at analyzing historical data to provide accurate forecasts. Look for a tool that uses AI functionality to effectively provide predictive analytics — even better if it offers the flexibility to break down your forecast data by categories like teams, product families, and product schedules.
• Revenue management: You can use revenue management features to track inventory, product availability, and pricing in real time to stay on top of how supply relates to demand and adapt your plan as needed. And the revenue data your software provides can play an important role in making the right product decisions.
• Scenario planning and simulation: Also look for AI features that can run simulations to help you predict the impacts different potential issues could have on your operations, so you can plan an accurate response.
• Workflow automation and collaboration features: Automation takes low-level tasks off employees' plates, improving productivity, while built-in collaboration features let employees stay connected to colleagues across departments in the same interface they use for other job tasks.

The bigger a business gets, the easier it is for departments to get mired in their own responsibilities and lose sight of the bigger picture. Sales and operations planning is the antidote to that common problem. By bringing departments together to establish shared goals and a cohesive business plan, you can improve business resiliency and achieve growth, all while keeping customers happy.