What is Sales And Operations Planning (S&OP)?
Sales and operations planning (S&OP) is an in-house managerial process to streamline demand with supply while considering important factors like finances, resource availability, etc. S&OP is initiated through forecasting, and its primary goal is to ensure the availability of correct inventory levels to meet the demand and scale it further optimally while ensuring maximum profitability.
Significance of Sales And Operations Planning (S&OP) in an E-commerce Shipping and Delivery
Sales and operations planning allows companies to systematically scale a business while minimizing instances like overstocking or understocking.
- Increased business productivity: With a good S&OP, businesses effectively coordinate their marketing and sales efforts with their supply chain management. It allows a company to meet the existing demand and ensures gradual growth in the fulfillment capacity of a business with time. The marketing efforts can be scaled along with a business’s fulfillment capacity in parallel, allowing more future business and growth.
- Better inventory management: Understocking and overstocking are two of the most common challenges a business faces in every industry. These instances occur primarily due to misaligned marketing and supply chain management. As S&OP aligns these two aspects, the said issues are drastically minimized.
Prerequisites of Sales And Operations Planning (S&OP) and How It Works
Here are the prerequisites for sales and operations planning:
- Analysis: The demand at any current stage is identified. It is done by determining the monthly average order rate.
- Forecasting: The future growth is forecasted based on the historical order growth data. The owner of a business can also place different sales targets.
- Targeting: The predicted data or the sales targets are further broken down into monthly targets.
- Execution: The marketing and sales department aligns their efforts to achieve the set monthly targets while the stock levels are maintained per the targets.
Use Case with Sales And Operations Planning (S&OP)
A Filipino clothing brand with an average monthly order rate of 1,400 units predicts a monthly growth rate of 20%. However, the owner wants to scale up their sales to 2,000 units per month. Therefore, based on the next month’s demand, the forecasted order rate was 1,680. However, based on the set target, 2,000 units were stocked, and the marketing efforts were made accordingly.
