What is S&OP?
Before we can discuss the benefits of S&OP, let’s start by tackling the key question: What is S&OP and how does it work?
Sales and operations planning, often shortened to S&OP, is a cross-functional business management process that draws input from all areas of a business. This includes sales, marketing, production, inventory, distribution, development, and finance. In its basic form, sales and operations planning allows businesses to identify gaps between their demand and supply plans, and to create solutions to better align the two.
S&OP is often repeated on a monthly basis, with the goal being to align key supply chain drivers and establish an integrated “game plan” that will help make the business more efficient, informed, and profitable.
The sales and operations planning process varies among organizations, but several major steps, listed below, are followed by almost all planners.
- Data gathering and forecasting. To start things off, data is collected on past sales, any trends are analyzed, and forecasts are made.
- Demand planning. Forming demand plans and forecasts involves assessing previous periods, understanding sources of demand, accounting for variability, etc. The planning must also take into account promotion plans, special events, and product launches.
- Supply planning. Supply planning involves assessing your business’s ability to meet demands, as well as determining inventory targets, safety stock levels, and plans for level loading and/or demand chase. The supply plan should sync with the demand plan, working in unison with it.
- Reconciliation and pre-S&OP meeting. In this step, the supply and demand plans are matched with forecasts and financial considerations. Gaps in the plans are identified and solutions to them are proposed.
- Executive S&OP meeting and implementation. Finally, executives meet to analyze the information summarized in the pre-S&OP meeting. A final sales and operations plan is approved for implementation by the end of the meeting.
Sales and operations planning is a more advanced task compared to other supply chain activities, and needs to be supported by a piece of flexible, powerful software. However, implementing S&OP can be greatly beneficial for an e-commerce business, as we will discuss next.
The Top 8 Benefits of S&OP for Your eCommerce Business
Now that you have an understanding of the sales and operations planning process, you might be wondering how exactly S&OP helps merchants. Let’s explore the top eight benefits of S&OP for your e-commerce business.
1. Better Transparency & Collaboration
In connected sales and operations planning, different functional areas are all accounted for, resulting in increased collaboration and communication across your business as all teams work toward a common set of goals. There would also be greater transparency, accountability, and integration across your e-commerce business. Ideally, you would always possess the latest data from across the supply chain so as to be able to respond to problems or changes immediately. Moreover, an integrated planning process like S&OP ensures that business resources are allocated in a fair and optimized way.
2. One Set of Numbers
Another practical benefit of S&OP is that it allows your e-commerce business to operate off of one set of numbers. As a result, key departments like production, sales, and marketing would all agree on a number of projected sales and would work based on this measure. A single set of numbers also ensures a more effective use of KPIs, or key performance indicators, for your e-commerce business. To learn more, check out our recent article that lists 12 key KPIs you should be tracking.
3. Improved Inventory Management
A mature S&OP can also help you create detailed demand plans and accurate forecasts that inform the required inventory level at any given time. Optimized inventory management and inventory planning prevent under-stocking or overstocking. Under-stocking negatively impacts your e-commerce store’s sales and may force you to rely on expensive expedites to meet customer demands. On the other hand, overstocking results in deadstock, locked-up cash flow, and inventory carrying costs.
4. Balanced Supply and Demand
Effective inventory management and communication resulting from S&OP allow for frequent adjustments to the supply chain, which helps balance supply and demand. Balancing supply and demand is key for an e-commerce business to be able to sell the maximum amount of products possible and take advantage of market opportunities without suffering the costs of overstocking. Furthermore, by preparing for “what-if” scenarios and other future events in your S&OP process, you allow your business to maintain a balanced supply and demand in face of different and changing situations.
By fostering cross-functional collaboration, a mature sales and operations planning structure can even enable demand shaping. For example, if demand planners know ahead of time that a certain product cannot meet next month’s customer demands, they can then collaborate with the marketing team to promote other products to these customers.
5. Structured Planning and a Seamless Feedback Loop
Sales and operations planning offers your e-commerce business a comprehensive planning and management structure. On that note, keep in mind that S&OP varies for every business, and you can personalize the general process to suit your needs.
The ongoing, monthly nature of S&OP means that your planning process is constantly improving and maturing. The process allows you to routinely compare your past business predictions and plans with your e-commerce store’s actual historical performance. This collection of data empowers your business to, in turn, form more accurate forecasts. The feedback loop also clues you and your team in on misalignments between functional areas, allowing you to continuously improve your plans. In addition, a continual stream of unbiased, actionable data can lead to better business KPIs.
6. Improved Customer Experience
S&OP streamlines everything from inventory to sales to distribution. It ensures that the customer experience is smooth, timely, and running at the most optimal cost for your e-commerce business.
Improved business management saves time, which allows for improved customer service, which increases sales and customer satisfaction. Furthermore, accurate supply and demand forecasts may help prevent stock-outs, low-quality products, and unexpectedly long delivery times, all of which would lower the opinion of a consumer and make it less likely that they would purchase from your e-commerce store again or recommend it to others.
7. Increased Competitiveness
The e-commerce industry is competitive and always evolving, with the demand of consumers also constantly changing and reflecting new trends. Without a flexible, effective S&OP, you risk competitors with similar products profiting from market opportunities while you miss out. Sales and operations planning provides you with the ability to make more informed business decisions, allowing you to stay ahead of the competition.
Moreover, as you continue to run your e-commerce business, it’s normal for your store’s performance to start to stagnate. In these cases, sales and operations planning can help push your business forward by pointing out opportunities to adjust either internal or external conditions.
8. More Effective Sales Events
By planning for new product launches and promotions ahead of time, you save time and ensure the events will go smoothly. A well-organized sales event or promotion can be a great boost to your business, and a strong product launch is important for securing its future performance in your e-commerce store.
Supporting Your S&OP With the Right Software
Sales and operations planning is a great way for e-commerce businesses to stand out amongst the competition and better manage supply and demand. However, you can’t reap all the benefits mentioned in this post without suitable software to help with the planning, data processing, forecasts, financial metrics, integration, etc.
This is where Shypyard’s integrated business planning solution comes in. Built bymerchants, saves you time and effort by enabling you to manage all your sales channels (Shopify, Amazon, etc.) and supply chain information together in one place in real time. By gaining visibility and insights into all of your business’s data, you have the ability to perform effective S&OP planning. Not only that; with Shypyard, you can avoid over- or under-stocking ever again, and understand which are your most successful channels.