The purpose of Sales and Operations Planning is to talk about what each function thinks the future will hold. This process is very established in large companies but might be new to start ups! Below is the best practice process that we work to establish with our clients because S&OP is the backbone of any business! (It may seem daunting but don’t worry, once you get the rhythm down, you won’t be able to live without it!).
Monthly S&OP Steps:
1) The first meeting would be a Financial Review with your finance team and S&OP Lead.
The goal of this step is to more clearly define what you want to happen. Finance sets and communicates goals, constraints, and guardrails for the rest of the business. Goals should include revenue targets, profit targets, and cash targets. Finance and Demand teams might independently review how close they came to their forecasts and dig into how well their assumptions matched reality. This will help determine what may need to change in the future.
2.) Next is a Demand review with Sales, Marketing, and S&OP Lead.
The goal of this step is to more clearly define what you think is going to happen. Here you should determine the overall Revenue coming into the company over the next 12-18 months and the corresponding units that will be sold. This could include the timing of releasing and discontinuing products, channel expansion, and changes to churn ratios. If the gap between the goal and the forecast is significant enough Finance may need to adjust some of the constraints and allow Revenue a chance to reforecast. IE if there is a $1M revenue gap for the full year, Finance may reduce the profit goal and allow for an increased CAC or Budget to acquire more customers. The locked forecast is sent to the Supply Review.
3) The goal of the Supply Review is to more clearly show the impacts of what you think is going to happen.
Supply develops a build plan to support the forecast. This review will determine the COGS expense of the business for the next 12-18 months. Cash targets, capacity, MOQs, lead times, BOM cost changes, changes to fulfillment and shipping rates, customs & tariffs, etc. should be taken into account. Finance and Supply should discuss gaps between Goals and the Forecast and the associated assumptions & tradeoffs inherent in the forecast. If the gap between the goal and the forecast is significant enough Finance may adjust some of the constraints and allow Supply a chance to reforecast. IE if there is uncertainty in supply, Finance may authorize a higher inventory investment. The forecast is then sent for a financial review.
4) The last meeting is the Finance Review with the executive leadership.
The goal of this step is to more clearly define what you are going to do as a business. Finance reviews the projected P&L, Balance Sheet, & Cash Flow statements from the exercise with the Executive Leadership Team. Gaps to goals are discussed as well as long-term financing needs. IE when they will need to raise more money and how much. Goals or constraints may be adjusted for the following month.
Once signed off, the Monthly Rolling Forecast is considered locked and will be used as a baseline for future bias reporting.
Need help with your forecast or are still unsure how to get this process going? Book a free audit today!
