Sales and Operations Planning (S&OP) has become a more prominent process employed by world class organizations to drive improved collaboration, strategic decision making and bottom-line results. Establishing collaboration between Sales and Operations is no easy task. Functional objectives differ and incentives often pit functional leaders against one another. Sales strives to maximize revenue. Operations seeks to minimize costs and maximize production output.
What about Finance? Does your Finance team create budgets in isolation or in concert with other functional leaders?
Finance should be a key player in the S&OP process. Some suggest that the name S&OP ought to be changed to Integrated Business Planning to underscore the fact that S&OP is not limited to two functional groups. Whatever name you choose, Finance should participate. Finance brings these critical inputs to the process:
- Revenue Projections: Unit projections must be converted to revenue projections. Finance is in the best position to apply a reasonableness check on Sales and Operations plans.
- Cash Flow: Demand and supply plans have a direct impact on cash flow. Inventory, research and development, facilities and human resource plans will impact cash flow as well. Finance must weigh-in on the impact of demand and supply plans.
- Cost and Margin Analysis: Strategic decisions depend on quality information. Finance should question assumptions for all major expenditures including raw material spend, human resources and facilities. Pricing and promotions need not be exclusive to Marketing and Sales. Finance should evaluate assumptions and risk. Such inputs afford Finance a position of great influence into the S&OP decision making process.
- Budget Planning: Too often annual operating plans are disconnected from the S&OP process. Times are changing. Increasingly, Finance participates within the S&OP process to produce an organization’s annual budget. The benefits are increased accuracy, alignment within functional areas and buy-in across company leadership.
S&OP is more than just the S and the OP. Be sure to include Finance in the process.