Steelwedge Software

The role of S&OP in Monthly Financial Planning

Posted: 05 Jul 2011 05:26 PM PDT

A frequently asked question during sales and operations planning (S&OP) implementation projects is "What is the role of S&OP in monthly financial planning?" Given that finance and operations need to work hand-in-hand to deliver financial results while maintaining customer satisfaction, effective integration of finance into the S&OP process is an imperative. An interesting aside is that we are starting to see some of our clients adopt the term "integrated business planning" (IBP) to describe the process of engaging finance in a sales and operations planning process. From the perspective of the finance team, engagement in IBP or S&OP enhances their ability to identify gaps, evaluate investment opportunities, manage costs, understand trade-offs and improve financial visibility. From an operational point-of-view, one of the most compelling benefits is the capability to translate unit volume plans into revenue and margin plans. Effective monthly, bottoms-up, top-down reconciliation of S&OP plans into financial plans is often an eye-opening and ultimately compelling process. What are key categories of metrics for integrating finance into the process? Sales Plan Performance Metrics (SPPM) is similar to the BPPM except that it is a measure of the current actual sales versus the prior period sales plan. This metric is based on a ratio of dollars and may be done on a month+1, quarter, QTD or YTD basis. It provides a measure of where a company is against their original sales plan. Business Plan Performance Metrics (BPPM) is the ratio of the current sales plan against the original budget (Annual Operating Plan or AOP) in dollars. This metric is often expressed as a percentage for the month ahead, though sometimes there are compelling reasons to adopt an aggregate plan value or even a 12 month rolling average. This metric is often managed at the Product Family by Region hierarchy…

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