Sales role in Sales and Operation Planning (Demand Planning)

I’ve read the theory. I read it twice. I had a really hard time placing B2B sales in the Sales & Operation Planning (S&OP) mold. Until I realized that I wasn’t focusing on the most important component in S&OP, communication. I’ve said before, but I like repeating this message. It’s all about communication.

The Monitoring, analysis and excecution loop, as described in the SAS whitepaper “Demand Shaping”.

I immediately ran into a communication problem. In S&OP, the “Sales” = Demand Planning. Now who in sales identify themselves with being drivers of demand? “I’m not selling more of the products, I’m driving demand…”. Yeah, right! Sales people sell and they are proud of it. I like the sales people who don’t see it as sales as much as helping the customers finding the right service or product. Solving a customer’s problem is very rewarding. Sales are a critical part of the demand plan. One of the cogs in the machinery if you will.

The Demand Plans as described in the book: Demand Management Best Practices: Process, Principles, and Collaboration (Integrated Business Management Series) (J. Ross Publishing Integrated Business Management Series)
by Colleen Crum, George E. Palmatier

As a Sales Manager you are a part of demand planning. Demand planning also includes the components marketing, statistical forecasting, product/brand management and the business plan. As a Sales Manager YOU can only deal with the areas within your own responsibility, but you’re in the same boat as the other managers, so you need to be open and honest about what your plans are and the rate at which you will carry out the plans, the same way they need to be open and honest about their plans. How you should work with your sales is my manager Stefan’s specialty, read his blog postings for more insight. I will step you through the plan and what to communicate.

Year plan

Let’s look at a year cycle. In the beginning of every year you as a sales manager will be handed a sales budget. Best case, you were involved in setting the budget, worst case it’s a financial goal, not connected to the “real world”.  Find a way to communicate what this budget means. You need to review your sales strategy, aligning it to the business plan and corporate strategy. Once you have the strategy you write a sales plan. A sales plan is a detailed description of how you intend to meet the goal, your game plan. In this game plan you need to include what the statistical forecast (or history if you don’t forecast) is saying about your product areas (high potential, no potential). You need to take in account how the products and brand will change during the year (new articles, change of styles, change of packages, and so on…) and you need to take in account the marketing strategy.

Supply Planning

Like I said before, you’re not alone. The final plan is going to be collaboration between Demand, Finance and Supply. If you make your plan detailed enough, you can discuss product areas or individual products with the supply chain manager. He/she can become your allied in validating the budget. Find focus areas and set common, measurable goals. If you together cannot find a way to meet the budget you compile your facts and go back to the CEO or CFO and set a reasonable budget. If the answer is no then you need to assess the risks. Be prepared. Put it the risks in your game plan.

Finance / Pricing

Connecting to finance, you need to have a game plan for pricing. To control your sales organization you need to set clear goals on GM% either per department or by individual. This will give you room to leverage price reductions within the GM frame. If you lower the price a lot in one area, you also need to sell more products with high GM% to balance out the score.

How do I help secure a good demand plan?

Once you know what you can do and the risks and potentials are clear, you need to leverage the other areas in the demand plan (Marketing, Product / Brand management and Statistical analysis)

Marketing

Your next allied is the marketing manager. Marketing is the fuel that feeds the sales engine. It either inspires or educates the customer to either contact the company or be more susceptible once they are contacted. It is critical that Marketing is in sync with sales and vice versa. Otherwise you risk a conflict in messages and you lose the customer in the first 30 seconds of the conversation. This is an opportunity to flag some of the risks and find ways of minimizing them with the market communication. Find focus areas and set common, measurable goals.

Product / Brand management

To manage the risks and potentials in your plan, can there be changes in the product portfolio? Is there a need to clarify the message to the customer?

Statistical analysis

If you are working with statistical forecasting, make it clear what you are going to do different next year compared to the current year. In areas where you are not changing anything the forecast will be more accurate than you to predict the outcome.

So you have a year plan, then what?

Once the year starts rolling you need to stay on top of things. Monitor your pipeline, your GM% and the orders. It helps to set sales goals on individuals to support and coach continuously in order to meet your overall goals.

On a regular basis you need to connect with Finance and the Supply Managers and assess the situation. If you’re on track, no problem, just discuss potential issues in the near future. If you’re not on track, then Demand Shaping is a good way to ensure that you can reach your common goals.

Plan-Do-Chack-Act based on a solid communication plattfolm.

Plan-Do-Check-Act is an excellent model to work with. Plan what to do, execute the plan and measure the results, look at the results and analyze the outcome, present alternative actions, set the plan again and start the cycle again.

Demand Shaping

Demand shaping is the ability to guide customers to the best choices at point-of-sale. This is the key to increase revenue and supply chain efficiency. However, demand shaping is more efficient if you have product intelligence at point-of-sale to guide customers to the best choices. Some of the ways to demand shape are –

Make a more complete offer, when a customer is asking for a product; use your sales history to extend the offer to include other items that are commonly sold together with the customer’s area of interest.

If you offer a product with many attributes, every sale will begin with the customer calling out a few attributes. The opportunity to demand shape is to recommend a good choice based on the partial list of attributes the customer has called out. Demand Shaping requires the ability to complete the order with the right attributes. The best way to complete the order is to have sales intelligence these attributes are bought with these other attributes. If there are capacity constraints on any of the attributes, steer them out of the discussion. Focus on what’s available.

The biggest opportunity of Demand Shaping is guiding customers to close-enough products. In most cases you know the products better than the potential customer. Listen to their needs, weigh in the availability issues, there are a large number of products that are similar or close-enough that they can satisfy the customer. So there is a significant opportunity to guide a customer to a similar or close-enough products at the point of sale, it is a win-win. You have served the customer. You have won the sale. You have moved your inventory or avoided a shortage or late delivery. And your competitor did not get this customer.

Use price to stimulate products or product areas. This can steer the customer behavior to the right attributes, product or product areas. Offer other incentives that affect price, like free delivery or discount on volume.

What to focus on should be put in your sales plan and communicated to sales reps, supply chain, finance and marketing to secure a common way of approaching the customers. Once again, communication is key. Sure, you might meet objections from the other managers, but if you can get input now instead of later once the sales reps have put time and energy into executing your plan, don’t you stand to gain?

What’s in it for a Sales Manager?

As a sales manager you need better ways of steering your sales force, and you need help and direction in what to steer against. Running a one man (or rather a one department) show is not good for business. By working the right way you will increase your margin, have a better chance at achieving your goals and your customers will be more satisfied. Will you sell more? That’s not what this helps you do, but you’ll sell smarter. Remember, companies don’t survive on sales volume, they survive on profit.

Why take my word for it

Been there, done that. One of the reasons for IKEA’s success is its ability to shape demand. It is done all the time. In the store the techniques are refined  and exercised every day, and from time to time signals are generated from little Älmhult to set focus on an item, the information ripples through the matrix and actions are taken on the shop floor. Granted that we did not succeed every time, but the principles and understanding is there and I was a part of it. It was just common sense at the time, but as I study the theory, I understand what we actually accomplished. “Yes, but that’s retail” you might say. So? A good model can be cropped in one place and sown in another. That’s the beauty of a model, and this model is GOOD!

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