Building a Sales and Operation Planning Tool (S&OP)

An S&OP planning process is critical to the success of a fast-growing food company of any size. This process helps in the efficient scheduling of production, ordering of raw materials, making staffing schedules, efficient storage and freight and budgeting and cash flow planning.

SALES PROJECTION:  This is probably one of the most difficult tasks in a high growth food company.  Matching sales demand with production capacity is often complex. Demand is very unpredictable in most high growth situations while production scheduling needs clarity and predictability at least for a period as long as the lead time for major/perishable raw materials. The sales projection should include three time periods and be updated monthly or even weekly depending on how quickly a sales forecast is changing.

  • Four weeks firm for production planning and ordering of raw materials
  • Nine additional weeks for long lead time items and demand spikes caused by adding new accounts and/or heavy promotional activity
  • An additional 13 to 29 weeks for capacity planning, assuming six months for equipment additions and longer if new building needs to take place

PRODUCTION SCHEDULE:  For maximum efficiency, a production schedule should be firm for at least a week (two weeks firm is preferable) and planning out at least 30 days total. Lead time and inventory levels for raw materials along with a solid Bill of Materials incorporating planned waste and yield calculations are critical in planning a production schedule that adjusts to allergen and other production constraints. Long production runs, eliminating change orders as much as possible is the desired result in production planning. Along with production and raw material planning and staffing plan for each production run can be created using crew size standards established for each product type.

STORAGE/SHIPPING:  Using a combination of the production schedule and the required delivery date, a shipping schedule can be created for finished product. As a rule, finished product for frozen food should be delivered to the customer in less than two weeks to maximize shelf life and product performance.  While other items with longer shelf lives can be held longer but at a cost, adequate planning in this area should maximize product freshness while at all times controlling inventory and storage costs.

BUDGET AND CASH FLOW:  A solid S&OP process should provide enough information to create a budget and a cash flow projection. These should be updated and rolled forward at least quarterly. Cash is the lifeblood of any company but especially a fast growing one. Working capital needs can grow substantially or even generate positive cash, depending on the timing of collections and expenses. Getting a firm knowledge of costs and expenses and their timing will be the end result of this process. Getting visibility to cash needs far enough in advance to adjust to them, can save an entrepreneur many a sleepless night.