Sales and Operations Planning in FMCG: Common Challenges and How to Deal with Them

In the fast-paced and highly competitive world of fast-moving consumer goods (FMCG), effective Sales and Operations Planning (S&OP) is crucial. S&OP helps companies navigate the rapid changes in consumer preferences and market demands by aligning various departments and processes. It ensures that sales forecasts, inventory levels, and production plans are synchronized to meet customer needs while optimizing resources and minimizing costs.

The stages of S&OP maturity

Gartner categorizes S&OP processes in the companies into five maturity levels, each representing a different phase of integration.

• Siloed management
  

At this basic level, the primary focus is on fulfilling the sales plan. Companies often rely on Excel spreadsheets and sporadic coordination by sales or production departments. Meetings, if held, are infrequent, and the main goal is to avoid target violations. The key question here is: “How much are we going to sell?” 

• Functional scale
  

Companies at this stage begin to influence demand through promotions and pricing strategies, moving beyond reactive sales fulfillment. They start to align supply plans with demand forecasts, though still relying on basic tools like Excel or ERP systems. Top management occasionally drives S&OP meetings, aiming for a rough balance between supply and demand. 

• Cross-functional integration
  

Companies here employ integrated business planning systems to optimize demand planning, considering available capacities. The supply chain department often leads the coordination, with regular S&OP meetings. The focus shifts to finding the optimal balance between demand and capacity. 

• External collaboration
  

This stage marks a significant shift as companies start calculating the financial impact of their planning scenarios. Advanced IBP systems with financial planning features support this process. Key leaders such as the CFO or CEO become heavily involved, and collaboration extends to key business partners, integrating their data into the S&OP process. 

• Ecosystem orchestration
  

At the highest maturity level, companies adopt a collaborative approach, working closely with key suppliers and clients to develop joint strategies. The focus here is on strengthening the entire ecosystem, with the key question being, “Will it make my business and my partners' businesses stronger?” 

Why do you need to collaborate with business partners? Case Study

Let's consider a real-world example from our practice involving a major International Preserved and Frozen Vegetables Producer. This company operates 3 factories in the CIS and produces up to 95,000 tonnes of canned vegetables annually. 

Before setting up the S&OP process, the Commerce Department was responsible for building the demand plan, which they primarily based on their expert market feeling. 

Concurrently, the Procurement Department initiated a significant contract to distribute imported frozen vegetables, anticipating a substantial demand. But there was a communication gap. The Commerce Department had overestimated the potential market demand without consulting with major clients, the top retail chains. They also failed to discuss potential risks with the Client Service Department, which maintained close relationships with these retail chains.

As a result, the retail chains began selling the same frozen vegetables under their own brand at a lower price. The market dynamics shifted dramatically. The Commerce Department's miscalculation became evident as the expected demand did not materialize.

This overestimation of demand resulted in significant overstock. With the looming risk of product expiration, the company was forced into a situation of forced sales, often at discounted rates. Furthermore, the fixed volumes of the purchasing contract with the suppliers could not be adjusted, leading to substantial revenue and profit losses.

This case highlights the critical importance of inter-departmental communication and market intelligence in demand planning. By failing to coordinate with key business partners, the company faced avoidable financial setbacks. 

Effective communication and a collaborative approach to demand planning with retail chains could have mitigated these risks and aligned production with actual market demand. 

Another recommendation here is to evaluate departmental initiatives for risks during S&OP meetings with other departments, particularly the client service department and key account managers and incorporate these risks into the development of contract terms (contract volumes could be more flexible in our case).

Common mistakes during the S&OP implementation

Conflicting KPIs 

Common mistake involves conflicting key performance indicators between departments. For instance, the supply chain department may aim to reduce stock levels, while the sales department wants to increase stock to improve service levels. Without a unified strategy, these conflicting objectives can hinder the overall S&OP process.

Lack of process owner 

The absence of a clear S&OP process owner can lead to delays in decision-making. For example, in one of our cases with a poultry production company, we faced this issue: despite having an S&OP process in place, the lack of a dedicated owner resulted in prolonged decision-making times and inefficiencies. 

Implementation without automation and careful meetings preparation

A major poultry producer faced challenges in planning and approving logistics costs, including sea route planning for exports. The logistics department applied the same detailed calculation expectations for long-term (1 year) and short-term planning. This required complex disaggregation calculations at the SKU level, managed with expert-defined, time-dependent weight coefficients. The routine manual work led to high overtime and eventually the dismissal of analysts. Frequent changes in transportation prices and conditions made detailed long-term plans quickly imprecise, reducing the benefit of the detailed long-term plans done manually.  

Tips for successful S&OP transformation

To ensure a successful implementation of the S&OP, we recommend a balanced approach focusing on both people and technology. Key tips include:

1. Have a top management sponsor (like a CEO or CFO) to ensure the S&OP process aligns with overall business goals.
2. Identify and promote employees who drive innovation and believe in the S&OP process to foster collaboration and continuous improvement.
3. Establish clear documentation and measurable targets for the S&OP process to avoid conflicts and ensure all departments work together towards common goals.
4. Leveragе mobile-friendly IT solutions that allow for real-time plan adjustments. It can significantly reduce preparation lead time and improve decision-making efficiency. Use systems that can calculate the financial impact of different scenarios to choose the most profitable options.

Effective S&OP in the FMCG sector requires a combination of strategic collaboration, clear ownership, and robust IT support. By following best practices and addressing common pitfalls, companies can enhance their planning processes, leading to better alignment, improved efficiency, and increased profitability.

Get advice tailored to your specific project needs from our planning experts and SCM architects. Book a business discovery meeting with TeamIdea.