Most distribution businesses spend a considerable amount of time putting together their annual sales plan. Revenue targets are established, growth expectations are set, and everyone gets excited about the opportunities ahead.
But if you've been responsible for running the business, you know that's where the real work begins.
As a General Manager, you're accountable for putting all the pieces together. You have to believe the sales forecast is achievable, make sure Operations has the resources and capacity to support it, and ultimately deliver on those commitments with the level of service your customers expect.
I've seen plenty of sales plans that look good on paper. The real challenge is making sure the numbers are realistic and the entire organization is prepared to deliver.
Getting Everyone on the Same Page
This is where Sales & Operations Planning (S&OP) comes into play.
Sales has its targets. Operations has to figure out how to support them. Finance needs to understand the costs and financial implications. Purchasing, HR, and other parts of the business have their own pieces of the puzzle.
Everyone needs to be working from the same plan.
That means asking some pretty straightforward questions.
Are the sales forecasts based on real opportunities and customer demand? Can our suppliers support the anticipated volume? Do we have the inventory and warehouse capacity? Will we need additional people, overtime, or outside resources? And what will all of this do to our costs and working capital?
There Are Always Trade-Offs
We can carry more inventory, but that ties up cash. We can add people, but hiring and training take time. We can use overtime, but that has its limits. And if we can't deliver when customers need us, there are consequences.
The challenge is finding the right balance between demand, capacity, cost, and customer service. And making sure we're not sacrificing the customer experience to hit a financial target.
Bringing It Into the Classroom
This week in my Operations Management class at Aquinas College, we're working through an S&OP exercise using a fictional campus convenience business called CampusFuel.
CampusFuel is growing, with demand expected to increase about 20% next semester. Ownership is considering longer operating hours and adding a second service kiosk.
The students take on different roles. Sales develops the growth and revenue plan. Operations has to figure out staffing, scheduling, and capacity. The senior leadership team challenges the assumptions, looks at the financial implications, and makes the final expansion decision.
It's interesting to see how the student conversations develop in these exercises.
Sales sees the opportunity. Operations starts asking questions about people, inventory, and capacity. Leadership has to decide whether the numbers and resources support the growth.
Should they expand now? Add people? Increase inventory? Take a more measured approach?
I always talk about trade-offs and in operations management there isn't necessarily one right answer. But they have to come together with a plan that makes sense for the business.
That's the real exercise. Getting everyone to understand what it will take to deliver the results.
A Few Things to Think About
There's plenty of discussion today about AI, better forecasting, business intelligence, and automating business processes. I think we all believe there is real opportunity in all of it.
But before we automate more of what we do, we need to make sure we're planning the business properly.
As you finalize plans for the coming year, take another look at your sales forecast. Challenge the assumptions. Get Operations involved early. Talk with your suppliers. Understand the resources and costs required to support the growth.
And make sure everyone understands what they're committing to.
A sales plan may set the direction, but the General Manager is accountable for bringing the entire business together to deliver on it.
That's the difference between having a plan and running a business.
