Three Steps To Financial Optimization For Sales And Operations Planning
Between keeping all supply chain processes time-definite with appropriate technology and keeping up with the new business trends to successfully face the stiff competition in the industry, optimizing finances is no longer an option, but a necessity. Think of every expense your company has on record so far. Now think about each expense’s value in terms of market pricing and ROI justification. Do you think your money is spent right? Do you believe that the current flow of operations in your company is financially effective? Most small-to-mid business professionals have little to no control when it comes to optimizing operational finances, especially those related to sales operations. That said, we’ll take a trip through three simple steps to help you master financial optimization for sales and operations planning.
Step #1: Understand the options that affect demandOne of the key tasks in any business S&OP process is forecasting demand. It’s how you know how maximize returns. But naturally, no smart sales manager will stop at just knowing an estimate of demand; they try to rev it up. This is where you need to optimize financials. Your options range from introducing a buy-one-get-one-free offer or up to 50% off. Some companies even make use of sales spiffs to get quick bonus, while others simply decide to change the volume of their commoditized products and services. Regardless of which demand-altering tactic you use, ask yourself this: at what cost? The “cost” is always present, it’s just minimal or sky-high, or anywhere in between. Understand the impact of your decision, not just on demand, but also on your finances in the long run.
Step #2: Apply the appropriate view of costsBusiness costs are dynamic; the costs once classified as variable costs can become fixed costs in the future, and vice versa. It just depends on when you make decisions. With that in mind, understand that costs do not have to remain static. Your company has the options to cut costs any time necessary to financially optimize. For instance, you can minimize or shut down operations of a production plant based on capacity. Where one month the costs for production capacity were fixed, the other month increasing or decreasing capacity would represent as variable costs. Your decision to limit or increase capacity is an example of a variable for financial optimization. By treating costs for materials, labor, technological investment and output capacity appropriately, you can avoid losses incurred by standard costing, and enhance your company’s profit margin.
Step #3: Calculate profit and loss of constrained resourcesYou need to make sure that you are allocating capital and resources effectively by understand profits and losses associated with altering each. For financial optimization, it’s imperative you derive the marginal profitability of your resources, particularly constrained resources. Managing the S&OP function in your company means you have already identified constrained resources. Whether or not that constraint is providing value is something you can understand by analyzing the revenue derived from products sold after constraining resources. While not definite proofs of sales success, these three steps can help you better align your profits to your objectives. Measures like these are what you need to achieve success in your industry today. If you need strategy consulting to benefit your business, reach out to our financial optimization services experts today, and get started!
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