During the holidays, cookies are in high demand. Elementary school students are selling baked goods as part of their school fundraisers, and supermarkets and restaurants are upping their orders.

That's a good thing for Otis Spunkmeyer, a San Leandro, CA-based cookie manufacturer that has seen its revenue nearly double over the past five years. But all of this holiday season activity puts pressure on the company to reconcile sales forecasts with inventory and production operations.

Until about a year ago, Otis Spunkmeyer was using Excel spreadsheets to summarize sales forecasts for the annual budgeting process. That approach limited the number of people who could access the information. In addition, it did not always accurately reflect what the sales force was seeing and could not tie financial forecasts with production. The company was often at risk of making too few or too many cookies.

"Historically, the manufacturing piece of the business was based on taking a top-level forecast and making assumptions based on history," says Kent Wegener, vice president of planning, supply chain, and customer financial services at Otis Spunkmeyer. "It was like driving by looking in the rearview mirror."

It's a backward approach to planning, but it's one that many small and mid-sized manufacturers use. Unfortunately, using isolated spreadsheets to forecast demand means there is not one version of the truth shared by sales and operations, and there are many opportunities for miscalculation. The results can be extra inventory, which costs the company money or an unsatisfied customer because a salesperson promised to deliver products that manufacturing didn't have the capacity to produce.

Now, many manufacturers that have been basing sales and operations planning (S&OP) decisions on financial spreadsheets alone — and using hindsight to predict future demand — are tying together different types of applications to get a complete picture of current demand, the financial implications of those trends, and ways their plants need to adjust. Corporate performance management software that includes budgeting tools and scorecarding can provide a clear, consolidated financial picture of how sales and other departments are operating. These tools provide information on spending in each area of the business as well as forecasts. They also integrate sales forecasts with data on how much manufacturing time is required to accommodate new sales, whether there is enough inventory — or too much — and overall production capacity.

At Otis Spunkmeyer, Wegener, turned to Host Analytics, a corporate performance management provider that delivers its revenue planning software as an on-demand service. Now, with that budgeting piece in place, Otis Spunkmeyer is in the early stages of implementing a demand planning portal from John Galt Solutions to tie in the operational planning view. The result, Wegener says, will be an integrated S&OP process and, ultimately, reduced spending on inventory. In fact, the company expects to save $3 million to $6 million per month on inventory spending, Wegener says.

"The old system was based on what was done previously," Wegener says. "Now there is a view of how demand for the different product lines is changing going forward. That gives our planners a lot more confidence to reduce the amount of safety stock."

While Otis Spunkmeyer is already reaping the benefits of a front-end financial planning tool that provides both a sales forecast and a way to track P&L on the balance sheet, the planned addition of a back-end demand management portal will provide a rough view of capacity constraints across the company's four manufacturing facilities. The pending planning portal, from John Galt, will slice and dice the information based on how much product was sold in the past, show seasonal spikes, and provide a view of actual inventory and production capacity conditions. Together, these two systems close the S&OP loop by balancing supply and demand.

Typically, S&OP processes are supported by a mixture of software applications rather than a single, stand-alone system, experts say. Indeed, S&OP is not a technology per se, but a process that combines budgets, financial forecasts, manufacturing, inventory, the supply chain, and, perhaps most important, people.