Manufacturing Planning and Control

MPC 6th Edition Chapter 4

McGraw-Hill/Irwin

Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Sales and Operations Planning

The Sales and Operations Planning (SOP) process is used to develop an overall business plan to integrate the functional planning efforts within the company. SOP links strategic goals to production and coordinates the planning efforts of various groups such as marketing, finance, operations, and human resources.
SOP is top managements handle on the business.
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Agenda
What is SOP? SOP links with MPC
SOP activities and techniques Critical SOP issues State-of-the-art SOP Principles
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SOP Functions

SOP provides the key communication links for top management to coordinate the various planning activities in a business
Strategic Planning Sales & Operations Planning (Volume) Sales Plan Plan Operations MPC Boundary Rough-Cut Capacity Planning Master Production Scheduling (Mix) Front End Financial Planning Demand Management

Marketing Planning Resource Planning

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SOP Fundamentals
Balance between supply and demand

Demand
Sales and Operations Planning

Supply

Volume

Mix

The role of SOP is to balance supply and demand at the volume level
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SOP Communication
The plan must be expressed in terms that are meaningful to nonmanufacturing executives The operations portion of the plan must be stated in terms that MPC functions can use

Aggregate units by product line, dollar value, etc.

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Value of SOP
The SOP process provides visibility of the interactions between sales, marketing, production, and finance Critical trade-off decisions are documented Manufacturing performance is controlled in a clear fashion This leads to better integration among functional areas and better response to the marketplace

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SOP Process
End of month

Run sales forecast reports Demand planning phase

Statistical forecasts Field sales worksheets

Management forecast First-pass spreadsheets

Supply planning phase

Pre-SOP meeting Executive SOP Meeting
Decisions and game plan 4-8

Capacity constraints Second-pass spreadsheets

Recommendations and agenda

SOP Process Key Activities

Updating the sales forecast Reviewing the impact of operations plan changescan current capacity and materials support the changes? Identifying alternatives where problems exist Formulating recommendations for top management Communicating the information to top management

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SOP Discipline
For the SOP process to be routine and effective, replanning must occur when conditions indicate the need Mechanisms for maintaining support for the plans are important

Senior executive involvement is a minimum requirement

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Communicating SOP InformationDisplays

Information can be conveyed in several ways

Charts (monthly forecast, cumulative production, alternative plans) Tabular displays (easily captured and communicated using spreadsheets)

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SOP Tabular Display

A planning factor is used to convert sales $ to units The display includes both history and the plan Using a chase strategy can lead to large variations in planned production

Financial results of the plan are calculated and displayed Planning assumptions are clearly displayed
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Production Strategies
Chaseproduction output is changed to match sales quantities Levelproduction is constant, resulting in inventory build-up and depletion over time Mixedcombination of chase and level designed to result in acceptable levels of flexibility and inventory

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Chase Strategy
Calculate end-of-month inventory targets
Inventoryt = Target days x Expected Demandt+1/Working dayst+1

Calculate the operations plan (in units)

Planned productiont = Forecast salest Inventoryt-1+Inventoryt

Calculate the number of employees required

Employeest = Planned productiont/Employee productivity

Calculate hires and fires each period

If Employeest > Employeest-1 then Hirest = Employeest Employeest-1 else Firest=Employeest-1 - Employeest

A spreadsheet with these calculations can be found here.

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Level Strategy
Calculate the number of employees needed
InventoryT = Expected DemandT+1/Working daysT+1 Total production required = Total forecast demand Beginning inventory + Ending inventoryT Planned production each period = Total production required/Number of periods Employees required each period = Planned production each period/Employee productivity per day

Calculate ending inventory levels and days of supply

Inventoryt = Inventoryt-1 + Planned productiont Forecast demandt Days of supplyt = Inventoryt/(Expected demandt+1/Working dayst+1)
A spreadsheet with these calculations can be found here.
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Management Obligations

Commit to the SOP process

Establish the SOP framework Put the right team together Set meetings Participate in the process

Modify performance measures and reward structures to align with the plan Force resolution of trade-offs between functions Lead the cultural change

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Functional Roles

The primary obligation for all functions involved is to hit the plan
A cross-functional team approach is important

Executive champion/sponsorkeep top management focused on the process, clear major obstacles, and acquire resources SOP process ownerprovide leadership for the SOP process and implementation Demand planning teamprovide demand data and represent forecasting, marketing, and sales functions Supply planning teamprovide supply system information and represent manufacturing and purchasing functions Pre-SOP teammanage cross-functional development of SOP Executive SOP teamupper management representative of each functional area
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Defining Product Families

Aggregation levels should be convenient for all functional areas
Structure by product type, product characteristics, brand, market segment, etc.

Fundamental questionHow do you go to market?

SOP is best performed at an aggregate level Product family groupings that are consistent with sales and marketings view of the market are generally best Select appropriate unit of measure for each family (units, pounds, cases, etc.)

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Integrated Planning

Integration among sales, marketing, and production is key

Sales and marketing need to sell what is planned (overselling is just as bad as underselling)
Opportunities need to be evaluated via changes to the SOP

Manufacturings job is to achieve the planexactly (overproduction and underproduction are equally bad) The end result is good customer service Breakdowns in the plan must be quickly reported by the functional area responsible
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Strategic Planning

A direction-setting activity
Can be an extension of budgeting More recently, plan is based on products and markets rather than organizational units SOP must support strategic plans

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Operations Plan Control

The SOP process should be widely understood Planned results for each functional area should be clearly communicated

The seriousness of the plan must also be reinforced

Key issues
When and how to change the plan? How stable should the plan be from period to period?

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Principles
The operations plan isnt a forecast. It is a statement of desired production output. The operations plan is included in the SOP process to maintain agreement with other functional plans. Trade-offs required to frame the operations plan must be made prior to final approval Top management involvement is imperative in the SOP process. The SOP process should relate directly to the strategic plan.

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Principles
The MPC system should be used to perform routine activities and provide routine data, allowing management time to be devoted to important tasks. The MPC system should facilitate whatif analysis at the SOP level. Reviews of performance against SOP are needed to prompt replanning when necessary.

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QuizChapter 4

The four fundamental issues in Sales and Operations Planning are __________. Sales and Operations Planning balances supply and demand at the ______ level. Many key Sales and Operations Planning linkages are outside the Manufacturing Planning and Control (MPC) system. (True/False) A strategy which matches monthly supply to forecasted demand is ________. A strategy which maintains a consistent monthly output is _________. The primary obligation for any functional area is to hit the plan. (True/False)

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