MPC Session 2

Sales and Operations Planning

Agenda

 What is S&OP?
 Why?
 Process
 Strategies
What is SOP?
 The operations portion of the SOP is a
plan for manufacturing that if followed
will meet the strategic objectives of the
firm from a manufacturing view.
 The operations plan (SOP) is stated in
terms commonly understood by upper
level management: aggregate units of
output per month (sometimes per week)
while the MPS will be in units per week
(sometimes per day).
SOP Management
 The operations plan is not a forecast. It is the
planned production, stated on an aggregate
basis, for which manufacturing management
is to be held responsible.
 Links through the MPS to material planning
and other MPC functions can provide the
basis for what-if simulations of alternative
plans.
 The value of the MPS function is
questionable if there is no monitoring of
performance – for instance deviations of
performance. Reconciliation of the MPS with
the operations plan is a constant activity.
 Key Linkages in Sales & Operations Planning

Strategic
Planning

Marketing Volume Financial

Planning Planning
Sales & Operations
Planning

Demand Sales Operations Resource

Management Plan Plan Planning

Manufacturing Planning
And Control Boundary Rough-Cut
Mix
Capacity
Master Planning
Production

Scheduling Front
End
Need of SOP

 SOP provides the framework to:

 Materials resources and plant capacities
can be coordinated consistent with the
strategic business objectives
 Key input into the capital budgeting
process.
Need of SOP
 Balance between demand and supply
D>S customer service suffers because the
customer will not be able to receive the products.
Costs increase because of overtime and fast
freight
S>D Inventories increase because of the
imbalance. Layoffs results from production rate
cuts. Profit margin is reduced because of price
cuts and discounting.
SOP should provide a strategy for how demand
will be met over the business cycle.
Need of SOP contd….

 Planning
Inventory levels
Cash flows
HR needs
Capital needs
O/p
Capacity
Sales and Mktg. Activities
The Monthly Sales & Operations Planning Process

STEP 5
EXEC decisions
S&OP authorized game plan
MEETING

STEP 4
recommendations and agenda
PRE-S&OP
MEETING for Executive S&OP

STEP 3
capacity constraints
SUPPLY
PLANNING 2nd-pass spreadsheets
PHASE

STEP 2
management forecast
DEMAND 1st-pass spreadsheets
PLANNING
PHASE

STEP 1
RUN statistical forecasts
SALES field sales worksheets
FORECAST
REPORTS

end of month
Trade off Strategies

 Level (Resources alter demand)

Doctors/Dentists
Hotels/Airlines
 Chase(Demand is not altered resources
are)
Mid tier suppliers
Grocery Stores and Banks
 Combination
Resource Balancing Strategies

 Internal(Supply side)
Hire and Fire
Temporary workforce
OT
Subcontracting
Inventory
Backlog
Do not meet demand
Alter production rates
Resource Balancing Strategies

 External (Demand Side)

Pricing
Promotions
Advertising
Reservations
Package Offerings