SALES & OPERATIONS PLANNING

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.

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Sales and Operations Planning Component Breakdown

Marketing Plan: product volume and mix goals

Sales Plan: sales volume & mix forecasts
Financial Plan: revenue and expense objectives
Resource Plan: facility, machinery and/or labor info

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SOP Fundamentals
Goal of S&OP is to effectively balance four variables. Supply and
demand is balanced while considering volume and mix factors.

Demand Supply
Sales and
Operations
Planning

Volume Mix

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 S & OP Process

Step 1 – Sales Forecasts: forecasts are updated to reflect current conditions and
current sales
Step 2 – Demand Planning: promotions and marketing efforts are planned to
execute sales forecast
Step 3 – Supply Planning: capacity is reviewed, and alternatives are pursued if
imbalance exists between demand and supply
Step 4 – Pre-S&OP Meeting: representatives of all functions agree upon the supply
plan
Step 5 – Executive S&OP Meeting: senior leaders authorize plan updates

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ROUGH CUT CAPCITY PLAN OPTIONS:

Demand Options
1)Pricing
2)Promotion Ways to Alter
3)Backorders
4)Exporting Product Demand
5)Complementary Products

Supply Options
6
Ways to Alter
1)Hiring Temporary Workers
2)Using Overtime / Idle Time Product
3)Hiring Part-Time Workers Supply
4)Stockpiling Inventories
5)Subcontracting

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 Basic Rough Cut Capacity Planning Strategies

Chase demand strategy:

• matching capacity to demand;
• planned output set at
forecasted demand
• meeting variations in demand
with overtime and
part-time/temporary workers

Level Output / Workforce Strategy:

• maintain steady rate of output
• meeting variations in demand
with inventories and back-
orders
• only for durable goods

(not suitable for immediate consumption / perishable goods)

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 Determining Aggregate Production Plan
Trial-and-Error
 Develop simple tables (worksheets) or graphs that enable managers to
visually compare projected demand requirements with production

STEPS Procedure for Trial-and-Error

1 Determine output for regular labour
(LEVEL OUTPUT PLAN)

2 Determine total short units in each period and

overall in production cycle Compare unit costs of
Labour

3
Inventory
Determine cheapest way to meet units short
Backorders
Use trade-off analysis to compare alternatives
8

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CONCEPT APPLICATION:
Aggregate Operations Planning

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 Example 1
Sample Problem:
Using ‘trial and error method’ Create the optimum production plan considering the following cost
assumptions:

• Demand per upcoming months (units = tractors) = 2,000, 2,000, 3,000, 4,000, 5,000, 2000
• Permanent Workforce = 140
• Production per Month = 2,800 units (or 20 units per worker)
• Initial Inventory = 1,000 units
• Desired ending inventory at the end of 6 th month = 1,000 units
• Costs
Output (Labor)
• Regular time permanent labor = $100 per tractor
• Overtime = $150 per tractor
• Temporary = $100 per tractor

Hire Cost = $500 per temporary worker or $25 (or $500/20 units) per unit

Inventory = $10 per tractor per month

Backorder = $150 per tractor per month

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 Example 2
Forecast
Units
Month 1 2 3 4 5 6 7 8 Total
Forecast
Demand 240 280 340 340 260 250 240 400 2350

-10 permanent employees (@ 10 units of output per employee per month) (@

$6/unit)

-Overtime @ 1.5 x rate or $9/unit available – limit of 20% per month

-Temporary worker (@ 10 units of output per month) (@$6 / unit + one time
hiring/training cost of $20 per worker)

-Month 1 beginning inventory – 180 units

-Inventory holding costs $5 / unit per month

-Backorder costs - $10 / unit per month 4-11

APPLICATION PRACTICE

WORKSHEET 4.S&OP

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EXTRA

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 Quiz–Chapter 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) 4-14
Chapter 4
 The four fundamental issues in Sales and Operations Planning
are __________. Demand, supply, volume, and mix
 Sales and Operations Planning balances supply and demand at
the ______ level. Volume
 Many key Sales and Operations Planning linkages are outside the
Manufacturing Planning and Control (MPC) system. (True/False)
True
 A strategy which matches monthly supply to forecasted demand
is ________. Chase
 A strategy which maintains a consistent monthly output is
_________. Level
 The primary obligation for any functional area is to “hit the
plan.” (True/False) True

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