• Unlocking Profits in Manufacturing, Distribution, Retail and Service Supply Chains


  • SALES AND OPERATIONS PLANNING (S&OP)

     

    APICS (American Production and Inventory Control Society) defines Sales and Operations Planning (S&OP) as the “function of setting the overall level of manufacturing output (production plan) and other activities to best satisfy the current planned levels of sales (sales plan and/or forecasts), while meeting general business objectives of profitability, productivity, competitive customer lead times, etc., as expressed in the overall business plan.
     
    One of its primary purposes is to establish production rates that will achieve management objective of maintaining, raising, or lowering inventories or backlogs, while usually attempting to keep the workforce relatively stable. It must extend through a planning horizon sufficient to plan the labour, equipment, facilities, material, and finances required to accomplish the production plan. As this plan affects many company functions, it is normally prepared with information from marketing, manufacturing, engineering, finance, materials, etc.”

    The above definition implies:

    • The company has a business plan
    • The company has a way of knowing / estimating planned levels of sales or future customer demands
    • The company has clear polices regarding inventory (make-to-stock business) or customer order backlog (make-to-order business), workforce stability and more
    • The company has a clear objectives regarding profitability, productivity, competitive customer lead times and more
    • Company has a planning process / system which will take future customer demands as the primary input
      along with other required information to work out supply plans (production and purchasing)

     
    So Sales and Operations Planning can then be defined as a business process which tries to ensure that the:
     

    • Company demand plans (based on sales forecasts and / or current and future customer orders) are synchronised with its supply plans (production and procurement plans)
    • They are based on established management polices and
    • They are capable of achieving company certain business objectives
    The wholesales, distribution and retail businesses can also use the S&OP Process; the only major difference will be that their supply plans will not include production plans and associated considerations such as labour and equipment capacities.
     

    Sales and Operations Planning is typically is a monthly process with well defined steps. The broad process steps are shown in the diagram** below.
     
    Sales and Operations Planning Concepts  sales and operations planning concepts clip image002

    **The diagram courtesy of http://en.wikipedia.org/wiki/File:Monthly_S%26OP_Process.jpg
     
    The S & OP process is typically carried out at product family level rather than individual product level as it is impractical for the management team to review product by product plans as there may be hundreds or even thousands of products the company may be supplying. So deciding on appropriate families for S & OP process is sometimes a challenge. Sales and marketing tend to think of families based on what the products are used for by their customers whereas manufacturing people tend to think of families which undergo similar manufacturing process.
     
     
    The companies with effective Sales and Operations Planning Process typically have well defined steps, responsibilities for each step and a monthly time table of when the various steps are expected to be completed.
     
    A series of papers authored by Dr. Larry Lapide of the MIT Centre for Transportation and Logistics describe the process and related issues very well. Here are the links to these papers.

    SALES AND OPERATIONS PLANNING TOOLS
     
    The tools required for carrying out effective Sales and Operations Planning process can be classified under three categories:
       

    • Demand-Side Planning Systems:

    These system components support the development of a demand plan and an “unconstrained  baseline forecast that are used as demand-side inputs to the S & OP process. They may include sales / demand forecasting software and collaborative forecasting tool.

       

    • Supply-Side Planning Systems:

    These system components support the development of supply plans that are used as the supply-side inputs to the S & OP process. These may include typical ERP, MRP II and DRP systems and perhaps constraint based scheduling systems.

       

    • S & OP Workbench:

    This system component supports information needed to be shared during cross-functional and executive S & OP meetings.

     

    For more details, please refer to Sales and Operations Planning Part II: Enabling Technology