1. Manufacturing Planning and Control
MPC 6th Edition
Chapter 4

2. 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 management’s handle on the business.

3. SOP activities and techniques
Agenda
What is SOP?
SOP links with MPC
SOP activities and techniques
Critical SOP issues
State-of-the-art SOP
Principles

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

5. Sales and Operations Planning
SOP Fundamentals
Balance between supply and demand
Sales and Operations Planning
Demand
Supply
Volume
Mix
The role of SOP is to balance supply and demand at the volume level

6. SOP Communication
The plan must be expressed in terms that are meaningful to non-manufacturing 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.

7. 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

8. SOP Process End of month Decisions and game plan Statistical forecasts
Run sales forecast reports
Demand planning phase
Supply planning phase
Pre-SOP meeting
Executive SOP Meeting
End of month
Statistical forecasts
Field sales worksheets
Management forecast
First-pass spreadsheets
Capacity constraints
Second-pass spreadsheets
Decisions and game plan
Recommendations and agenda

9. SOP Process – Key Activities
Updating the sales forecast
Reviewing the impact of operations plan changes–can current capacity and materials support the changes?
Identifying alternatives where problems exist
Formulating recommendations for top management
Communicating the information to top management

10. 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

11. Communicating SOP Information–Displays
Information can be conveyed in several ways
Charts (monthly forecast, cumulative production, alternative plans)
Tabular displays (easily captured and communicated using spreadsheets)

12. SOP Tabular Display The display includes both history and the plan
A planning factor is used to convert sales $ to units
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

13. Production Strategies
Chase–production output is changed to match sales quantities
Level–production is constant, resulting in inventory build-up and depletion over time
Mixed–combination of chase and level designed to result in acceptable levels of flexibility and inventory

14. 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.

15. 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.

16. 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

17. Functional Roles
The primary obligation for all functions involved is to “hit the plan”
A cross-functional team approach is important
Executive champion/sponsor–keep top management focused on the process, clear major obstacles, and acquire resources
SOP process owner–provide leadership for the SOP process and implementation
Demand planning team–provide demand data and represent forecasting, marketing, and sales functions
Supply planning team–provide supply system information and represent manufacturing and purchasing functions
Pre-SOP team–manage cross-functional development of SOP
Executive SOP team–upper management representative of each functional area

18. Defining Product Families
SOP is best performed at an aggregate level
Aggregation levels should be convenient for all functional areas
Structure by product type, product characteristics, brand, market segment, etc.
Fundamental question–How do you go to market?
Product family groupings that are consistent with sale’s and marketing’s view of the market are generally best
Select appropriate unit of measure for each family (units, pounds, cases, etc.)

19. 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
Manufacturing’s job is to achieve the plan–exactly (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

20. 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

21. 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?

22. Principles
The operations plan isn’t 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.

23. 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 what-if analysis at the SOP level.
Reviews of performance against SOP are needed to prompt replanning when necessary.

24. 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)