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

Manufacturing Planning and Control

MPC 6th Edition

Chapter 4

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.

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Agenda

4-4

SOP Functions SOP provides the key communication links for

top management to coordinate the various planning activities in a business

Strategic Planning

Marketing Planning

Resource Planning

Financial Planning

Demand Management

Rough-Cut Capacity Planning

Sales & Operations Planning (Volume)

Sales Plan Operations Plan

Master Production Scheduling (Mix)

Front End

MPC Boundary

4-5

SOP Fundamentals

The role of SOP is to balance supply and demand at the volume level

Balance between supply and demand

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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 useAggregate 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

Statistical forecastsField sales worksheets

Management forecastFirst-pass spreadsheets

Recommendations and agenda

Capacity constraintsSecond-pass spreadsheets

Decisions and game plan

4-9

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

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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 importantSenior executive involvement is a

minimum requirement

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Communicating SOP Information–Displays

Information can be conveyed in several waysCharts (monthly forecast, cumulative

production, alternative plans)Tabular displays (easily captured and

communicated using spreadsheets)

4-12

SOP Tabular DisplayA 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

Planning assumptions are clearly displayed

Financial results of the plan are calculated and displayed

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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

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Chase Strategy

A spreadsheet with these calculations can be found here.

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Level Strategy

A spreadsheet with these calculations can be found here.

4-16

Management Obligations

Commit to the SOP processEstablish the SOP frameworkPut the right team togetherSet meetingsParticipate 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/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

4-18

Defining Product Families

4-19

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

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Strategic Planning

A direction-setting activityCan be an extension of budgetingMore 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 communicatedThe seriousness of the plan must also be reinforced

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

period?

4-22

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.

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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 what-if analysis at the SOP level.

Reviews of performance against SOP are needed to prompt replanning when necessary.

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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)