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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
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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
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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)
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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.
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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
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Defining Product Families
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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?
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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)