Manufacturing

Planning and Control

MPC 6th Edition
Chapter 4

McGraw-Hill/Irwin

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

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 managements handle on the business.
4-2

Agenda

4-3

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

Sales & Operations

Planning (Volume)
Sales Plan
Plan

Operations

Financial
Planning
Demand
Management

MPC Boundary
Rough-Cut
Capacity
Planning

Master
Production
Scheduling (Mix)

Front End

4-4

SOP Fundamentals
Balance between supply and demand

The role of SOP is to balance supply and demand

at the volume level
4-5

SOP Communication
The plan must be expressed in terms
that are meaningful to nonmanufacturing 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.
4-6

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

4-7

SOP Process
End of
month

Statistical forecasts
Field sales worksheets

Management forecast
First-pass spreadsheets

Capacity constraints
Second-pass spreadsheets

Recommendations and
agenda

Decisions
and game
plan 4-8

SOP Process Key

Activities
Updating the sales forecast
Reviewing the impact of operations plan
changescan current capacity and materials
support the changes?
Identifying alternatives where problems exist
Formulating recommendations for top
management
Communicating the information to top
management

4-9

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

4-10

Communicating SOP
InformationDisplays

Information can be conveyed in

several ways
Charts

(monthly forecast, cumulative

production, alternative plans)
Tabular displays (easily captured and
communicated using spreadsheets)

4-11

SOP Tabular Display

A 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

Financial results of
the plan are
calculated and
displayed
Planning
assumptions are
clearly displayed

4-12

Production Strategies
Chaseproduction output is changed
to match sales quantities
Levelproduction is constant, resulting
in inventory build-up and depletion
over time
Mixedcombination of chase and level
designed to result in acceptable levels
of flexibility and inventory

4-13

Chase Strategy

A spreadsheet with these calculations

can be found here.
4-14

Level Strategy

A spreadsheet with these calculations

can be found here.
4-15

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

4-16

Functional Roles

The primary obligation for all functions involved is

to hit the plan

A cross-functional team approach is important

Executive champion/sponsorkeep top management focused on the process,

clear major obstacles, and acquire resources
SOP process ownerprovide leadership for the SOP process and implementation
Demand planning teamprovide demand data and represent forecasting,
marketing, and sales functions
Supply planning teamprovide supply system information and represent
manufacturing and purchasing functions
Pre-SOP teammanage cross-functional development of SOP
Executive SOP teamupper management representative of each functional area

4-17

Defining Product Families

4-18

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

Manufacturings

job is to achieve the planexactly

(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
4-19

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

4-20

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?

4-21

Principles
The operations plan isnt 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.

4-22

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.

4-23

QuizChapter 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)
4-24