1. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Manufacturing Planning and Control MPC 6 th Edition Chapter 4

2. 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. 4-3 Agenda What is SOP?SOP links with MPCSOP activities and techniquesCritical SOP issuesState-of-the-art SOPPrinciples

4. 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

5. 4-5 SOP Fundamentals The role of SOP is to balance supply and demand at the volume level DemandSupply VolumeMix Sales and Operations Planning Balance between supply and demand

6. 4-6 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. 4-7 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. 4-8 SOP Process Run sales forecast reports Demand planning phase Supply planning phasePre-SOP meeting Executive SOP Meeting End of month Statistical forecasts Field sales worksheets Management forecast First-pass spreadsheets Recommendations and agenda Capacity constraints Second-pass spreadsheets Decisions and game plan

9. 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

10. 4-10 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. 4-11 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. 4-12 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 Planning assumptions are clearly displayed Financial results of the plan are calculated and displayed

13. 4-13 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. 4-14 Chase Strategy Calculate hires and fires each period If Employeest > Employeest-1 then Hires t = Employeest – Employeest-1 else Fires t =Employeest-1 - Employeest Calculate the number of employees required Employeest = Planned productiont/Employee productivity Calculate the operations plan (in units) Planned productiont = Forecast salest – Inventory t-1 +Inventoryt Calculate end-of-month inventory targets Inventoryt = Target days x Expected Demandt+1/Working days t+1 A spreadsheet with these calculations can be found here.here

15. 4-15 Level Strategy Calculate ending inventory levels and days of supply Inventoryt = Inventoryt-1 + Planned production t – Forecast demandt Days of supplyt = Inventory t /(Expected demandt+1/Working dayst+1) Calculate the number of employees needed InventoryT = Expected DemandT+1/Working days T+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 A spreadsheet with these calculations can be found here.here

16. 4-16 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. 4-17 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. 4-18 Defining Product Families 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.) SOP is best performed at an aggregate level

19. 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

20. 4-20 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. 4-21 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. 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.

23. 4-23 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. 4-24 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)