Sales and Operations Plan

Sales and Operations Plan

The Sales and Operations Plan (S&OP; sometimes also called Sales, Inventory and Operations Plan or SIOP) is a managerial tool used for manufacturing planning and control. Its fundamental objective is to reconcile sales forecasts with production plans in terms of volume [Vollmann et al. (2005), "Manufacturing Planning and Control for Supply Chain Management", Fifth edition, McGraw Hill] . To do so, the S&OP has to coordinate planning efforts among the various departments involved in the process.

Definitions

APICS defines S&OP as the "function of setting the overall level of manufacturing output (production plan) and other activities to best satisfy the current planned levels of sales (sales plan and/or forecasts), while meeting general business objectives of profitability, productivity, competitive customer lead times, etc., as expressed in the overall business plan. One of its primary purposes is to establish production rates that will achieve management’s objective of maintaining, raising, or lowering inventories or backlogs, while usually attempting to keep the workforce relatively stable. It must extend through a planning horizon sufficient to plan the labor, equipment, facilities, material, and finances required to accomplish the production plan. As this plan affects many company functions, it is normally prepared with information from marketing, manufacturing, engineering, finance, materials, etc." [Dougherty, J.R., "Getting Started With Sales & Operations Planning", text available [http://www.partnersforexcellence.com/artoth01.htm here] ]

Sales and Operations Planning has also been described as "a set of decision-making processes to balance demand and supply, to integrate financial planning and operational planning, and to link high level strategic plans with day-to-day operations" [Wallace, Tom, author of textbooks on Sales and Operations Planning, see for example [http://www.tfwallace.com/pages/content/sop_101.html S&OP 101] ] .

The planning process

S&OP is the result of monthly planning activities. It is usually based on an Annual Operations Plan (AOP) that acts as the company's annual target in terms of sales and supply. Therefore, the Sales and Operations Plans are a means to gradually accomplish the AOP targets - by linking monthly sales and marketing planning directly to the operations side of a business [Ling, R.C. and W.E. Goddard (1992). "Orchestrating Success: Improve Control of the Business with Sales & Operations Planning", Wiley] . The process for deciding upon the monthly S&OP is illustrated in the figure below.

See also (external links)

A series of papers authored by Dr. Larry Lapide of the MIT Center for Transportation and Logistics:
* [http://ctl.mit.edu/public/jbf_fall_2004.pdf Sales and Operations Planning Part I: The Process]
* [http://ctl.mit.edu/public/jbf_winter_04_05.pdf Sales and Operations Planning Part II: Enabling Technology]
* [http://ctl.mit.edu/public/jbf_spring_2005.pdf Sales and Operations Planning Part III: A Diagnostics Model]

References


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