S&OP 02/26/2016

S&OP is about balancing demand and resources at the aggregate level

One of the ways to avoid the traditional conflict between areas of
operations management- marketing, finance, and operations
efficiency
Master scheduling happens at the mixed level
Demand > Resources, Resources > Demand
If you dont do this in advance, you will be unprepared to meet
demand
Production volumes are associated with resource requirements
Outputs of S&OP
o Sales plan
o Financial plan
o Production plan
Main output of S&OP
Concerned with planning for each product family,
maintaining desired inventory levels, determining
resources required, and comparing load with available
resources
o Inventory or backlog plan
If you dont back up your plan with the right resources, it cant
happen
Typical planning range is 18 months (12 to 36 month horizon)
Done monthly, happens in monthly buckets
o Lump products together in a family, lumping days together
Basic Production Strategies
o Demand matching chase
Doesnt require a good forecast
You are making exactly what you need, when you need
it
No building product in advance, but no additional
inventory needed strains the organization
o Level production production is constant
Sustaining same level of production no matter what
demand does
Doesnt stress your organization
 o Combination/hybrid
Recognizes that there is a high and low season
S&OP = product family planning, longer planning horizons
Provide correct level of resources in advance resource planning
Demand management feeds into S&OP family because it provides
forecasting (product family forecasting)
S&OP output is a plan
o If MTO/ATO/MTS backlog plan
o If ETP inventory plan
Sets the overall output (constrains)
A balancing act, creating equilibrium between resources and
demand only desirable outcome is balance
Optimizes customer service, inventory, operation efficiency
o Too expensive to go for 100% of anything
Creates agreement between the production and marketing functions
(inherently in conflict)

Make to Stock Production

Goods are made to forecast and sold from inventory
Used when:
o Demand is constant and predictable
o Only a few product options exist
o Order fulfillment lead time requirements are shorter than
manufacturing lead time
o Demand is unpredictable but make to stock is the only model
possible (ex: perishable goods)
o Need to forecast by time period for planning horizon
Master scheduling = weekly forecast
S&OP = monthly planning

Level Production Plan

 Total production required = total demand in planning period
(Beginning inventory Ending Inventory)
Planned period production = total production required / number of
periods
o Planned period production = demand forecast
First period inventory = beginning inventory + production forecast
Ending inventory = beginning inventory + production - demand
o Ending inventory = beginning inventory

Make to Order Production

Products are built after an order is received from the customer
Used when:
o Demand is variable
o There are many product choices
o The time needed to make the product is acceptable to the
customer

Financial Implications
Aggregate planning allows to simulate the affects of a plan on
service level, inventory, and backlog
Different scenarios may be compared based on sales, costs and
profit projections
The goal is to reach consensus on a single set of numbers
Goal of S&OP is to make good financial sense

Subcontracting
Meet demand with external resources
Disadvantages:
o Cost of subcontracting
o Propriety production technology
Advantages:
o No excess capacity
o Level production
**** If IMA doesnt have S&OP, they would benefit from it because
calculating their resources more in advance, need to worry about lead time
in order to continue growth from 1 billion to 2 billion****
Grew by acquisition so messy, wasnt prepared