Module 1: Section C Fundamentals of sales and Operations Planning

Pre-S&OP meeting will include

1. A review of plans and the creation of recommendations for each product family 2. Creation of updated financial forecasts 3. Recommended resource requirement changes.

Make-to-order (MTO)

A production environment where a good or service can be made after receipt of a customer's order. The final product is usually a combination of standard items and items custom-designed to meet the special needs of the customer. Where options or accessories are stocked before customer orders arrive, the term assemble-to-order is frequently used.

Make-to-stock (MTS)

A production environment where products can be and usually are finished before receipt of a customer order. Customer orders are typically filled from existing stocks, and production orders are used to replenish those stocks.

bullwhip effect

An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain.

Resource Planning

Capacity planning conducted at the business plan level. The process of establishing, measuring, and adjusting limits or levels of long-range capacity. Resource planning is normally based on the production plan but may be driven by higher-level plans beyond the time horizon of the production plan (e.g., the business plan). It addresses those resources that take long periods of time to acquire. Resource planning decisions always require top management approval.

S&OP output

Production plan

Engineer-to-order (ETO)

Products whose customer specifications require unique engineering design, significant customization, or new purchased materials. Each customer order results in a unique set of part numbers, bills of material, and routings.

The input of S&OP

Sales plan

Demand Plan

The process of combining statistical forecasting techniques and judgment to construct demand estimates for products or services (both high and low volume; lumpy and continuous) across the supply chain from the suppliers' raw materials to the consumer's needs.

master planning

a group of business processes that includes the following activities: demand management (which includes forecasting and order servicing); production and resource planning; and master scheduling (which includes the master schedule and the rough-cut capacity plan)

chase production method

a production planning method that maintains a stable inventory level while varying production to meet demand.

level production method

a production planning method that maintains a stable production rate while varying inventory levels to meet demand.

backorders

a retailer's order for a product that is temporarily out of stock with the supplier.

The demand planning is the recognition of all demand and the major second source

actual orders from internal or external customers.

Production Activity Control (PAC)

assures that in-house manufacturing takes place according to plan; also helps manufacturing managers identify potential problems and take corrective actions

An important part of production plan process is to

compare the resources that are available to the resources that are needs(called the load)

external customers orders

include those from distribution centers, wholesalers, retailers, and customers.

subcontracting

is a leveling strategy that sets production at the minimum level of annual demand and then subcontracts out all excess demand.

Master planning begins with sales and operations planning

is an executive-level decision-making process where the supply, demand, and financial sides of the organization agree on a consensus plan for satisfying demand in a feasible and profitable manner. The result is a production plan: a consensus set of numbers that the supply side of the organization commits to produce and that the demand side (marketing and sales) agrees to set as their sales goals.

Resources

may be available include inventories of raw materials or finished goods that can be used rather than needing to order or produce them. Also include worker and equipment capacities.

demand for capacity

means that a product family will include all products that use the same routings between the same work centers as well as the same materials, setups and tooling, and cycle times.

internal customers order

other plants or subsidiaries or owned distribution centers.

The primary purpose of production planning

planning of resources and not the production of an end item.

average inventory

the average can be calculated as an average of several inventory observations taken over several historical time periods; for example, 12-month ending inventories may be averaged.

backlog

the quantity and money amount of the product which was ordered by a customer and are not shipped yet

Sales and Operations Planning follow steps

1. Data gathering. Data on demand (sales, backorders, etc.), supply (backlogs, inventory levels, etc.), marketing, finance, and external events are gathered. 2. Demand planning. Forecasts are created, and input data or results are modified, as needed, based on evolving assumptions, price changes, new products, promotions, competitors, the economy, etc. How much demand can be generated through marketing efforts is determined. 3. Supply planning. Production planning compares demand requests against capacity in the long and medium terms to identify constraints. 4. Pre-S&OP meeting. Issues that do not require executive attention to balance supply and demand are resolved, and an agenda of exception items is created. 5. Executive meeting. Executives decide on exception items and ensure that the overall plan can still meet objectives and is consistent with strategy.

a few important points from the definition of production planning:

1. It sets overall levels of manufacturing output at the product family level over a horizon of six to 18 months, in monthly or weekly time buckets. Details on individual products, options, and so on would not be accurate at this point. 2. The primary purpose is to set production rates. 3. It is coordinated with other functions and optimizes tradeoffs. (S&OP is one way this coordination can occur.)

Pre S&OP meeting function to

1. Make decisions regarding demand and supply levels Reconcile differing recommendations to generate a single recommended action 2. Identify issues that cannot be reconciled 3. Generate alternative action plans for consideration 4. Set the agenda for the executive meeting

Executive Meeting

1. The executive meeting makes decisions on sales and operations plan for each product family and authorizes spending based on rate changes in production and procurement. 2. The meeting relates the impact of S&OP plans for various product groupings to the overall business plan and reviews overall business performance and customer service levels.

manufacturing planning and control system (MPC)

A closed-loop information system that includes the planning functions of production planning (sales and operations planning), master production scheduling, material requirements planning, and capacity requirements planning. Once the plan has been accepted as realistic, execution begins. The execution functions include input-output control, detailed scheduling, dispatching, anticipated delay reports (department and supplier), and supplier scheduling.

bill of resources

A listing of the required capacity and key resources needed to manufacture one unit of a selected item or family. Rough-cut capacity planning uses these bills to calculate the approximate capacity requirements of the master production schedule. Resource planning may use a form of this bill.

Production Planning

A process to develop tactical plans based on setting the overall level of manufacturing output (production plan) and other activities to best satisfy the current planned levels of sales (sales plan or forecasts), while meeting general business objectives of profitability, productivity, competitive customer lead times, etc., as expressed in the overall business plan.

Sales and Operations Planning (S&OP)

A process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain. The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans. S&OP is performed at least once a month and is reviewed by management at an aggregate (product family) level. The process must reconcile all supply, demand, and new product plans at both the detail and aggregate levels and tie to the business plan. It is the definitive statement of the company's plans for the near to intermediate term, covering a horizon sufficient to plan for resources and to support the annual business planning process. Executed properly, the S&OP process links the strategic plans for the business with its execution and reviews performance measurements for continuous improvement.

Assemble to Order (ATO)

A production environment where a good or service can be assembled after receipt of a customer's order. The key components (bulk, semi-finished, intermediate, subassembly, fabricated, purchased, packing, and so on) used in the assembly or finishing process are planned and usually stocked in anticipation of a customer order. Receipt of an order initiates assembly of the customized product. This strategy is useful where a large number of end products (based on the selection of options and accessories) can be assembled from common components.