Sales and Operations Planning

The Sales and Operations Planning process is a simple five-step

process that helps guarantee the company's scarce and critical resources are effectively used. The five steps are as follows:

Step 1. Performance measurements. This step gathers the histor­ical data. The purpose of this step is to compare the actual performance to what was planned. Comparing actual to planned allows the variability between the two to be monitored and tracked. If the variability between the actual and the plan is within a realistic tolerance, then the plan was achieved. If not, then a root cause analysis can be started. The following performance measurements are reviewed:

• Actual production, by manufacturing process/product family

• Actual inventory levels

• Actual customer orders received

• Actual shipments

• Actual backlog levels

• Number of customer orders past due, dollar amount, & length of time past due

Step 2. Demand planning process. The purpose of this step is to review the performance of the demand plan versus actual for the past month. A 3-month moving average and a 12-month moving average in dollars and units are both reviewed. The monthly, 3-month, and 12-month variability is determined to see if it is within a realistic tolerance. If not, the root causes are determined.

This step is where the future customer expectations are reviewed. Also reviewed are any changes in the marketplace (trends up or down), product or mix changes, and what the competition is doing. All reasons for making any changes to the demand plan are documented. After the demand plan changes are agreed to, new revised plans are established for the following: demand (dollars & units) plan, shipment (sales) plan, inventory targets, and backlog targets. Once the demand planning information exists, then a preliminary Sales and Operations plan is run so the proposed production plan, which is required to meet the demand plan, can be reviewed.

Step 3. Production Planning process. The purpose of this step is to review the performance of the production plan versus actual. Moving averages for the past month, 3-month, and 12-month moving averages are monitored to determine if the variability between the plan and actual performance of the production plan is outside a realistic tolerance. If so, a root cause analysis is done to determine the reasons why.

The following are reviewed:

• On time plant performance

• Plan demonstrated versus actual demonstrated capacity and productivity factor for critical work centers

• How to increase productivity and demonstrated capacity by reducing all the non-value-adding activities and unnecessary costs

• Overtime required and the reasons why

• New product introduction status

• Level of WIP (queue)

• Key supplier performance

• On time customer performance

• Performance to the master schedule

• Plant on time performance for critical work centers

• Product quality, excessive scrap, and rework issues

Any material and/or capacity problems that will have a significant impact on not being able to meet the production plan are discussed and documented. An action plan is agreed to. Accountability and responsibility are assigned to make sure the solutions are imple­mented in a timely manner.

A "rough cut" capacity plan is run for long-range people and equipment needs. The purpose of the "rough cut" capacity plan is to ensure the capacity required to meet the production plan is within demonstrated capacity.

A realistic and achievable production plan is developed. Any problems, obstacles, and issues preventing the production plan, demand plan, shipment, inventory and/or backlog objectives from being achieved are documented. Recommended solutions and alternatives are proposed. Advantages & disadvantages and cost & impact to the company are documented.

--- To be continued ---

Lean Six Sigma Consulting   World Class Manufacturing   
Balanced Scorecards  Strategic Tactical Planning  
Supply Chain Inventory Management  Principles of Total Quality Management
Lean Manufacturing Consulting  Manufacturing Process Improvement