Planning sales and operations. Balancing demand and supply
Sales and operation planning (S & OP) is a set of business processes that help the company maintain a balance of demand and supply. It includes: large-scale planning of sales and operations, sales forecasting and demand planning, resource requirements planning, preparation of the main schedule and other detailed schedules for both production and supply.
The planning process for sales and operations is at first glance similar to the production planning process, but there is a big difference between the two approaches. The production planning approach is shown in Fig. 4.6. From the figure it can be seen that the sales planning and production planning modules run separately and sequentially. This means that sales and marketing managers together make a forecast and pass it to the operations manager that composes the production plan. If there is an imbalance between the sales plan and production plan, caused by existing restrictions on capacity or production resources, then the sales plan is sent for processing and making adjustments to the sales department. The adjusted plan is returned again to production, where it is based on the main production scheduling. Thus, a sufficient amount of time is spent on developing and coordinating sales and production plans.
Fig. 4.6. The traditional approach to production planning
Fig. 4.7. Planning sales and operations
In Fig. 4.7 it can be seen that sales planning and planning of operations occur together (in parallel) rather than consistently, which indicates that there is a relationship between the sales plan and the production plan.
T. Wallace and R. Stahl call planning sales and operations "grease" between the links of the supply chain, ensuring the harmonious functioning of the entire circuit with minimal disturbances .
Bulk sales and operations planning connects strategic plans with tactical planning and execution.
The volumetric planning of sales and operations is reduced to making decisions, namely it is required:
• Change the sales plan;
• change the plan of operations;
• Change the supply/supply plan plan
• change the strategy and (or) the policy with respect to the scope and (or) nomenclature;
• Do not do any of the above actions (current plans do not require an adjustment).
The listed solutions have the form of agreed plans, approved by all interested members of the supply chain. The sales and operations plan forms a line of conduct for all participants in the supply chain: manufacturing companies, raw material suppliers, warehouse terminals, distributors, 3RL providers. Each contractor in the supply chain details the summary plans from the volume plan of sales and operations to the required level: by products, customers, regions, factories, materials.
Preliminary work on sales planning and operations includes:
• making up updated sales forecasts;
• Analysis of the impact of changing the sales forecast on the plan of operations and determining the possibility of supporting them with available production capacities and materials;
• Identify alternatives where there are problems;
• Identification of deviations in the plan and potential ways of their resolution;
• Decision making where necessary and where consensus is reached.
Sales and operations planning is a monthly business process consisting of five steps (Figure 4.8). We will consider in more detail the stages of planning sales and operations.
Fig. 4.8. Sales and Operations Planning Process (S & amp; OP)
Stage I. Data collection. The main task of this stage is to create a database for actual sales, production, inventories, e. This can include sales analysis data, reports on statistical forecasting, information on incentive marketing activities, data on external trends, etc. The more complete, more qualitative and reliable the data will be, the more accurate the forecasts and plans.
Phase II. Demand Planning. At this stage, the data and information collected in Phase I analyze, discuss and develop a new sales forecast . Forecasts for future demand include both existing and new products brought to the market. At this stage, forecasts are made in kind, since in terms of value they are devoid of specificity and practical use for planning supplies. Demand forecasts, compiled in value terms, are the source of cost and financial planning.
Phase III. Supply Scheduling. As mentioned above, demand and supply are different concepts. Demand is what internal and external buyers want. Supplies represent the resources that an organization can use to meet this demand. In other words, the supply plan is an adjusted demand plan, taking into account available resource and power constraints.
Prior to developing a supply plan and an operations plan, supply chain participants define demand/supply strategies. These strategies determine which group the products belong to: production for storage & quot ;, custom production & quot ;, completion on order & quot ;; what are the service level targets? what are the desired levels of inventories or supply commitments. These material targets and supply commitments are necessary, since along with the forecast, they are starting points for planning operations. The business plan is designed to support the sales forecast and must be structured to meet the target stock levels and/or supply commitments.
The stages of the supply planning process are shown in Fig. 4.9.
Fig. 4.9. The S & amp; OP supply planning process
Thus, the essence of the supply planning process is to solve the following tasks.
1. Comparison of the delivery plan with the plan of operations for the reporting period. The old production plan may not be 100% consistent with the new sales plan for the time, volumes and planned numbers of inventory in warehouses for each product category. Taking into account new forecast figures, the production plan is adjusted and a new preliminary production plan is created.
2. Analysis of available resources and capacities to ensure the balancing of the demand plan with the production plan.
So, taking into account the chosen demand/supply strategy and the demand forecast, the operations plan is modified for those commodity groups for which it is required. If there has been a change in the demand forecast, stock levels or supply commitments, adjustments to the operations plan must be made. The new supply plan should be checked for its feasibility. The plan of operations must be verified for execution. If it can not be fully implemented, it is necessary to provide options for how to deliver the missing product. This is usually done by planning resource requirements.
As a result of the supply planning phase, reports are generated on resource demand planning and a list of supply problems that can not be resolved at this time. In some cases, the forecasted demand far exceeds the supply and the difference can not be overcome for the remaining time. Sometimes the supply constraints can not be resolved due to the limited production resources of the manufacturing company, in other cases, restrictions exist in other parts of the supply chain (suppliers, subcontractors, distribution, etc.). All these problems are discussed at a preliminary meeting.
As a rule, this stage gathers both managers of the main business units of the focus company, as well as representatives of the main contractors responsible for planning and delivery.
Phase IV. Preliminary meeting. This is a partnership meeting in which all members of the sales and operations planning team participate. When they get together, they raise questions about the process (in terms of the monthly plan), if possible, and approve preliminary plans for sales and production to send and explain the planned situation to the top managers of companies. The imbalance between demand and production is the main topic for discussion, followed by suggestions and recommendations for improving the situation. The final decision is made at the meeting of senior and middle management of companies.
The purpose of the preliminary meeting is:
• making a decision to balance the demand and supply, taking into account the existing policy, strategy and current plan;
• resolution of problems and disagreements, if possible, by developing a single set of recommendations;
• Identification of those areas of decision-making that can not be reached by consensus;
• development of scenarios for alternative methods of solving problems where necessary.
The preliminary meeting concentrates on analyzing the refined delivery plans for all groups and subgroups (where they are) of products and making adjustments to them where necessary. These meetings are checked:
1) restrictions on resources. If there are constraints, the priorities of demand are placed;
2) actual and planned indicators for sales, production, supplies and supply obligations;
3) the demand/supply strategy for each group of products to perform the necessary adjustments (once a quarter).
Previously, the meeting identifies areas where a unanimous decision can not be achieved due to disagreements or the existence of alternative solutions, and also develops:
• an updated financial picture of the business, including the correspondence of the latest actual sales to the indicators laid down in the plan for the entire supply chain;
• a decision and/or recommendations for the future course of action for each product group (for example, follow the same course, ie no change, increase/decrease the sales plan, increase/decrease the plan of operations);
• Decisions on the problems of bringing new products to the market that were not included in the review by product groups;
• decisions or recommendations for each resource that is subject to major changes (for example, to increase the number
Employees, add equipment, throw production of a part of the production at an adjacent factory);
• recommendations for measuring in demand/supply strategies, where appropriate.
Almost all the decisions made in the monthly cycle of volumetric sales planning and operations fall at this stage and on the two previous ones: demand planning and supply planning.
Stage V. Meeting of Managers. At this stage, the plans of all counterparties and logistics capacities are consolidated into a single scenario for the development of financial indicators of the supply chain. Monthly results of past periods are evaluated and compared with previously compiled plans, causes of deviations are identified and analyzed. Corresponding corrective actions are reflected in a consolidated and balanced business plan with a time horizon of several years. This meeting closes the results of the monthly process of planning sales and operations.
This is the final stage of the volume planning of sales and operations. The objectives of the management meeting are to:
• consider and accept/adjust the decisions made by the team at the preliminary meeting, or issues beyond their competence;
• approve changes in volumes of production and purchases;
• Compare the value of the sales plan and operations with the overall plan expressed in the value measurement. In the event of a divergence, either the sales and operations plan or (and) the overall plan is adjusted;
• resolve problems for which the participants in the preliminary meeting did not agree;
• consider the level of customer service, problems associated with new products, special projects and other issues on which to decide;
• Evaluate the existing policy and strategy taking into account the balancing of demand and supply.
All of these totals, taken together, form an approved supply chain action plan.
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