CHAPTER 7 – SALES AND OPERATIONS PLANNING

Dung H. Nguyen
Faculty of International Economic Relations
University of Economics and Law

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CONTENTS

 Predictable variability
 Managing supply
 Managing demand
 Sales and Operations Planning

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PREDICTABLE VARIABILITY

Predictable variability is a change in demand that can be forecast

 Problems of demand change:
o High stock-outs in peak season
o Excess inventory in low season
 Two broad options:
o Manage supply using capacity, inventory, subcontracting, and backlogs
o Manage demand using short-term price discounts and promotions

 Supply and demand management to solve problems of demand change

SALES AND OPERATIONS PLANNING (S&OP)

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MANAGING SUPPLY

 Managing capacity:
o Time flexibility from workforce
o Use of seasonal workforce
o Use of subcontracting
o Use of dual facilities – specialized and flexible
o Designing product flexibility into production processes
 Managing inventory:
o Using common components across multiple products
o Build inventory of high demand or predictable demand products

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MANAGING DEMAND

 With promotion, three factors lead to increased demand:

o Market growth
o Stealing share
o Forward buying
 Factors influencing timing of a promotion:
o Impact of promotion on demand
o Cost of holding inventory
o Cost of changing the level of capacity
o Product margins

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SALES AND OPERATIONS PLANNING

S&OP is a strategic planning process that reconciles conflicting business

objectives and plans future supply chain actions (CSCMP)
 Aims:
o Use company’s tactical capacity resources to meet expected customer
demand
o Strike a balance between the various needs and constraints of the supply
chain partners
o Serve as a coordinating mechanism for the various supply chain partners
o Express the business’s plans in terms that everyone can understand

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SALES AND OPERATIONS PLANNING

 Benefits:
o Improved forecast accuracy
o Higher customer service with lower finished goods inventory levels
o More stable supply rates, resulting in higher productivity
o Faster and more controlled new product introduction
o Enhanced teamwork at both the executive and operating levels
o Better decisions with less effort and time
o Better alignment of operational, marketing, and financial plans
o Greater accountability for results
o A window into the future to see potential problems soon enough

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SALES AND OPERATIONS PLANNING

 Process:
 Step 1: Generate quantitative sales forecast
 Step 2: Marketing adjusts the forecast
 Step 3: Operations checks forecast against existing capability
 Step 4: Marketing, operations, and finance jointly review forecast and
resource issues
 Step 5: Executives meet to finalize forecast and capacity decisions

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SALES AND OPERATIONS PLANNING

Source: Sanders (2012)

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SALES AND OPERATIONS PLANNING (IMPLEMENTATION)

 Coordinate planning across enterprises in the supply chain

 Take predictable variability into account when making strategic decisions
 Ensure that senior leadership owns the S&OP process
 Ensure that the S&OP process modifies plans as the reality or forecasts
change

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 CHAPTER 7 – SALES AND OPERATIONS PLANNING

THANK YOU!

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