Sales and operations planning (S&OP) is a process in business management where executive managers review supply and demand projections and make decisions to ensure short-term plans align with overall business goals. Two approaches to S&OP are top-down planning and bottom-up planning, with different production plans generated based on the chosen approach. The final deliverables of S&OP include an operational plan, updated production and sales plans, inventory plan, and new product development plan.
In the field of business management, sales and operations planning (S&OP), also called aggregate planning, refers to the regular meetings that executive managers hold during which they review supply and demand projections and discuss how this would affect their company financially. During S&OP meetings, they also make decisions to ensure all short-term and tactical plans align with their overall business plans and policies. At the end of the S&OP, they present an end result which is an operational plan. This specifies how all company resources, including human resources, money and time, will be allocated.
In other words, in sales and operations planning, the desired level of manufacturing or production is determined. This will ensure that sales targets and forecasts are met. When considering this, executive managers also always keep overall goals in mind, such as the profitability and competitiveness of their company.
Sales and operations planning can take one of two approaches: top-down planning or top-down planning. Top-down planning is the simplest approach, as it focuses on a single sales forecast and uses that to guide all subsequent planning. Meanwhile, bottom-up planning is best suited for companies with variable production results and, as a result, do not have defined sales forecasts. Instead of forecasting sales, they calculate features for all of their products, and from there come up with total feature requirements.
After identifying an overall sales forecast or determining resource requirements, the next step in sales and operations planning is usually to generate the production plan. Again, this can be done in many ways, using different approaches. Generally, a level or pursuit methodology, or a combination of the two, is employed.
In a level production plan, the approach is to continue producing at a more or less constant rate as before and use inventory to assume the difference between forecast sales and required production activities. In a pursuit production plan, the opposite is followed; production is changed to match the sales forecast. In other words, production chases demand. Obviously, there is a middle ground between a level production plan and a chasing production plan. This is the blended approach, where production and inventory levels can be changed as needed to meet desired targets.
All of this is done in sales and operations planning. Final deliverables, in addition to an operational plan, can include updated production and sales plans, an inventory plan, a new product development plan, and a number of other important documents. This allows the company to establish focus, alignment and harmonization of all efforts coming from its various departments.
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