What Is Sales and Operations Planning?

C. Daw

In the field of business management, sales and operations planning (S&OP), also called aggregate planning, refers to the regular meetings that executive managers have during which they review projections for supply and demand and discuss how these would affect their company financially. During S&OP meetings, they also make decisions to ensure that all tactical and short-term plans are aligned with their overall business plans and policies. At the end of S&OP they come up with a final output which is an operating plan. This specifies how all company resources, including human resources, money and time, will be allocated.

A sales forecast sets goals and financial benchmarks for a company.
A sales forecast sets goals and financial benchmarks for a company.

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 will be met. While considering this, the executive managers also always have in mind general objectives such as the profitability and competitiveness of their business company.

Sales and operations planning can take one of two approaches: top-down planning or bottom-up planning. Top-down planning is the simpler approach because it focuses on a single sales forecast and uses this to guide all subsequent planning. Meanwhile, bottom-up planning is more suitable for companies with variable production outcomes, and as a result do not have definite sales forecasts. Instead of sales forecasting, they calculate resources for all their products and from there come up with the total resource requirements.

After identifying an overall sales forecast or determining the resource requirements, the next step in sales and operations planning is usually to generate the production plan. Again, this can be done in various ways using different approaches. Usually, either a level or chase methodology is employed, or a combination of the two.

In a level production plan the approach is to keep producing at more or less a constant rate as before, and to use inventory to take on the difference between the forecast sales and the necessary production activities. In a chase production plan the opposite is followed; the production is changed to match the sales forecast. In other words, the production chases the demand. There is, of course, a middle ground between a level production plan and a chase production plan. This is the combined approach, where both production and inventory levels can be changed as needed to meet desired goals.

All these are done in sales and operations planning. The final outputs, aside from an operating plan, can include an updated production and sales plans, an inventory plan, a new product development plan, and a number of other key documents. This allows the company to establish focus, alignment and harmonization of all efforts coming from its various departments.

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