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APICS Operations Management Body of Knowledge Framework, Third Edition

5.5 Sales and operations planning (S&OP)

S&OP develops a mid-range plan to operations using input from top management. The plan identifies key resources to achieve the firm's strategic objectives and goals, and is the basis of all subsequent material and labor resource decisions and for the master production schedule).

5.5.1 Business planning

This is the process of creating the business plan, which identifies the organizational, strategic, and financial goals of the firm. It is a statement of long-range revenue, cost, and profit objectives and long-range strategy, usually accompanied by budgets, a projected balance sheet, and a cash flow statement. The business plan is stated in terms of dollars and grouped by product families. It is an input to the S&OP process.

5.5.2 Sources/output process participants

Participants include personnel from various areas of operations, finance, human resources, purchasing, materials, transportation, engineering, and quality.

5.5.3 S&OP process

The S&OP process develops tactical plans that assist management in strategically directing the business to achieve continuous competitive advantage. It integrates customer-focused marketing plans for new and existing products with the management of the supply chain. The process integrates all business plans into a single set that meets all needs of the functions of the business. The S&OP process is performed at least once a month and is reviewed by management at an aggregate level.

5.5.4 Aggregate planning strategies

Aggregate planning strategies are manufacturing strategies for meeting customer demand by setting production levels, inventory levels, and backlog. They can include the following methods:

  • Chase methods match the production rate to the order rate by adjusting capacity. 
    A mix of permanent and temporary workers typically are used with this strategy.
  • Level methods maintain a stable capacity with a constant output rate. Shortages and surpluses are absorbed by fluctuating inventory levels, order backlogs, and lost sales.
  • Hybrid methods combine aspects of both chase and level methods. Overtime, undertime, and flexible work schedules often are used with hybrid methods.

5.5.5 Management of supply and demand

Management of supply and demand is accounting for demand variability by providing adequate supply capacity and demand flexibility so that production rates match strategic objectives and goals.

Managing capacity. The four levels of managing capacity are resource planning, rough-cut capacity planning, capacity requirements planning, and input/output control. At each level, capacity is established, measured, monitored, and adjusted to execute operation schedules and meet the needs of the business plan. Capacity must be modified if the needs are not met. At the S&OP level, these adjustments can be made by hiring, subcontracting, and accepting stockouts. Each tactic has its own benefits and costs.

Managing inventory. Managing inventory is determining optimal inventory levels as they pertain to strategic objectives.

Managing demand. Managing demand is recognizing and interacting with demand sources. When supply is lacking, demand is prioritized; and pricing, promotions, and product distribution are closely monitored to determine impacts on the marketplace.

5.5.6 Disaggregating the plan

Disaggregating is the process of breaking apart the production plan from a monthly family and group projection to a weekly item product projection for the master production scheduling process.

5.5.7 Master scheduling

Master scheduling is the process in which the S&OP plan is disaggregated and the master production schedule is generated, reviewed, and adjusted to ensure consistency with the production plan.

.1 Bill-of-material structuring

The bill of material (BOM) is the document that specifies the components needed to produce a good or service. It lists the parts, raw materials, sub-assemblies, and intermediates required by a parent assembly. A BOM specifies the quantity required to make one item, specifies units of measure, and quantifies phase-in and phase-out dating. Other names for the BOM are formula, parts list, and recipe or ingredient list.

Various forms of BOMs are used in master production scheduling and material requirements planning.

Traditional. Traditional BOMs list the subassemblies, intermediates, parts, and raw materials needed for a parent assembly, specifying the quantities of each. Types of these bills include single-level, multi-level, and engineered.

Planning. A planning bill is an artificial grouping of items or events in BOM format used to facilitate master scheduling and material planning. It may include the historical average of demand expressed as a percentage of total demand for all options within a feature or for a specific end item within a product family and is used as the quantity per in the planning bill of material.

Modular. Modular BOMs are planning bills arranged by product modules or product options that help facilitate material planning.

Add/delete bills. This is the process by which new components are added to, deleted from, or otherwise modified in a bill of material. An engineering change notice initiates the process, specifying the effective date to make the change on the bill.

Phantom bills. Phantom bills are a coding and structuring technique used primarily for transient subassemblies. The phantom bill represents an item that may not exist physically but is treated as an accounting unit.

Kitting parts. Kitting is listing related parts or components that can be mixed and matched into a bundle. The kitting BOM facilitates the assessment of material availability before order picking against a shop order or customer order.

Engineering change management. Engineering change management controls design changes released by the engineering department to modify or correct a bill of material. An engineering change review committee is assembled by management and determines the effective date and disposition of existing material.

.2 Master schedule

The master schedule is a list that includes the forecast, customer orders, times, projected available balances, available-to-promise, and the master production schedule. It is a relatively short-term schedule for meeting demand.

Projected available balance. The projected available balance is a prediction of future inventory balance. It is the running total of inventory on hand, minus requirements, plus scheduled and planned order receipts.

Available-to-promise (ATP). This is the uncommitted portion of a company's inventory and planned production maintained in the master schedule to support customer order promising. There are numerous methods of calculating ATP.

Capable-to-promise (CTP). CTP is the process of measuring orders against available capacity and inventory. CTP is used to determine when a new or unscheduled customer order can be delivered. The process may involve multiple manufacturing or distribution sites.

.3 Rough-cut capacity planning (RCCP)

RCCP is the process of converting the master production schedule into requirements for key resources, typically labor, machinery, warehouse space, supplier capabilities, and sometimes money. Each key resource usually is compared to available or demonstrated capacity.

Bill of resources. A bill of resources is a list of the required capacity and key resources needed to manufacture one unit of a selected item or family. Resource planning and RCCP both use a bill of resources to calculate the capacity requirements of the master production schedule.

Capacity planning. Capacity planning is determining the amount of capacity required to produce a good or service in the future. RCCP will validate whether the master production schedule can be achieved.

Utilization. Capacity plans often are expressed in terms of utilization, or the percentage of available time that a resource will be used for its intended purpose.

Efficiency. Efficiency is the measure of the utilization of a capacity resource compared to its best possible utilization.