Supply Chain Management in Sales and Operations Planning. Improvement in Efficiency and Saving Money

Seminar Paper, 2015

17 Pages, Grade: 2,0



Index of abbreviations

List of figures


1. Short introduction to Supply Chain Management

2. Use of Sales and Operations Planning

3. Practice of Sales and Operations Planning

4. S&OP as a Supply Chain Strategy
4.1. Executive S&OP
4.2 Sales forecasting and capacity planning
4.4. Master Scheduling
4.5. Difficulties in Planning

5. Makings for a successful S&OP



Index of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of figures

Figure 1: The four components of Sales & Operations Planning (Wallace/Stahl 2005: 4)

Figure 2: The S&OP as an interface of supply and demand side (Mentzer/Moon 2005: 11)

Table 1: The Master Schedule on the level of assembly groups (cf. Schönsleben 2005: 271)


A permanent aim of companies is saving money and improving their efficiency. These improvements concern all business areas. But which possibilities are there to become better and better in supply chain management? A very useful and innovative tool is Sales and Operations Planning (S&OP). Mainly it looks after a balance between de­mand and supply, and it connects also the supply chain planning with the associating and involved operating sections. By reaching a harmonization of all steps in the supply chain, and by considering the financial information many benefits will be enabled. These results offer a better view into future capacity or sales problems, a higher customer ser­vice and faster changes of production rates. All in all, you improve in fulfilling the cus­tomer’s wishes. In order to be successful, good forecasts and some simulations are very important to coordinate the production with the predicted demand. Next up, there is an explanation of all relevant planning steps and challenges to make the supply chain run better.

1. Short introduction to Supply Chain Management

The comprehension of supply chain is very important for the use of the S&OP. It deals with the amount of all parties which are involved in a production process. There are a lot of functions within a company and helpers concerning the enterprise, such as suppliers or retailers. All aforementioned take part in a process to fulfill the customer’s request. A manufacturer gets material from many different suppliers and after that he distributes to other wholesalers; both of them have also an own supply chain. A supply chain contains the flow of information and payments between the parties. But also the customer auto­matically takes part in the supply chain, because he starts the process by his order. On­ly after he is content and has paid for his service or product, the supply chain ends (cf. Chopra/Meindl 2004: pp 1).

Today, developments such as shorter life cycles of products and higher customer re­quests let the supply chain become more and more important for enterprises. Also new technologies in terms of communication and transportation enhance the importance of supply chain. In the transportation market, the logistic management takes another look into the supply chain management and underlines the own corresponding importance of it. But in the end, they all pursue the same target: getting a network of all parties in­volved in the company. Hewlett Packard was one of the first manufactures who linked its developments of new products to the supply chains. By developing the new inkjet printer they considered not only the material costs, but also the whole supply chain costs for the product life cycle. As a result they achieve a better conjunction of devel­opment and the supply chains with its different characteristics (cf. Simchi- Levi/Kaminsky/Simchi-Levi 2008: pp 1).

2. Use of Sales and Operations Planning

The S&OP process has been developed about 30 years ago. At that time, focusing mainly on demand planning to improve the supply chain planning, and to bring its deci­sions into an agreement with all of the other business fields. Therefore, these business areas should participate in a steady meeting to discuss the facts of supply chains. Es­pecially the fields of finance planning and corporate planning are very important to get a better feedback of the quality of the planned demand and sourcing numbers. These two size factors need to harmonize, also with the company visions, to be efficient (cf. Tutaß 2012).

An integration of all planning steps, but also financial information, is very important to get an extensive company management. In best case, there is a balance of demand and supply in the end. However, it is also very difficult to mind all the influencing varia­bles. But if companies would use many size factors and care about the best possible planning, they could for one improve the delivery service and minimize the floating capi­tal. And for another, they could react faster on price fluctuations and limited resources (cf. Camelot 2015).

Today the economy system has changed in so far, that customers and their wishes in­tensively dominate most planning of companies. Customers expect special products for special situations and mostly are satisfied. Furthermore, a high service level and an on- demand economy are very essential. For that reason, the planning of former times does not work anymore and causes increasing inventories. Due to the demand as a strong force, supply as the most important task for companies is dominated. Because of the changes, a market-driven supply chain has to be implemented to generate free cash flow in order to be more efficient and benefit with the new economy. In this pioneering market-driven supply chain the customers view, conceptions and influences on products are the decisive factors compared to economies. Also the segmentation is created after the customer's request. So an “at-market-demand” becomes necessary and the steady developing S&OP works better and better to fulfill the individual customer’s wishes (cf. Burrows 2012: pp 1).

3. Practice of Sales and Operations Planning

S&OP should be used as a tool for effectiveness. It is a very important and helpful in­strument to help enterprises run more efficiently. Depending on the business this can especially improve the coordination intra-company for a long period of time. Very spe­cial factors are the increasing complexity and the steady rate of change in the supply chain. As these factors continue to increase in the following years, tools like S&OP will be even more important for companies (cf. Wallace/Stahl 2005: pp 2). “Trying to man­age an extended supply chain - out to perhaps the customers’ customers and the sup­pliers’ suppliers - is a more complex task than looking primarily within the plant and the immediate suppliers” (Wallace/Stahl 2005: 2).

Such as demand and supply should be in balance, also the other two fundamentals, volume and mix of products, should be in accord. The volume level is the relevant one for Executive S&OP operators because it offers information on rates of sales and pro­duction. The mix level, which deals with the sort of products, is a different tool but also has to be in the right balance with all other fundamentals. For the purpose of achieving this balance, it is essential that managers with different functions considering the de­mand and supply side of it take part in the decisions. Therefore, the S&OP process is a very cross-functional process which involves many areas within a company (cf. Wal­lace/Stahl 2005: pp 3).

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: The four components of Sales & Operations Planning (Wallace/Stahl 2005: 4)

The balance is extremely important because the financial plans decide about the fixed amount of revenue and agreeing commitments that are made, for example, to the stockholders. On the other hand there are operational plans dealing with factors such as production or sales. These two different plans must be in agreement to avoid another disconnection. In the best case scenario, the promised finances fit the operating busi­ness. In the following you will find a detailed description of the four fundamentals (cf. Wallace/Stahl 2005: 4).

Beginning to find a way to achieve a useful level of S&OP for a better running company, you will find it to be very challenging. Unfortunately, there are too many facts and dates of different corporate divisions and too many ways to analyze them in order to assemble all in a simple diagram. So an integration of a repeatable process in an ERP system is much easier and for that reason it is necessary to implement IT systems for a support. In the past years these systems became better and larger. New technologies have the opportunity to integrate data easier and also give many suggestions for optimization.

SAP, for example, implements all the planning steps, all the facilities and all the distribu­tion centers to integrate as many business areas as possible. In the subsequent years it will be a main task for companies to integrate every process in an organized network, also under the view of steadily broadening new technologies (cf. Simchi- Levi/Kaminsky/Simchi-Levi 2008: 430).

Regarding the costs of S&OP, it has made clear that they are actually really low. For that reason you do not need a great amount of people, but only a few. And they do not have to form an additional project team which would also use up a lot of time. So the training costs and the effort for that are not incredibly high. Besides, the need for soft­ware is also insignificant which saves costs as well. Certainly, useful forecasting soft­ware will simplify the whole S&OP process, but you don't have to spend much money on this, because most software packages used by companies are suited to forecasting sufficiently. Rather striking costs are those for consulting purposes. Companies that rely on an external consulting have to pay about $50,000 during the period where the S&OP process is implemented. In conclusion, the investment costs are tolerable, even for the case scenario in which you have the need of new forecasting software and of a consul­tancy firm (cf. Wallace 2004: 11).

4. S&OP as a Supply Chain Strategy

4.1. Executive S&OP

The Executive S&OP level should be arranged by the executive management including the president. They have to make decisions where supply and demand come together to find balance and the fitting tactical direction of a business. Normally the ideas focus on aggregate volumes and concern the product family or the customer's orders in gen­eral, for that is doesn't grow to being too specific. The product families should be made of experiences with customers and distributers. Finally, this can enable five to fifteen product families. Managers overwork success proven strategies for each product family by yielding towards a high customer service. The organizations commitments that are made by sales and by operations fractions are accountable to be successful (cf. Wal- lace/Stahl 2005: pp 13).

The operations fractions also create an aggregate operations plan due to the procedure. As per description, an aggregate level is very important to be able to plan the selling of major groups of similar products. Always regarding a longer period of months, the oper­ations plan aims to reduce the costs of resources to be in balance with the demand. This plan also precedes the following Master Schedule and concerns its production rates. Another main topic of the plan is an ideal interaction of production rate and the workforce level. A production rate implies the completed goods within a certain time, whereas the workforce level indicates the employment of staff that is needed. After a multiplication of both factors you get an index of production. The operations plan can be made as a formalized report or, more simple, as an easy form of calculation. Always typically for the plan is the exact scheduling of manufacturing need, to combine with the sales forecast. Therefore you have to check the availability of resources and plan them to achieve the objectives. If there are similar production processes, it is also possible to use their data to arrange the aggregate plan. Another arrangement is to simulate Master Scheduling and to check the capacity needed in order to know if there are relevant re­quirements. If there is a need of more capacity you have to think of additional workers or other possibilities such as outsourcing. Each simulated Master Schedule belongs to a different product line. In general, it is very important to do any kind of useful modification on the operations plan so that it works in practice (cf. Jacobs/Chase 2011: 532).

In the production planning environment there are some unswayable external factors which influence the planning. In some cases the market demand can be operated by price cutting or advertising efforts. Therefore, a good communication between produc­tion and marketing is, once more, important. But there are also other typical cyclical demand developments. A special type of products, for example, in the sports industry, has a seasonal demand which will be strong in summer but weak in winter. Sometimes, there are capabilities to produce a complementary product which compensates the sea­sonal demand. But still, a total control of demand is impossible because of steady changes. The production planner has to orient himself by sales forecasts to have an eventual demand. All possibilities to regulate the market demand are an integral com­ponent of Yield Management. Nearly all other external factors cannot be controlled. These could be economical conditions, availability of raw materials or competitors’ be­havior. Internal ones include inventory levels or the current workforce. They differ them­selves in their controllability. Some can be influenced by the management and there is always some flexibility in affecting these factors (cf. Jacobs/Chase 2011: pp 532).

4.2 Sales forecasting and capacity planning

To create a capacity planning there is a need of sales forecasting or at least the sales plan. A big challenge in capacity planning is the high variety of capacity fields. There are different requirements for example in raw materials, logistics or production capacity. Because of that, rather aggregate estimates are made, and the planning concerning those of sales is compared with “capacity limits by product family or product line” (Smâros/Falck 2013: 4). An exact planning is very difficult because there may be ex­cess capacity in different business areas and in unpredictable situations. Also there are steady changes or problems in different parts of the company so that some effects will influence the capacity (cf. Smâros/Falck 2013: 4).

Sales forecasting is essential for every manufacturing company. Forecasts indicate rat­ing the development of demand. Everyone thinks about forecasts in everyday life. Al­ways when we want to plan what we will take with us or when we will depart tomorrow, we do a forecast of the circumstances. The better they are the higher the customer ser­vice is and the better enterprise will run. Also forecasts should be rather aggregate than detailed. For one forecast, it's necessary to have a variety of uses and constructions to find logical consequences. In general, a broad knowledge is far better to make forecasts more certain. Every product sourced off-shore has a longer lead time. To care of such specialties, the regard of the country of production is also an important factor of fore­casting. With the knowledge of customer’s commitments, many orders and good com­munication, you will achieve a forecast which should repeatedly be used within the company (cf. Wallace/Stahl 2005: pp 43).

The role of sales forecasting as an integral part of S&OP can be divided in a demand function and a supply function. The sales and marketing sections are responsible for the demand function. In doing so, the sales section has to deal with demands from final customers or from wholesalers and the marketing section caters for the final consumer. The supply function, on the other side, has many responsible organizations. These in­clude for example manufacturing, logistics or finances. But also the raw material suppli­ers are decisive involved in the supply functions. For all of this, the S&OP process is an interface where information of the supply and demand sides are integrated (cf. Mentzer/Moon 2005: 10).


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Supply Chain Management in Sales and Operations Planning. Improvement in Efficiency and Saving Money
Heilbronn University
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supply, chain, management, sales, operations, planning, improvement, efficiency, saving, money
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Thomas Jacob (Author), 2015, Supply Chain Management in Sales and Operations Planning. Improvement in Efficiency and Saving Money, Munich, GRIN Verlag,


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