SALES & OPERATION
PLANNING & MASTER
SCHEDULING
Major Types of
•
Planning
Strategic planning
• Business Planning
• Sales & Operations Planning
• Master Scheduling or Master Production Schedule
Major Types of
Planning
Strategic planning:
• A long-term planning process that helps a company
define and work towards its vision, mission, and
objectives.
• It guides a company's actions over the next three to
five years.
Business Planning
• It is a short-term planning process that helps a
company to achieve those goals.
• Typical time frame is a year.
Major Types of
Planning
Strategic and business plans tend to be too general
to specify
• Resource needs
• Timing of those needs
• Too general to coordinate action plans within the
various departments of the organisation
Sales & Operations
Planning
• While the strategic & business plans give a macro
picture of what the company wants to be achieve, it is
the sales & operation planning which help to achieve
this.
• The detailed planning of resources including type and
quantity of resources, and the timing of those
resources, is accomplished by Sales and Operations
Planning (S&OP). Also called Aggregate Planning.
Sales & Operations
Planning
Sales & Operations Plan tends to be a major source for the
planning of:
1. Inventory levels
2. Cash fl ow
3. Human Resource needs
• Number of people
• Skill levels
• Timing of need
• Training programs
4. Capital needs
5. Production outputs
6. Capacity planning (e.g., equipment)
7. Sales and marketing activities
• Sales promotions
• Advertising
• Pricing
• New product introductions
Sales & Operations
Objectives of S Planning
& OP
1. Support and measure the business plan
2. Support the customer
3. Ensure that plans are realistic
4. Manage change eff ectively
5. Manage fi nished good inventory and/or backlog
better to support customer service
6. Control costs
7. Measure performance
8. Build teamwork
Sales & Operations
• Often
Planning
products and/or services are aggregated
along "family" lines in the S&OP (hence the
term "aggregate planning").
• The key determinant is grouping together
products or services that will utilize similar
resources.
• This makes sense as the function of the activity
is to plan resources.
Reasons for Aggregation
• For example, a fi rm may make diff erent styles
of bottom wear, using various fabrics and
diff erent fi nishes. From a sales and marketing
perspective, they may represent diff erent
products for diff erent types of customers, but if
they utilize the same resources (e.g, people and
equipment) they may be logically grouped
together into a product family from the
perspective of the S&OP.
• While a common method of aggregation is
product families, some fi rms use revenues or
even labor hours as the unit of analysis
Reasons for Aggregation
• The primary source of demand estimates that
drive the development of the plan is
forecasting. Forecasts tend to be more
accurate when developed in aggregate as
opposed to plans for specifi c products or
services.
So again aggregation is important.
Reasons for Aggregation
• The aggregation of time-it is preferable to examine
"buckets" of time that represent a week, a month, or
some other unit of time as it is easier to plan & monitor
based on these aggregated time frames
• Aggregation of time and production units allow for ease
of plan development and tend to be more accurate in
the aggregate,
• The correct amount and type of aggregation is highly
dependent on the type of product or service, the nature
of the customers being served, and the processes being
used to deliver the product or service.
Approaches to Aggregate
The
Planning
Make-to-Stock View of an S&OP (MTS)
MTS means that you produce goods in advance and
store them in inventory until a customer orders them .
The Make-to-Order View of an S&OP (MTO)
MTO means that you produce goods only after receiving
a specifi c order from a customer
Assemble to Order/Confi gure to Order (ATO/CTO)
It is a combination of MTS & MTO
The use of which strategy depends on the nature of the
products, demand, and market.
Made-to-Stock (MTS)
• MTS strategy depends on matching production and
inventory with forecasted demand.
• Production scheduling is driven by forecasts which
should be reliable and accurate.
• Products are produced prior to receiving the
customer’s order.
• Works best for low variety products where demand
can be more easily forecasted.
Made-to-Stock (MTS)
Advantages:
• Customer orders are pulled from existing pre-manufactured
stock- fast completion of customer orders.
Disadvantages:
• Higher value of inventory.
• Inaccurate forecasts- can lead to underproduction or
overproduction
Example:
To meet future market demand, Clothing Brands will forecast
demand based on past data and then produce according to the
planned fi gures. Overproduced items are then sold at liquidation
prices to deplete inventory and make room for newly produced
items.
Made-to-Stock (MTS)
The example shows planning done by a shirt manufacturing
company for Allen Solly formal shirts:
• Unit of measure is 1000 units
• Target Inventory is 15 days
• Sales history for the fi rst 3 months are available.
• Based on sales history of the fi rst 3 months, production has to be
planned for the next months
Made-to-Stock (MTS)
Sales Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Annual
Forecast 300 310 300 320 300 310 310 310 320 320 320 320 3740
Actual Sales 314 302 305 921
Diff-Month 14 -8 5 11
Cumulative 6 11 17
Production Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Annual
Prodn Plan 300 310 300 325 310 310 310 310 320 320 320 320 3755
Actual Prodn 303 305 298 906
Diff-Month 3 -5 -2 -4
Cumulative -2 -4 -6
Inventory Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Annual
Plan 150 150 150 140 150 150 150 150 150 150 150 150 1790
Actual 139 142 135
Days on hand 14 14.2 13.5
Made-to-Stock (MTS)
Observations & Planning:
• In month-1 sales was 314,000,but production was only 303,000
shirts-a diff erence of 11,000 units, so the inventory went down
from 150,000 to 139,000 units.
• Sales history for the fi rst 3 months shows that overall-11,000
shirts were sold over & above the forecast as well as the
production plan.
• Actual production was 4,000 less than the planned because of
which after 3 months the inventory dropped by 15,000 units as
fi nished goods inventory had to be used to complete orders
• To complete the shortfall in their target level of 15 days
(15,000 units) in inventory. in July & August they plan to
produce 5,000 and 10000 more than expected sales so that by
Made-to-Order (MTO)
The Make-to-Order View of an S&OP (MTO)
MTO means that you produce goods only after receiving a
specifi c order from a customer.
• Production scheduling is driven by customer
• Need to be fl exible and responsive to accommodate
varying specifi cations, quantities, and deadlines.
• Greater coordination with suppliers, subcontractors,
and customers to ensure timely delivery and quality.
Made-to-Order (MTO)
• Under MTO, products are only produced after the receipt
of a customer order.
• Enables customers to purchase products that are
customized to their exact specifi cations and demands.
• Works best for companies that build products with a
high variety of customization or build expensive
products that need signifi cant investment before
production can take place.
• Need to invest & hold inventorynormally of high value.
Made-to-Order (MTO)
Advantages:
• MTO enables complete product customization while
enabling businesses to reduce inventory costs and wasteful
activities like overproduction and underproduction.
Disadvantages:
• Depending on the business, MTO items typically have
longer lead times than other traditional strategies like
MTS.
Example:
Manufacturers of aircrafts will only manufacture their
products after orders and contracts are in place. The product
is too expensive to begin production without an order and a
secure investment in place.
Made-to-Order (MTO)
The example shows planning done by a made to measure shirt
manufacturing company :
• Unit of measure is units
• Order Backlog planned is 3 weeks
Made-to-Order (MTO)
Sales Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Annual
Forecast 80 80 80 80 80 80 80 80 80 80 80 80 960
Actual Sales 82 79 81 242
Diff-Month 2 -1 1 2
Cumulative 1 2 3
Production Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Annual
Prodn Plan 80 80 80 80 80 80 80 80 80 80 80 80 960
Actual Prodn 80 81 81 242
Diff-Month 0 1 1 2
Cumulative 1 2 3
Order Backlog Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Annual
Plan 60 60 60 60 60 60 60 60 60 60 60 60 720
Actual earlier 62 64 62 62 190
Weeks on hand 3 3 3 3 3 3 3 3 3 3 3 3
Made-to-Order (MTO)
Observations & Planning:
• When the product is a make-to-order product, there is
generally no fi nished goods inventory.
• The orders are taken and then production starts to that order.
• The orders that exist awaiting production are typically called a
backlog. If the backlog becomes too-much or the time frame
extends over the committed time, it can lead to customer
dissatisfaction
Assemble to Order/Confi gure to Order
(ATO/CTO)
• Assemble-to-order (ATO) is a business strategy
where products are quickly produced from
component parts once the order is confi rmed.
• It is a hybrid between the make-to-stock strategy
(MTS) and the make-to-order strategy (MTO)
• Works on the premise that the time taken to
assemble the product is lesser than the time taken to
get all the components organised
Assemble to Order/Confi gure to Order
(ATO/CTO)
Advantages:
• Can increase fl exibility of MTO : As customers get to choose to
some extent how their fi nal purchased product is assembled.
• Cutting down lead times like an MTS : Since the initial bulk of
production is already fi nished before the customer makes an
order.
• Reduces inventory costs.
Disadvantages:
• Requires producing and storing the subassemblies which requires
greater upfront investment by the manufacturer.
Example:
A personal computer manufacturer will have all the required parts
for a wide variety of fi nal products. Once the order is made, then
the computer will be assembled under the customer’s specifi cations
Examples of MTS & MTO
Examples:
Tesla:
• Uses MTO/CTO to allow customers to customize their
electric vehicles
Luxury furniture brands
• Use MTO to off er a wide range of customizable options
for individual customer preferences
Zara and H&M
• Use MTS to quickly produce and stock trendy apparel
items based on market demand
Balancing resources in
S&OP
Internal strategies: focus on the supply
side (operations)
External strategies: focus on the
customer to alter demand rates
Internal Strategies
• Hire and fi re- Altering the number of workers.
• Temporary workers
• Overtime/slack time .
• Subcontracting-Also called "outsourcing"- the company will
contract with a supplier to produce some or all of a required
output.
• Inventory: inventory will be produced during times of low
demand and used to meet demand during times of high demand.
• Backlog-The company will take the customer order even if it does
not have inventory or capacity to meet the immediate demand,
but will promise delivery when capacity is available.
• Do not meet demand - This options means the company will
simply decline to take a customer order if they do not have the
inventory or capacity to meet the order requirements.
• Change production rates-. It implies the capability to slow
down or speed up the rate of production. Can have a negative
impact on morale and quality,
External Strategies
• Pricing-Changing the price of the product or service. Generally,
lowering the price will increase demand while raising prices will
decrease demand.
• Promotions - Off ering special incentives (eg "rebates,") are
occasionally used to increase demand.
• Advertising-A very common strategy used to increase customer
awareness and increase demand.
• Reservations-Used when capacity is scarce or very expensive
(such
as in some restaurants, in doctor's, dentist's offi ces, etc.).It
smoothes demand, allowing both better customer service and
more eff ective utilization of the scarce or expensive resource.
• Package off erings- the package off ers tend to link popular
items with less popular items to smooth the overall demand.
Master Scheduling
• Master Plans contain more detail than does the S&OP,
but the typical time horizon is shorter than that of the
S&OP.
• While the S&OP is usually planned in terms of product
families the master schedule often represents fi nal,
sellable products.
• Master schedule is usually the interface" between the
production system and the external customers.
• While the S&OP serves a very important function in
planning for longer-range resource needs, the planning
is not typically done at the fi nal product level.
Master Scheduling
A master production schedule (MPS) is a plan that outlines what products to
make, when, and in what quantities. It is used to balance supply and
demand.
An MPS is a dynamic process that uses current and forecasted data to create
a realistic plan that minimizes overstock and maximizes on-time delivery.
It's a vital tool for make-to-stock manufacturing environments, and can also
be used in make-to-order environments and mixed-mode manufacturing.
An MPS can help a business:
• Optimize inventory levels: By reducing storage costs and ensuring good
material availability
• Reduce costs: By helping to plan and assign the optimal quantity of
resources to production
• Improve customer satisfaction: By ensuring on-time delivery
Master Scheduling
The Master Production Schedule (MPS) is a detailed plan that outlines the production
quantities and schedules for each fi nished product over a specifi ed period, typically
covering weeks or months. It serves as a central reference point for all production
activities, providing a framework for aligning manufacturing processes with customer
demand, inventory levels, and capacity constraints.
Key Components of a Master
Schedule
• Product Information: The MPS includes detailed information for each
fi nished product, such as its SKU (Stock Keeping Unit),lead time and its bill
of materials (BOM).
• Demand Forecast: It incorporates forecasted demand for each item,
derived from sales forecasts, historical data, market trends, and customer
orders.
• Available Inventory: The MPS takes into account existing inventory levels
of fi nished goods, raw materials, and components to determine the
production requirements.
• Production Capacity: It considers the available production capacity,
including manpower, machinery, and time constraints, to ensure that
production targets are realistic and achievable.
• Lead Time: The lead time for manufacturing each product is factored into
the schedule, accounting for the time required for procurement, production,
and delivery.
• Safety Stock: To mitigate uncertainties and fl uctuations in demand or
supply, safety stock levels may be incorporated into the MPS to buff er
against potential disruptions.
Benefi ts of a Master Schedule
• Optimized Resource Utilization : By aligning production activities
with demand forecasts and resources, the MPS helps optimize
resource utilization, minimizing idle capacity and reducing production
costs.
• Improved Customer Service: A well-executed MPS ensures that
orders are fulfi lled promptly and accurately,leading to customer
satisfaction and loyalty.
• Enhanced Effi ciency: The MPS provides a structured framework for
planning and scheduling production activities, leading to streamlined
operations, reduced lead times, and improved on-time delivery.
• Inventory Optimization: By synchronizing production with demand,
the MPS helps prevent excess inventory buildup and stockouts,
leading to improved inventory turnover and working capital
management.
• Facilitates Decision-Making : With a clear overview of production
schedules, inventory levels, and resource constraints, decision-
makers can make informed decisions regarding capacity expansion,
procurement strategies, and production prioritization.
Time Horizon and the Master
Schedule
In order to establish the planning horizon, we fi rst need to look
at a bill of material.
• The bill of material shows all the components used to
assemble a product.
• It shows the relationships between all components (which
components are used to make which assembly),
• It will will also show quantities needed for each component.
• It contains the lead time to purchase or produce each
component or This lead time data is used for calculation of
cumulative lead time.
Time Horizon and the Master
Schedule
In order to establish the planning horizon, we fi rst need to look
at a bill of material.
• The bill of material shows all the components used to
assemble a product.
• It shows the relationships between all components (which
components are used to make which assembly),
• It will will also show quantities needed for each component.
• It contains the lead time to purchase or produce each
component or This lead time data is used for calculation of
cumulative lead time.
Time Horizon and the Master
Schedule
2 weeks to assemble product A from
subassemblies Band C
3 weeks to assemble subassembly B
from components D and E
4 weeks to assemble subassembly C
from component F and subassembly G
5 weeks to produce subassembly G
from component H
3 weeks to obtain component D from a
supplier
2 weeks to obtain component E from a
supplier
4 weeks to obtain component F from a
supplier
7 weeks to obtain component H from a
supplier.
Time Horizon and the Master
Schedule
Example of cumulative lead time- consider a product with a
bill of materials four levels deep. Find the longest lead time
for each level.
The cumulative lead
time of this product
(A) is 18 weeks
(2+4+5+7).
So planning has to be
done atleast 18 weeks
in advance to be able
to deliver
General Approach to Master
Schedule
It is not always practical to have a forecast and formal schedule
for each & every product For example,
A make-to-order Shirt Company.
If we were to forecast and master schedule every type of shirt
type, we would need thousands of master schedules and
associated forecasts, many for shirt that may never be
requested by customers.
It would be far easier to develop forecasts for instead for the
amount of raw materials (fabrics, buttons, threads, fusing etc.)
that might be needed for a given time period.
General approach to Master
Schedule
Example, take an ATO product such as a bicycle. The options may include:
.. 3 frames (regular, heavy-duty, and light)
.. 5 diff erent speed options (3-,7-,10-,12-, and 15-speed)
.. 4 diff erent types of seats
.. 3 diff erent handle bar types
.. 6 diff erent types oftires
.. 3 diff erent types of brakes
• 4 "pure" options (for example, whether it has a water bottle or not)
In this case, we would need to develop 12,960 forecasts and master schedules
for this one model of bicycle alone (3 x 5 x 4 x 3 x 6 x 3 x 4 = 12,960)!
Instead of raw materials,if we could plan the production of the common assemblies
(assemblies that would be standard on any of the bikes sold - wheel assemblies, for
example) and the anticipated demand for each of the options listed. (based on
historical sales& forecasts)
Master schedules for each of the options and for the common components are
developed
That implies we will need 29 master schedules (3 + 5 + 4 + 3 + 6 + 3 + 4 + 1(common
assemblies))
Master Schedule-Example
Discussion
Your company is a sportswear brand: Formulate
the:
Strategic plan
Business plan and
The Sales & operating plan
Outline the areas that you will be targetting in
your sales & operating plan
Case Study: Nike -Strategic Plan
Strategic Plan:
Nike’s strategic plan revolves around its mission: "To bring inspiration and
innovation to every athlete in the world."
Their strategy emphasizes:
·Product Innovation:
Investing in R&D for groundbreaking technologies like Flyknit and Zoom Air.
·Sustainability:
Reducing environmental impact with initiatives like circular design and Move
to Zero campaign.
·Digital Transformation: Expanding e-commerce and direct-to-consumer
(DTC) sales via Nike apps, SNKRS platform, and its website.
·Market Expansion: Targeting emerging markets (e.g., Asia-Pacifi c, Latin
America) and expanding in urban hubs globally.
Key Strategic Objectives:
• Increase DTC revenue to account for 60% of total sales by 2025.
• Achieve 100% renewable energy use in owned or operated facilities.
• Improve speed-to-market for new product launches through technology
investments
Case Study:Nike-Business Plan
Business Plan
Nike's business plan outlines actionable steps to support its strategy:
Product Portfolio Diversifi cation:
· Expanding lifestyle apparel collections alongside performance gear.
· Collaborating with designers and infl uencers to reach younger demographics.
Channel Focus:
· Driving growth through DTC channels while rationalizing wholesale distribution.
· Partnering with select retailers like Foot Locker to maintain brand exclusivity.
Customer-Centric Approach:
· Investing in Nike Member Rewards Program to enhance loyalty.
· Leveraging data analytics for personalized marketing and product
recommendations.
Operational Effi ciency:
· Streamlining the supply chain with nearshore manufacturing to reduce lead
times.
· Using AI-powered inventory management to optimize stock levels.
Case Study:Nike-Sales & Operating
Plan
Nike’s sales and operating plan is structured to ensure alignment between
forecasted demand and operational capabilities:
Sales Forecasting:
· Predicting demand using AI and machine learning models, factoring in trends like
seasonality and regional preferences.
Inventory Management:
· Implementing "buy-now, pay-later" strategies for retailers to ensure fl exible
inventory fl ow.
· Optimizing stock for popular products (e.g., Air Jordans) based on real-time sales
data.
Regional Sales Plans:
· Tailoring strategies for high-growth regions (e.g., marketing campaigns specifi c to
China’s Singles’ Day).
· Allocating resources for fl agship stores in metropolitan areas.
· Performance Metrics:
· Monitoring KPIs like net promoter score (NPS), gross margin, and digital
engagement metrics.
· Quarterly reviews to adjust pricing, promotions, and regional budgets.
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