Page 352 - Orlicky's Material Requirements Planning

CHAPTER 20 Sales and Operations Planning 331

FIGURE 20-1
Strategy/Tactics/Operations
Traditional S&OP
model.
Strategic
Planning 2–10 Years
Bus. Plan 0 to 18 Months
Change Operations Minimum Change
Sales and
Planning
Tactical Up to Year End
Planning

Daily/Weekly
Operational
Planning

There are two key points in Figure 20-1. First, S&OP as a powerful decision-making
process has to be the driver of tactical and operational planning and execution, with the
financial view from S&OP credibly supporting the business plan. Second, the planning
horizon must be a minimum of 18 months to ensure that decisions are made about year
end in the context of the following year. A simple way of visualizing this is to see opera-
tional planning as the short-term day-to-day flawless execution. Tactical planning is
about delivering this year’s budget, and strategic planning is delivering future years per-
formance. S&OP, a monthly process looking both inward and outward, enables changes
in assumptions to be evaluated and is used to monitor progress forward and update
strategies when needed.
The principal focus of S&OP during the 1980s and 1990s was how to get a good
operational foundation in place. This foundation provides the ability to evaluate demand
and to ensure that sufficient resources are in place across the business to meet that
demand. Changes are assessed monthly, and plans are updated and communicated. The
first impetus was provided by Dick Ling with the creation of S&OP, which we now call
traditional sales and operations planning.

TRADITIONAL SALES AND OPERATIONS PLANNING

S&OP was created in the late 1980s by Dick Ling (his book, Orchestrating Success, coau-
thored with Walter Goddard, was published in 1982). At the time, MRP II was in vogue,
and S&OP started to be seen as a driver whose principal focus was to make MRP II work
in a single manufacturing plant within a business.
At the time, S&OP was a breakthrough because in many businesses annual business
planning, sales planning, and production planning were completely separate exercises.
There were one-way hand-offs and massive disconnects; finance as the neutral function