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SOP : Volume, Mix , Supply & Demand

By Anonymous - Posted on 17 February 2012

SOP is not a scheduling tool! It is not an inventory replenishment tool! It is, however, a top level planning technique to provide overall rates of sales and production, and backlog and finished goods inventory positions. In a cellular or flow-line based operation, SOP provides the daily run rates for these product families.

SOP is the key business process that derives from the strategic plan, and from which scheduling, order promising, material, shop floor control, and many other processes derive

Where do you as a company fall into this chart? To run a business well, demand and supply must be in balance at both the volume and mix level. In reality this balance does not exist. Thus management must step up to understand this relationship. SOP is a set of tools to balance demand and supply. SOP operates at the volume level; it deals with rates of sales and production, and aggregate inventories and backlog.

Then how does the mix come into play? The Master Scheduler’s task is to balance demand and supply at the mix level. It’s concern with which individual products to run first, second, third and which customer orders will ship when.

These words are saying that SOP and Master Scheduling are not the same thing.
They’re different tools for different purposes.

Now we must come to the two more fundamentals of the SOP process and that is demand and supply. How are they represented in the SOP process? Demand is represented by the Sales Forecast. Capacity Planning represents Supply. These tie in with mix and volume to give us the four components of SOP. Their relationship looks like the following chart:

Thus SOP is a monthly formal balancing of supply and demand through a six to twelve month planning horizon by aggregate product families. It generally includes incoming orders (bookings), backlog, shipments, forecast, finished goods inventory production and capacity projections is a monthly time buckets. It is conducted in a very prescribed format by the top management team. This is a critical point: Top Management. Any company, which embraces this process, must engage the general manager and direct reports. Otherwise, there will be a disconnect between there wishes and the information on the formal SOP document.

In below figure there is a list of a dozen factors that can help lead to operating an S&OP process that maintains exceptional supply chain operational performance over time.

The Balancing Act
The challenge in the SOP process is to balance supply & demand.

SOP is a business process that helps companies keep demand & supply in balance. It does by focusing
on aggregate volumes product families & groups so that mix issues individual products & customer orders
can be handled more readily. It occurs on monthly cycle & displays information in both product units &
financial numbers. The key points of effective sales & planning operations are as below:
It is a business process.
Designed to keep demand & supply in balance.
Performed at the aggregate level of product families or groups.
Focuses on product volume not product mix.
Occurs on monthly cycle.
Displays information in both product units & financial nos


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