Use World-Class SOP Strategies to Balance Future Supply and Demand
- by Wolfgang Eddigehausen
- March 1, 2006
Having difficulty balancing supply and demand? Doing OK but want to do better? Learn the key strategies to put Sales and Operations Planning (SOP) to work for you.
One of the key activities in the area of supply chain planning is the periodic review of anticipated demand and available supply. This business process consists of steps performed within Advanced Planning and Optimization (APO), using primarily Demand Planning (DP) and Supply Network Planning (SNP). Sales and Operations Planning (SOP) is thus not a module of APO but rather a process supported by APO. Since the SOP process is a pure planning task, it does not interact with R/3 or SAP ERP Central Component (ECC), other than the use of master data created therein. Traditionally, the data required for the SOP process came from ERP systems, such as R/3, and was further processed, mainly in spreadsheets. Since the advent of supply chain planning systems such as APO, it is possible to carry out this process without data extracts and offline spreadsheets.
In a real-life environment, demand and
supply do not often match and you must
align them in a planning process. The
Sales and Operations Planning (SOP) process
consists of balancing what you could
sell with what you can make available
for delivery. At the end of the planning
process, demand and supply planners agree
on a feasible plan for the immediate
future, referred to as the frozen period.
During this frozen period, no one should
make any demand forecast or supply plan
The SOP process typically spans the
next one to three months, depending on
the type of industry and manufacturing
processes. In a Consumer Packaged Goods
(CPG) industry, the SOP starting point
(after the frozen period) can be as short
as one week, while in most other industries
the starting point usually lasts about
one month. Capital-intensive industries
in which production changes are not easy
to manage or are expensive also tend
to have a longer frozen period.
While basically all companies have
some type of SOP process, big differences
arise in terms of clear process definition
and system support. A well-performed
and sustainable SOP process enables companies
to detect supply problems early enough
to avoid customer dissatisfaction. Its
main idea is proactive planning rather
than reactive firefighting.
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