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S&OP = Sum of MPS Detail? 

Chris Gray, Gray Research


Make no mistake - the supply plan from S&OP and the sum of the master schedules must agree.   

S&OP is a decision-making process.  Its primary goals are to establish, and then gain executive approval of, appropriate levels of manufacturing output that will satisfy anticipated sales, consistent with:   

                     Agreed strategic direction 

                     Profitability objectives from the business plan 

                     Productivity goals 

                     Capacity (either current or planned in the future) 

                     Customer lead times (order backlogs) that will be competitive 

                     Acceptable inventory investments sufficient to buffer demand variability  

                     Workforce stability


S&OP is primarily a volume-oriented process, done for product families. The agreed supply plan from S&OP ensures that overall resource capabilities can be made available for production levels that will meet total market demand.  At the same time, it establishes the set of numbers to which all other detailed mix-oriented (item, finished product, finished good) plans and schedules can and must be synchronized.  In other words, the master production schedules for individual items within each product family are developed from the S&OP supply plan.  Working within the constraints of the authorized supply plan, the master scheduler develops (or in the case of existing master schedules, adjusts) the statement of planned future production for individual items and sets the timing and quantities of individual production lots.   

But an existing MPS is also a primary input to the supply plan planning process.  It’s kind of a “virtuous cycle” –  

1.       The master production schedule is developed from the last approved S&OP supply plan, which acts as a kind of budget for the master production schedule.  The supply plan acts as a constraint on the MPS, which must then satisfy forecasts and booked orders within the supply plan “budget”.   

2.       Then during the process of building (or adjusting) the supply plan during the next S&OP cycle, the sum of the existing, current MPS acts as important feedback.  Where do we actually stand today, considering all the items, current inventory positions, desired safety stocks, forecasts and anticipated seasonality, and the schedules that support them?  While it would be too much for executive management to review and approve the MPS for each of hundreds of items, adding up those master schedules and showing them opposite proposed supply plans for the corresponding product families can be essential to validating what is truly possible. 


If the supply plan is to act as a regulator all the lower level plans and schedules, then the MPS must be synchronized with it. If the detailed master schedules when summarized are not within a realistic tolerance of the supply plan, then the material and capacity plans will be misstated, and anticipated results as defined by the business and financial plans and by the sales and marketing plans will not be met.   

But adjustments to the supply plan that are done as part of S&OP must also consider the impact on the individual master schedules.  Is the proposed supply plan so significantly different from the sum of the master schedules that it will be difficult or impossible to adjust the master production schedules so as to bring them into synchronization?  If the proposed supply plan is greater than what exists in the MPS (or what the MPS can be adjusted to), capacity will go unused and inventory, perhaps needed for a future seasonal peak, will be unproduced.  If the proposed supply plan is significantly less than the sum of the master schedules, there may be massive supply chain disruptions as the MPS is throttled back.  Can the MPS be adjusted in the time frame desired by executive management?  Unless that happens, excess inventory – both for finished products and for component materials - will be generated and equipment will be over-utilized.  In either situation, customers will eventually be disappointed.  And in most situations, people throughout the organization will likely be saying “who’s really running things here?”  

Companies getting the best results from S&OP typically have no more than a few percentage points difference between the approved S&OP supply plan and the summarized MPS for the same family.  As a general rule of thumb, +/- 5% tends to be the maximum acceptable difference between them.   

Since these two plans are related, and must be synchronized, over the years many companies wrongly jumped to an obvious solution – “we’ll make them equal simply by summarizing the MPS and calling it the supply plan for S&OP.  This kills two birds with one stone – the plans are in synch and setting the supply plan is much easier – eliminating a lot of hard work and analysis on the part of planners, master schedulers, and senior managers.  In addition, we can then eliminate rough cut capacity planning since we can plan capacity from the detailed MPS”.   

This method has been the source of many false starts with S&OP. The best way to get the S&OP and the MPS in agreement is not to simply summarize the MPS and call it the S&OP supply plan, although this is the most appealing and, superficially, the easiest method.   

Creating the supply plan by simply summarizing the MPS has several problems:   

1.       The false precision in the numbers generated by extending the MPS horizon and the existing product portfolio.   

2.       It’s based on a fundamental misunderstanding of the role that computers and software play in a largely “people process”.   

3.       Executive ownership and accountability. 


False Precision in the Numbers.   

The S&OP horizon is substantially longer than the MPS horizon in most companies, often 6 to 18 months longer.  At the same time, the product portfolio covered by the MPS will be substantially different from the product portfolio encompassed by S&OP.  Just consider, for your own company, how long the horizon needs to be for effective capacity management, capital planning and business planning.  Twelve months?  Eighteen?  Longer?  Now think about the number of new product introductions and product retirements during that horizon.  What percentage of next year’s sales will be products that don’t exist in the portfolio today?  20%?  30%?  More?  And what percentage of today’s product portfolio will no longer exist a year or more from now?  10%?  20%?  40%?  The idea that you can simply extend the MPS to a longer horizon using the existing product portfolio means simply planning the wrong products in every period beyond the MPS horizon.   

In addition, you know that forecast variability increases over time.  You also know that variability by product is always greater than variability for a family.   That coupled with the changes in product portfolio result in an increasingly variable plan that when summarized produces even greater variability in the volume supply plans.   

So for anyone thinking there’s safety in large numbers, there isn’t – at least when those large numbers are based on the sum of highly variable detailed schedules far into the future.   

Finally, using the MPS totals for projecting capacity requirements far into the future creates two additional problems:   

1.       Significant error in a process that is already “rough cut”.  Understanding the capacity implications of S&OP on the company resources is a primary goal of supply planning.  “Is there enough capacity?” – “can enough capacity be made available to support the plan volume?” – “is the desirable plan a ‘do-able’ plan?” - these are questions that must be answered before committing to the sales and operations plan.  But when the capacity projections are being driven by a master schedule which has questionable accuracy – because it is well beyond a reasonable MPS horizon using an inaccurate product portfolio – one has to wonder – “are we just playing games with numbers, or are we trying to manage our business?” 


2.       A potentially huge burden on the master scheduler in situations where sufficient capacity cannot be made available.  When capacity is insufficient and more equipment or people cannot be made available, then do-ability has to win out over desirability.  


In this situation, supply volumes will need to be throttled back, shifted from one time period to another, or shifted from one product family to another.  But this work – which would have to be done at the MPS level – requires scheduling dozens if not hundreds of items, by week, months into the future – something that is not appealing or likely to happen, especially when it is outside the “real” MPS horizon. 


A Fundamental Misunderstanding 

Sales and operations planning is an essential planning process that almost always needs support from computers and software.  However, human judgment and decision-making are crucial components of the process, and the process must culminate in executive approval of the latest “company game-plan”.  As such, human judgment, review, decision-making and approval must not be “engineered out” of the system by the way the software has been designed.   

Relying on the sum of the MPS to serve as a surrogate for the S&OP supply plan gets perilously close to engineering senior management completely out of the process.  Senior management is responsible for making the sales and operations plan the best estimate of future rates of supply.  The value judgments and decisions needed to effectively handle the process of sales and operations planning typically cannot be made by a computer, even one with the most sophisticated algorithms.   

The computer should provide support, information and analysis, and simulations from which people will produce the final approved plans and schedules.   

Software can and should include functions for developing the supply plan, evaluating and analyzing it, and recommending sensible alternatives:   

1.       Two simple calculations almost always help in managing the sales and operations planning process.  One of these calculates the inventory consequences of the demand plan and the supply plan (or the supply plan consequences of the demand plan and a given inventory plan).  The other calculates the backlog consequences of the demand plan and the supply plan (or the supply plan consequences of the demand plan and a given backlog plan).  In some cases, these calculations can be used to set the supply plan.  More typically, they assist in comparing demand and supply so that people can decide whether to adjust the plans, and if so, by how much.  


2.       Resource requirements planning evaluates the capacity consequences on key critical resources.  


3.       The MPS summary shows the total of the mix plans that were developed in response to the (prior) approved S&OP supply plan.   

What the software does not, and should not, do is automatically produce and approve the sales and operations plan.  It should not do it solely based on the simple calculations relating demand and supply.  It should not do it based solely on the capacity projections.  And it should not do it even when a related set of plans (the master production schedule) exists. 


Lack of Executive Accountability.   

The tendency to delegate the S&OP supply planning process completely to lower levels of the organization, specifically to the master scheduler, without including a way for senior executives to set and approve a plan at different level (higher or lower) creates ownership and accountability problems.  Who owns the supply plan numbers?  Does the master scheduler own them since he or she created them?  What part do executives have in these numbers and this plan?  Who owns the plans when executive management approves a higher volume supply plan?  Lower?   

And if senior executives don’t have an effective way to record what the real company game plan is – regardless of whether it’s higher, lower, or the same as the MPS summary; higher, lower or the same as the inventory/backlog oriented calculations; higher, lower or the same as the existing capacity – it is nearly impossible to measure performance and hold anyone accountable for actual results.   

While non-executives are involved in the hardest work required to develop, analyze and reconcile the high level plans which will become the new company game plan, senior executives – the CEO and his or her staff – are still responsible for reviewing performance against earlier sales, supply and inventory (backlog) plans; reviewing the alignment between the proposed supply plan and the current MPS, and approving future plans for sales, supply and inventory (which implies approving adjustments to the MPS).  They must be able to do this on a family by family basis, and the approved plan establishes a “budget” for a new or adjusted MPS.  The approved supply plan needs to be recorded and it is what is measured against in future S&OP review cycles.   

Clearly, there needs to be a “stake in the ground” showing what supply plan was approved by the executive team, and this is what needs to be measured against.  To the degree that the supply plan becomes “automatic” as a consequence of the MPS, this is impossible. 



In the end, the issue isn’t whether MPS totals should be part of the S&OP supply planning process.  They should be.   

Supply planning needs to consider existing item-level master schedules, particularly in the short to medium term.  Assuming that a managed master schedule exists in the company, then future master schedules must be summarized as an input to S&OP.  ANY S&OP supply plan must take into account the already committed statement of production at the item level, because making changes especially in the very near term will be constrained by this.   

In our studies of S&OP Best Practices (see “Sales & Operations Planning Best Practices, Dougherty and Gray, 2006), about three quarters of our companies start their supply planning at the detail level, then summarize it by family.  Then, like all the rest, they continue the supply planning process in aggregate.  In every one of the “best practice” companies, supply planning in S&OP culminates in a statement of aggregate production (sometimes higher, sometimes lower, occasionally the same as the MPS summary), that is reviewed and approved by senior management.  This statement of production is recorded as “official” and becomes the basis for MPS realignment and future performance measurement.   

So for all the reasons explained above, a summarized MPS is a necessary input to S&OP supply planning.  But it is not sufficient for making it successful and does have some fatal flaws when it becomes the only input to the supply plan.  Don’t fall into the trap of thinking that supply planning will be simpler, easier, or more accurate by simply using the summarized MPS over a longer horizon.