Question 137 - CPIM-Part-2 discussion

Sales and operations planning (S&OP) in a make-to-stock (MTS) environment is concerned with projecting inventory.S&OP is an integrated planning process that aligns demand, supply, and financial planning and is managed as part of a company's master planning1.MTS is a traditional production strategy that is used by businesses to match inventory with anticipated consumer demand2.Inventory is the quantity and value of materials and products that are available in stock or in transit3.

S&OP in an MTS environment is concerned with projecting inventory because inventory is the key link between demand and supply.Inventory can be classified into three types: raw materials, work-in-process, and finished goods3. S&OP aims to balance the inventory levels of these types with the expected demand and supply plans, as well as the financial objectives of the company. S&OP can help optimize inventory management by:

Reducing inventory costs, such as holding, ordering, and shortage costs3.

Improving inventory turnover, which is the ratio of sales to average inventory3.

Increasing inventory availability, which is the percentage of orders that can be fulfilled from stock3.

Enhancing inventory quality, which is the degree of conformance to specifications and standards3.

The other options are not as relevant for S&OP in an MTS environment as inventory.Item forecasts are estimates of future demand for specific products or services based on historical data, market trends, or customer inputs4. Item forecasts are an input to S&OP, not an output.S&OP uses item forecasts to generate aggregate demand plans for product families or categories, which are then matched with aggregate supply plans for production capacity or resources1.Backlog is the quantity of customer orders that have been received but not yet fulfilled3. Backlog is not applicable for S&OP in an MTS environment, because MTS products are produced before customer orders are received. MTS products are delivered from stock, not from backlog.Bookings are the quantity of customer orders that have been received and confirmed3. Bookings are also not applicable for S&OP in an MTS environment, because MTS products are not dependent on customer orders. MTS products are based on forecasted demand, not actual demand.