Learning Objectives

• Describe the different levels of production planning and control – strategic, tactical, and operational
• Describe the multi-function Sales and Operations Planning (S&OP) process
• Describe the differences between level and chase manufacturing strategies
• Describe how a materials requirement plan cascades from high-level planning and ends up providing supplier release schedules

1. Introduction to Operations Planning and Control – How everything in a supply chain comes together

Operations planning and control encompass the processes used by organizations to coordinate resources, production activities, and information flows to achieve desired output levels. The objective is to ensure that operations run smoothly and efficiently while meeting customer expectations and organizational goals.

These activities include forecasting demand, planning production, procuring materials, scheduling labor, and managing inventory. Collectively, they act as the nerve center of the organization’s supply chain operations.

Operations planning and control form the backbone of any effective supply chain system. These processes ensure that organizations can consistently match supply with demand, manage resources efficiently, and deliver products or services to customers at the right time, in the right quantity, and at the right cost. This chapter examines the hierarchy of planning—from long-term strategic decisions to detailed material and supplier schedules—highlighting how each element integrates into a coherent operations management framework.

Effective planning and control have a direct impact on the following outcomes:

• Customer service (on-time delivery, order accuracy)
• Costs (labor, materials, inventory carrying costs)
• Resource utilization (capital equipment, workforce, facilities)
• Flexibility (the ability to respond to changes in demand or supply)

In a competitive environment, the difference between success and failure often lies in how well an organization plans.

Operations planning occurs across multiple time horizons:

• Strategic (Long-term): capacity, facilities, major investments
• Tactical (Medium-term): sales and operations planning, aggregate planning
• Operational (Short-term): material requirements planning (MRP), scheduling, supplier orders

This hierarchical structure is essential because decisions made at one level constrain or enable decisions at the next.

2. The Planning and Control Framework

Operations planning typically begins with business strategy, which informs long-term production capabilities. The framework then systematically cascades downward, connecting strategic planning to day-to-day execution.

2.1 Time Horizons

Three time horizons help differentiate planning activities:

• Strategic planning (long term) – is concerned with capacity (new production facilities and warehouses, for example), making major changes in facility layout, and making technology choices (automation versus manual, new manufacturing processes, etc.). This type of planning typically falls within the 18-36 month horizon. This provides companies time to build new facilities, try out new technologies, and find new suppliers when needed.

• Tactical planning (medium term) – involves aggregate planning that provides a high-level monthly production plan that can be used to plan workforce levels (hiring/layoffs). The aggregate plan, for example, states how many pickup trucks a company will produce on a monthly basis over a period of 12-18 months, but doesn’t necessarily specify how that production will be split across colors, options, and trim levels – that comes in the next level of planning

• Operational planning (short term) – is the daily and weekly plan that provides more details on specific variations of what will be produced and is where a company will schedule their workers and decide on overtime, where needed. Operational planning is where a firm releases their specific production orders and adjusts to disruptions

2.2 Balancing Demand and Supply

Matching supply with demand is one of the core challenges in operations management. It’s a dance that management continuously tries to balance. If supply does not match demand, then inefficiencies arise.

If there is more supply than demand, then waste occurs in the form of excessive raw material, work-in-progress, and finished goods inventories. A supply chain with excessive supply will need to discount the selling price of its goods to increase demand to match the level of supply, thus reducing profitability. If demand exceeds supply, then stockouts are likely to occur, resulting in dissatisfied customers who may not wait but instead will seek competing products.

While matching supply and demand perfectly is not possible, getting the two as close as possible is the goal. We call this a ‘dance’ because both supply and demand are constantly moving and subject to risks and variability. It’s like shooting at a moving target. Below are some strategic levers that management can use to help orchestrate the supply and demand dance.

Demand Management Techniques

Demand can be influenced through:

• Price adjustments
• Promotions
• Backorder policies
• Product substitution

Supply Management Techniques

Organizations can adjust supply by:

• Hiring or laying off workers
• Adjusting overtime
• Changing inventory levels
• Subcontracting
• Modifying production rates

2.3 Capacity and Demand Strategies

Three overarching strategies guide medium-term planning:

• Chase Strategy: Adjust supply (e.g., workforce or production rate) to match demand.
• Level Strategy: Maintain a constant production rate, using inventory or backorders to buffer variability.
• Hybrid Strategy: Combine both approaches to balance cost and flexibility.

3. Sales and Operations Planning (S&OP)

Sales and Operations Planning (S&OP) is the central, cross-functional process that connects marketing, operations, and finance. It ensures everyone in the organization aligns around a single, achievable plan. The monthly production plan examples above illustrate the outcome of the S&OP process.

3.1 Purpose and Objectives

S&OP aims to:

• Develop a consensus demand forecast
• Create a feasible supply plan
• Align operational and financial targets
• Break down functional silos
• Provide a platform for scenario planning and decision making

3.2 The S&OP Process

The S&OP cycle typically follows a monthly cadence and involves five key steps.

Step 1: Data Gathering

Organizations compile information about:

• Actual sales
• Forecasts
• Inventory levels
• Capacity availability
• Financial constraints

Step 2: Demand Planning

Marketing and sales teams develop a demand forecast based on:

• Market trends
• Customer expectations
• Promotions
• Competitive analysis

Quantitative forecasting methods are combined with qualitative insights.

Step 3: Supply Planning

Operations evaluates the feasibility of meeting demand:

• Production capacities
• Inventory positions
• Labor availability
• Supplier constraints

Alternative scenarios may be created to address mismatches.

Step 4: Pre-S&OP Meeting

Cross-functional teams discuss:

• Gaps between demand and supply
• Trade-offs between inventory, production, and service
• Proposed recommendations

Step 5: Executive S&OP Meeting

Senior leaders review the recommendations and approve the final plan. This plan becomes the organization’s tactical blueprint for the coming months.

3.3 Key Outcomes

• Agreed-upon demand forecast
• Capacity-adjusted production plan
• Inventory strategies
• Financial alignment
• Decision logs for future reference

The S&OP process is THE cross-functional process that allows a company to orchestrate its supply chain of supply and best match it to demand. Effective communication of both good and bad news is crucial to the success of S&OP. When major supply disruptions occur, the cross-functional team can then determine how to respond and adjust other resources accordingly. If a key supplier suffers a major disruption (for example, an earthquake destroys a supplier’s production facility), the S&OP process may result in the company canceling its production plans for the affected product and shifting its capacity to another product whose supply chain remains intact.

As mentioned previously, matching supply and demand is a delicate dance, and the S&OP process is the event where this dance takes place. Here’s another example – let’s say the CEO and her leadership team decided to invest in a marketing campaign to boost sales in the 4th quarter of a year. The marketing team would create a campaign proposal and provide guidance on how much they expected sales to increase… say 20% expected increase in sales.

The production team would analyze this proposal and perhaps confirm that they had the internal production capacity to handle the increase in sales. Purchasing and logistics would, in the meantime, analyze their contracts with suppliers to ensure that their supply base could also support the increase in sales. If contracts for the needed capacity were not in place, this would provide time for these groups to reach out to their suppliers and negotiate capacity increases. There could be an unfortunate circumstance where a specific supplier is unable to increase their capacity for any given reason. If that were to happen, the supply chain organization would return to the S&OP process with feedback indicating that they would be unable to support the strategic marketing campaign and its ensuing increase in demand. If there were no way around this constraint, the executive management team could call off the campaign and avoid wasting valuable resources.

4. Aggregate Planning

Aggregate planning converts the broad S&OP decisions into specific plans for product families or production lines.

4.1 Role of Aggregate Planning

Aggregate plans refine:

• Production volume
• Workforce levels
• Inventory policies
  They ensure supply capabilities match anticipated demand at a feasible cost.

4.2 Aggregate Planning Strategies

Organizations typically adopt one of the following:

• Chase Production: Production rate varies with demand.
• Level Production: Stable production rate with inventory buffering.
• Hybrid Strategy: Combining the stability of the workforce with small volume adjustments.

A chase strategy is one where a company hires and lays off workers as needed to best match the level of demand for a given week or month. The goal is to have the exact number of employees needed and to adjust daily production levels to match demand precisely. A chase strategy in its purest form is achieved with a pull production system, where a firm produces exactly the number of products that are in demand at any point in time. The benefits of a chase strategy include lower inventory levels and a decreased risk of overproduction. If a toy factory were to follow a chase strategy, it would schedule production at the same rate as sales, meaning that the Christmas holiday season would see a significant increase in both employee hiring and production. Another example is the company Amazon, which nearly doubles the number of its warehouse employees using seasonal temporary worker contracts during the holiday season, and then lets those temporary workers go after the holiday rush is over. Below is an example of a production plan that follows a chase strategy

Chase Strategy Example

The alternative to the chase strategy is the level strategy, where companies purposefully produce the same production levels each month, and that level is simply the average of the demand for each month of the year. Using the above table, we can calculate the sum of all the monthly demands for the year (1980), then divide that number by 12 (for the number of months in the year), which yields 165. If the company produces 165 units per month of the product, then by the end of the year, they will have matched the overall yearly demand. Obviously, some months they will overproduce and other months they will underproduce, but in the end, these numbers will all even out to match demand exactly. The benefits of this strategy is that a company will not need to hire and layoff employees constantly and the company will also benefit from a constant and unfluctuating volume, thus helping achieve improved quality performance.

Level Strategy Example

A hybrid strategy combines elements of the level and chase strategies, where it chases demand for certain months of the year and then implements a level strategy for the remaining months. How much chase versus level is up to the company and their operational needs. Below is an illustration of one potential hybrid solution that runs a level strategy for the months of April through September and then chases demand for the remaining months.

Hybrid Strategy Example

5 Master Production Scheduling (MPS)

Master Production Scheduling disaggregates aggregate plans into specific end-item schedules. These production schedules provide more exact plans according to the different models produced.

5.1 Purpose of the MPS

The MPS determines:

• What finished goods to produce
• How many units of each
• When the units should be produced

It serves as the primary input to Material Requirements Planning (MRP).

5.2 Time Fences and Stability

MPS operates within time “zones”:

• Frozen Zone: No changes due to supplier or production constraints.
• Slushy Zone: Limited flexibility; changes require significant review.
• Liquid Zone: Most flexible; production plans can be easily altered.

In the auto industry, for example, production is based on dealership orders. A customer may visit the dealership and request a very specific color and trim combination. The dealership will then place this order with the manufacturer, who will attempt to schedule the build as soon as possible. Typically, the window to integrate this order into the production schedule is two to three weeks out (slushy zone), as the first one to two weeks are typically a ‘frozen zone’ where no changes are allowed. This is necessary so that the manufacturer can accurately release supplier ship schedules. Prior to this time period you have the liquid zone where detailed plans are more likely to change from one week to the next. In the auto industry, the MPS provides a 20-week manufacturing plan, where weeks 1 and 2 are ‘frozen’, weeks 3 and 4 are ‘slushy’ and weeks 5-20 are liquid in nature. This becomes a challenge for scheduling parts from overseas (Asia, for example) where typically weeks 1-3 are volumes stored in a domestic warehouse, weeks 4-7 are in transit, and suppliers are looking to week 8 volumes for the shipping volume for that week (ocean containers from overseas locations typically ship once per week). Given that week 8 is in the liquid zone, the accuracy and likelihood of the number of units staying the same for the next 8 weeks is not very high.

5.3 Inputs and Outputs

Inputs:

• Demand forecasts
• Actual customer orders
• Inventory status
• Bill of Materials
• Production capacity

Outputs:

• A schedule specifying end-item production quantities and dates

6. Material Requirements Planning (MRP)

MRP is the engine that drives material flow through the manufacturing system.

6.1 Purpose of MRP

MRP determines:

• What materials are needed
• In what quantities
• When they are needed

This ensures production runs without delays caused by missing materials.

6.2 Key Components of MRP

MRP relies on three key data sets:

Bill of Materials (BOM)

A structured, hierarchical listing of all components required to build a finished product.

Inventory Records

Information about:

• On-hand inventory
• Open orders
• Safety stock levels
• Lot size rules
• Lead times

Master Production Schedule

The driver of demand for components. The example in the previous section of the auto industry illustrates how a fluid MPS in later weeks can create havoc for overseas suppliers. Given this complexity, companies need a robust inventory safety stock strategy to buffer against such variability in demand. Once the master production schedule is accurately captured, the next step discussed below is the planned order release from suppliers.

7 Supplier Scheduling and Procurement Planning

MRP outputs form the basis for external procurement.

7.1 Linking MRP to Procurement

Planned order releases convert into purchase orders, coordinated with supplier lead times and shipping policies.

7.2 Supplier Scheduling Methods

Common approaches include:

• Periodic release schedules
• Rolling schedules (e.g., weekly)
• JIT deliveries aligned with production schedules
• Vendor-Managed Inventory (VMI) systems

7.3 Supplier Collaboration

Successful planning requires:

• Forecast sharing
• Reliability in lead times
• Joint capacity reviews

8. Case Study: “The Week the Line Stopped”

It was 6:15 a.m. when Ana Morales, Production Planning Manager at EverBright Appliances, pulled into the parking lot. The air was cool, and the first shift wouldn’t start for another 45 minutes, but her phone had already buzzed twice—both alerts from the planning system.

Something wasn’t right.

Inside the facility, forklifts hummed, and the smell of machine oil filled the air. The large LED board on the wall showed the day’s production plan for EverBright’s best-selling product: the Lumina Smart Washer. But instead of the usual smooth green indicators, three red lights blinked urgently.

Forecasting Trouble

Ana walked quickly to her office and opened the MRP system. Overnight demand data had updated from the retailer portal: orders were up 35% for the next three weeks. The marketing team had launched a promotion earlier than planned. The forecast hadn’t reflected that spike.

“This is why forecasting is 20% numbers and 80% diplomacy,” she muttered. She texted the demand planning analyst. We need to talk. ASAP.

Aggregate Planning Decisions

Ana scanned the aggregate production plan. They had been running a level strategy to support stable labor utilization, but the unexpected surge meant they’d have to switch to a partial chase strategy—maybe add overtime or bring in the standby weekend crew.

She sighed. Management hated overtime expenditures. But customers hated even more stockouts.

Master Production Schedule Shockwaves

At 7:05 a.m., Mark, the Master Scheduler, poked his head into Ana’s office.

“You saw the demand spike?”

“Yeah,” she said. “We need to adjust the MPS. If we lock the frozen zone, we can still shift output next week, but our available to promise quantity is going negative fast. Sales will start screaming for product.”

“And we have a supplier lead time issue,” Mark added. “The control boards for the washer— we only have 400 in inventory. MRP shows we’ll need 1,200 by Friday.”

MRP Domino Effect

Ana clicked through the BOM explosion. Every washer required one control board and two drive motors. The motors were fine. But the control boards were the bottleneck.

MRP recommended rush-ordering 800 boards. The supplier was in Malaysia. Air freight would triple the logistics costs.

Ana grimaced. “Classic MRP dilemma: data is accurate, but the solution is painful.”

Technology to the Rescue

Back in her office, Ana opened the APS system—a more modern overlay that simulated multiple planning scenarios.

She ran a digital twin simulation of the plant: What if they added a Saturday shift? What if they air-freighted only half the control boards? What if they resequenced models by demand urgency?

The simulation showed a balanced plan:

• Expedite 300 control boards
• Add one Saturday shift
• Reroute 15% of washer assembly to Line 3
• Adjust the MPS to push lower-priority SKUs out two weeks

It wasn’t pretty, but it would work.

Communicating the Plan

By 9:00 a.m., Ana gathered everyone—sales, operations, procurement, and maintenance—for a quick S&OP-style huddle.

She laid out the situation and the plan.

Sales complained about delayed SKUs.
Procurement groaned about the expedited costs.
Maintenance warned about crew overload.
Operations asked if the plan was even feasible.

But Ana was steady. “This is the best balance of cost, service level, and capacity. Our goal is simple: keep customers stocked without breaking the plant.”

Everyone nodded. They knew she was right.

The Week Ends With a Win

By Friday afternoon, the first expedited shipment of control boards arrived. The Saturday shift was staffed and ready. Output had caught up just enough to keep retailers supplied.

Ben walked over with a grin. “We survived.”

Ana laughed. “This is production planning. We don’t survive—we anticipate.”

He nodded. “Still, this week felt like the whole system was being tested.”

“It was,” she said. “And it showed exactly why Production Planning and Control is the heart of this company.”