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Making business areas in line with the overall business plan
Sales and operations planning (SOP) is a process where management regularly meets and reviews projections for demand, supply, and the resulting financial impact, making certain that tactical plans in every business area are in line with the overall view of the company's business plan. Whereas business planning looks at the company's plan years into the future, SOP looks at the company's business plan over the short-medium term. There are two approaches that are used in sales and operations planning; top-down planning and bottom-up planning.
Top-down planning is the simplest approach. The forecast is derived from a combination of products and services that require similar resources. Using top-down planning, the management can create tactical plans based on the overall forecast and divide the resources across the supply chain.
Bottom-up planning is used by companies that do not have a stable manufacturing schedule and the number and type of finished goods can change from month to month. In this scenario, the sales forecast is not helpful for resource planning. The management needs to calculate the resources for each of the products and then aggregate it to get an overall picture of resource requirements.