In the tactical horizon we generally find a monthly S&OP process. The (main) activities of this business process are demand planning, rough-cut-capacity-planning (RCCP), checking procurement lead-times, products phase-in & phase-out, update planning parameters, e.g. calendars, inventory etc.

The purpose of these activities is to balance demand with supply, ensuring the company can meet customer needs while optimizing the available resources.

The questions that are answered during S&OP are:

🔶 what are our financial objectives?
🔶 how can we achieve our objectives?
🔶 what potential risks should we consider?

The S&OP planningprocess happens at an aggregated level, commonly in a monthly bucket with a monthly frequency. We aggregate products by families, resources by groups, customers by markets or customer zones etc.

The type of optimization model(solver) that best supports the S&OP business process is known as networkoptimization. We model the full network: plants, distribution centres, suppliers, customers, products, resources, transportation lanes, BOMs, rates, costs etc.

There are two types of decisions that are modelled:

🔷 where and how much to produce
🔷 from where and how much to deliver

The solver is free to choose both the production facility for a certain demand and the distribution center that serves the customer which placed that demand.

We do not allocate a DC to a customer beforehand. The solver decides from which DC or plant it is best to serve that customer.

This type of model is similar to the networkdesign which I talked about in a previous post. In both we model the end-to-end network.

The main difference is that in network design we have a base scenario (as-is). Starting with the base scenario we run simulations to check if, for example, we should open/close a facility.

In network optimization we leave all the decisions open to the solver. Based on the results we keep adding constraints if needed, for example close some transportation lanes which do not make sense or adjust capacity.

I am showing how to build a network optimization solver in the free hands-on supplychain masterclass, see below the link.

We start with a production planning solver and build towards a network optimization solver. You can practice creating the models using an app made by Filipe Brandão.

We have released the first 6 episodes, the rest up to 12 are work in progress.

⭐ Any questions or suggestions are always welcome!