Sales and operations enter a meeting with different numbers for next month. Sales expects 1,200 units of demand; the plant has ordinary capacity for 1,000. The meeting cannot resolve the gap by simply choosing one number. Sales and operations planning is a recurring process that brings demand, supply and financial consequences into one declared decision. The useful questions are how much can actually be served, at what cost and risk, and who has authority to make the tradeoff.
Example
The cycle starts with a cleaned demand history and commercial assumptions, followed by a demand review with sales and marketing. Operations and procurement then check capacity, materials, supplier lead times and inventory, not merely a machine's nominal rate. Reconciliation presents gaps in units, timing and money along with feasible options. An executive decision selects a response and sets service and spending priorities. The agreed plan becomes a baseline for execution and review in the next cycle. Do not rewrite the demand number merely to match available capacity; keep unmet demand visible until an explicit choice addresses it.
Worked case: likely monthly demand is 1,200 units. Regular capacity is 1,000, opening inventory is 150, and this scenario's policy retains 50 units of closing buffer. Available supply without extra action is 1,000 + 150 − 50 = 1,100, leaving a gap of 100. Overtime can produce 100 more at an incremental cost of 8 per unit, provided materials and staffed hours are available: total 800. An external producer can deliver 100 at an incremental 12 per unit, total 1,200, with a documented lead time inside the month. Deferring 100 orders triggers a case-specific contractual payment of 20 per unit, total 2,000, and might also damage trust in ways the payment does not capture. If materials, staffing and quality are confirmed, overtime is the lowest-cost feasible option of these three and preserves the buffer. If a critical material is unavailable for overtime, that option drops out; the decision shifts to external production or a documented service renegotiation.
The decision pack can show demand 1,200, base fulfillment 1,100, gap 100, overtime cost 800, outside production 1,200 and deferral 2,000 under the case assumptions. Add the customer need date, material lead time and quality constraint so price alone does not decide. After approval, measure actual extra production, closing inventory and on-time order completion. Drawing down the buffer instead could conceal this month's gap while shifting disruption risk into the next month; it is not a free solution.
Sales and operations planning should produce one executable plan, not independent promises. Reconcile sales demand, opening stock, normal capacity, material-constrained receipts and target closing stock over one horizon. Compare overtime, outsourcing and negotiated delivery by cost, timing and quality. Cheaper overtime is infeasible without material. Record the decision owner, date and demand assumptions, then compare actuals with the agreed plan to learn which assumption failed.
