## 4 Development and Simulation of a Predictive S&OP Methodology
### Development of the Conceptual Model
#### 4.1.2 Development of the Conceptual Predictive Sales and Operations Planning Model  
This model starts with the market. The manufacturer's environment is the source of uncertainty and defines the potential events that will define the scenarios. Based on the potential events and their probabilities, the scenarios are derived. Normally, the areas related to strategy and marketing within organizations perform these kinds of activities. In the third step, forecasts of the future demand and sales plans are made, based on the given scenarios. Finally, operations plans are generated to level production over a certain planning horizon. Given the framework in Figure 1, three main disturbances can be observed in practice, as illustrated in Figure 2:  
Figure 1: Managing future uncertainty (own elaboration). 1. Alignment of sales planning with demand scenarios: Most companies enact sales plans based on forecasting methods. However, many of these plans are not related to, or do not consider, the potential scenarios. In addition, many of them do not monitor the current scenario in each planning period based on the events that have taken place. 2. Solution preparation in the long term: What-if scenarios have certain implications in sales and operations plans. Theses implications can be predicted to define preventive measures for increasing efficiency by acting in advance to avoid undesirable planning consequences and results. In this context, many companies do not analyze in depth the potential implications of future scenarios or do not define what can be done to prevent these implications. Therefore, such companies are forced to take corrective measures to maintain system stability. 3. Decisions in the medium term: Many companies know that certain events have taken place, and will identify potential planning actions to prevent inefficiency. However, many of these plans end with delayed decisions due to bureaucracy and discoodination, or end with suboptimal decisions due to organizational structures, such as silos, with divergent goals and interests. Based on these three potential areas of improvement, a predictive methodological approach was developed. As shown in Figure 3, in the market environment, there are several potential scenarios with certain probabilities of occurring. Three scenarios are considered as this information is assumed on the simulation model. Then, based on the scenarios, the sales plan is generated and adjusted based on the expected and real demand values. Later, the operations plan is created by considering the supply chain, production, materials, and personal capacities and constraints. Finally, based on the expected results and past key performance indicators (KPIs), management decisions are analyzed to improve sales and operations planning performance aligned with the scenarios and the company's strategy. Figure 3: Sales and operations planning (S&OP) plan and management decisions based on potential scenarios (own elaboration). Figure 2: Managing uncertainty: predictive versus non-predictive planning (own elaboration). In Figure 3, the blue color indicates the given information for the simulation model, and the grey-colored boxes define the activities performed in the simulation model as the basis for the green-colored boxes, which define the potential decisions and the control limits for these decisions. Figure 4 defines the steps of the predictive S&OP model. This model is divided into three different planning horizons: long-, medium-, and short-term. In the long term, a set of future events and scenarios is defined. The expected S&OP model can then be derived for each of the scenarios. Moreover, based on this predictive S&OP plan, impacts on the system efficiency can be identified. As a result, potential decisions and measures can be prepared as options for the future. These decisions are related to investments, working days or shifts, staff planning, and procurement and distribution partners. Decisions and their limits are defined based on predictive analysis in the long term.