The Pitfall of Traditional Management Accounting in the Context of S&OP

Abstract

This paper proposes the following two hypotheses. (1) The essence of Sales & Operations Planning (S&OP), which is the process of strictly projecting profits and losses based on Production-Sales-Inventory plan (PSI), is to maximize profit maximization utilizing PSI as a constraint. (2) Additionally, relaxation of PSI constraints such a shortening processing and lead times can produce shadow price benefits. These two hypotheses provide unexplored perspectives towards optimizing overall supply chain cost management.