Sales and Operations Planning Aggregate Planning Chapter 10

Sales and Operations Planning (Aggregate Planning) Chapter 10

10 Chapter Objectives Be able to: § Distinguish among strategic planning, tactical planning, and detailed planning and control. § Describe why sales and operations planning (S&OP) is important to an organization and its supply chain partners. § Generate multiple alternative sales and operations plans for a firm. § Describe the differences between top-down and bottom-up S&OP and discuss the strengths and weaknesses of level, chase, and mixed production strategies. § Discuss the organizational issues that arise when firms decide to incorporate S&OP into their efforts. § Examine how S&OP can be used to coordinate activities up and down the supply chain. § Apply optimization modeling techniques to the S&OP process. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 2

10 Sales and Operations Planning § Sales and operations planning (S&OP) – A process to develop tactical plans by integrating marketing plans for new and existing products with the management of the supply chain. © 2010 APICS Dictionary § Brings together all the plans for the business into one integrated set of plans. § Also called Aggregate planning. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 3

10 S&OP Planning Levels § Strategic planning § Tactical planning § Detailed planning and control Figure 10. 1 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 4

10 Goals of S&OP § To indicate how the organization will use its tactical capacity resources to meet expected customer demand. § To strike a balance between the various needs and constraints of the supply chain partners. § To serve as a coordinating mechanism for the various supply chain partners. § To express the business’s plans in terms that everyone can understand. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 5

10 Major Approaches § Top-down planning – An approach to S&OP in which a single, aggregated sales forecast drives the planning process. § Bottom-up planning – An approach to S&OP that is used when the product/service mix is unstable and resource requirements vary greatly across the offerings. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 6

10 Choosing an Approach Figure 10. 2 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 7

10 Planning Values § Planning values – Values that decision makers use to translate a sales forecast into resource requirements and to determine the feasibility and costs of alternative sales and operations plans. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 8

10 Top-Down Planning § Developing a top-down plan: § Develop the aggregate sales forecast and planning values. § Translate the sales forecast into resource requirements. § Generate alternative production plans. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 9

10 Top-Down Example – Pennington Cabinets § 12 month sales forecast Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 10

Top-Down Example – Pennington Cabinets 10 Table 10. 3 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 11

10 Top-Down Example – Pennington Cabinets § Forecast exceeds capacity in peak months Figure 10. 3 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 12

10 Top-Down Example – Pennington Cabinets § Translate the Sales Forecast into Resource Requirements For example: April 800 * 20 = 16, 000 hrs 16, 000/160 = 100 wkrs Table 10. 4 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 13

10 Alternative Production Plans § Level production plan – A S&OP plan in which production is held constant and inventory is used to absorb the differences between production and the sales forecast. § Chase production plan – A S&OP plan in which production is changed in each time period to match the sales forecast. § Mixed production plan - A S&OP plan that varies both production and inventory levels in an effort to develop the most effective plan. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 14

10 Level Production Plan Table 10. 5 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 15

10 Level Production Plan § Actual Workers § Hold workforce constant at 105 (average workforce over 12 -month planning horizon) § Regular Production § 105 x (160 hours per month/20 hours per set) = 840 sets per month or 10, 080 sets per year Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 16

10 Level Production Plan § Hiring and Layoffs § Hire 5 workers in January to bring the workforce up to 105 from the initial level of 100. § Layoff 5 workers at the end to bring the workforce back to its starting level. • Ensures equal comparison of alternative plans under the same beginning and ending conditions. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 17

10 Level Production Plan § Inventory Levels Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 18

10 Level Production Plan § Cost of the Plan Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 19

10 Chase Production Plan § Actual workforce production and overtime production vary so that total production essentially matches sales for each month. § Inventory never builds up because total production “chases” sales. § There are more hires and layoffs and overtime production costs. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 20

10 Chase Production Plan Table 10. 6 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 21

10 Chase Production Plan § Cost of the plan Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 22

10 Mixed Production Plan § By varying the production and inventory levels, the best plan can be developed. § The number of potential mixed plans is essentially limitless. § For example, overtime may be limited to 12 cabinet sets per month in October and November. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 23

10 Mixed Production Plan Table 10. 7 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 24

10 Mixed Production Plan § Cost of the Plan Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 25

10 Bottom-Up Planning § Steps are similar to top-down planning. § Main difference is that the resource requirements for each product or service must be evaluated individually and then added up across all products or services to get a picture of overall requirements. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 26

10 Bottom-Up Example Table 10. 8 § Although machine hour requirements are similar, labor requirements differ greatly. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 27

10 Bottom-Up Example Table 10. 9 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 28

10 Bottom-Up Example § The difference in labor requirements becomes important when the product mix changes. § Even though the aggregate forecast across both product lines is 700 units each month, the product mix changes, as can be seen in the labor hours needed each month. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 29

10 Bottom-Up Example Load Profile – A display of future capacity requirements based on released and/or planned orders over a given span of time. © 2010 APICS Dictionary Figure 10. 4 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 30

10 Cash Flow Analysis § Net cash flow – The net flow of dollars into or out of a business over some time period. Net cash flow = cash inflows – cash outflows Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 31

10 Cash Flow Analysis Different sales scenarios can have a significant effect on Figure 10. 5 cash flow as shown above. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 32

10 Choosing between Plans § What impact will the plan have on key suppliers and transportation providers? § What are the cash flows like? § Do the supply chain partners and the firm itself have the space needed to hold any planned inventories? § Does the plan contain significant changes in the workforce? § How flexible is the plan? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 33

10 Fine-Tuning the Plan Figure 10. 6 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 34

10 Rolling Planning Horizons § Rolling planning horizon – A planning approach in which an organization updates its sales and operations plan regularly, such as on a monthly or quarterly basis. Figure 10. 7 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 35

10 Implementing S&OP § Developing the foundation § Build managerial support and infrastructure to make it a success. § Integrating and streamlining the process § Update the plan and use the results for decisionmaking. § Gaining a competitive advantage § Make S&OP a core competency. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 36

10 Service Considerations § Making sales match capacity § Making capacity (typically the workforce) match sales Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 37

10 Making Sales Match Capacity § Yield management – An approach that services commonly use with highly perishable “products” in which prices are regularly adjusted to maximize total profit. Total profit = (average profit per service unit sold) * (# of service units sold) Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 38

10 Making Capacity Match Sales § Tiered workforce – A strategy used to vary workforce levels in which additional full-time or part-time employees are hired during peak demand periods, while a smaller permanent staff is maintained year-round. § Offloading – A strategy for reducing and smoothing out workforce requirements that involves having customers perform part of the work themselves. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 39

10 S&OP Optimization Modeling § Optimization model – A class of mathematical models used when the user seeks to optimize some objective function subject to some constraints. § Understand the pattern of resource decisions – labor, inventory, machine time, etc. - that will result in the lowest total cost while still meeting the sales forecast. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 - 40

Sales and Operations Planning Case Study Covolo Diving Gear, Part 2 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -

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