1. SALES AND OPERATIONS PLANNING AGGREGATE PLANNING PRODUCTION PLANNING OPERATIONS PLANNING
How to meet effectively and efficiently forecasted requirements of the market (demand) in midterm horizon planning?

2. PLANNING AND CONTROL ACTIVITIES IN MANUFACTURING ENTERPRISE
Strategic planning
Sales & Operations Plan. (aggregate planning)
Master Production Scheduling (MPS)
Material Requirements Plan.
Purchasing Control
Production Control
Input /Output Control
Detailed Capacity Req. P.
Rough-cut Capacity Plan.
Resource Planning
Plan
Execution
Demand
Forcasts
Customers Orders
Resources
Production

3. SALES AND OPERATIONS PLANNING IN ENTERPRISE
Sales and Operations Planning (SOP). The process of planning future aggregate resources levels so that supply - capacity is in balance with demand.
SOP for a service firm: staffing plan.
SOP for a manufacturing firm: production plan (concentrate on production and inventory levels projected for several time periods (months) into the future.
SOP must balance supply with demand to achieve the best compromise between such performance measures as:
customer service, work force stability, costs and profit.

4. AGGREGATE PRODUCTION PLANNING
Objectives of Production Planning:
Elaboration of Production Plan which will:
be consistent with enterprise policy
meet demand requirements
be realistic within capacity constraints
minimize costs
Inputs
Business or annual financial plan
Aggregate Demand forecast
Capacity and other resource constraints
Available decision options and their costs
Outputs
Production levels for the forthcoming periods
Inventory levels
Employment levels
Over time levels
Subcontracting levels
Capacity levels

5. Requirements to production planning
EFFECTIVENESS- meeting of market requirements
FEASIBILITY - production plan should be balanced with available resources
EFFICIENCY- costs minimization through efficient and rational resource utilization

6. AGGREGATION IN PRODUCTION PLANNING
Production planning uses a single measure of output – aggregation of products into commmon output unit.
OBJECTIVE of aggregation – to simplify planning proces
Product family – a group of products that have similar demand requirements and common proces, labor and materials requirements. Usually 1-4 families in enterprise
Ways of aggregation
According to design similarity
According to process similarity
According to labor similarity
Aim of aggregation – building the production, resources and financial plans without having to schedule each of the company’s hundreds of products and employees individualy.
Advantages of aggregation - midterm planning simplification, more accurate demand forcasts

7. DEMAND VERS SUPPLY (CAPACITY)
STATIC ASPECTS
Total Demand in Planning Horizon
Case A
D = C
Case B
D  C
Case C
D  C D C D C D C
Time
Time
Time
demand
capacity
Necessary Condition for Balancing
D  C in planning horizon

8. DEMAND VERS CAPACITY (SUPPLY)
DYNAMIC ASPECTS
Average demand in planning periods
Czas P ZP
demand
capacity
Necessary Condition to Balance
D  C in planning perid

9. PLANNING DECISION-MAKING OPTIONS
Demand Options
Objective – change demand model
Vary prices, vary advertising, vary promotion
Back ordering during high- demand periods and carry finished goods inventory – vary the level of customer service
Add contracyclical products - offer complementary products
Capacity (production) Options
Objective – change capacity model (supply model)
Varying workforce size by hiring or layoffs (increase or decrease)
Varying production rates through overtime or idle time
Using part-time workers
Changing inventory levels
Subcontract work to other firms
Eight Aggregate Planning Options

10. Contracyclical Demand Products
Sales (Units)
5,000
Total demand
4,000
Snowmobiles
3,000
2,000
1,000
Jet Skis (water scooter) J M M J S N J M M J S N J
Time (Months) 44

11. PRODUCTION PLANNING STRATEGIES
LEVEL STRATEGY (level capacity, level scheduling)
Maintaining a constant production rate and work force level over the planning horizon
Advantages: there are no production increasing and decreasing costs, no hiring and firing costs. Strategy used in many „lean production” enterprises)
CHASE DEMAND STRATEGY (produce to demand)
Strategy that sets production equal to forecasted demand. Involves hiring and laying off employees to match the demand forecast
No inventory but there are production increasing and decreasing costs
MIXED STRATEGY
Strategy that uses two or more options such as production rate, inventory and overtime to set a feasible production plan. Combination of the eight options must be investigated to achieve minimum cost

12. LEVEL STRATEGY PP  SP SP PP Time Production plan Sales plan Inventory
Capacity
Regular
Used

13. CHASE DEMAND STRATEGY PP = SP SP PP Production Plan Sales plan Time
Inventory
Time
Capacity
Regular
Used

14. Types of costs considered in production planning
The planner considers several types of costs when preparing sales and operations (production) plans:
Regular- time costs (regular time wages paid to workers)
Overtime costs. Typically 150% of regular- time wages.
Hiring and layoff costs.
Inventory holding costs
Backorder and stockout costs.

15. METHODS FOR AGGREGATE PRODUCTION PLANNING
GRAPHICAL and CHARTING METHODS
MATHEMATICAL METHODS
Planning process based on „trials and errors” approach
Graphical and Charting Methods with Sreadsheeds applications
Planning process based on mathematical methods
Linear programming
Transportation method of linear programming
Transportation matrix technique
Dynamic programming
Heuristic techniques (management coefficients model)
Simulation models
Aggregate planning methods that work with a few variables to compare projected demand with existing capacity.
Aggregate planning methods that use production planning models with planning function that produces an optimal plan for minimizing costs.

16. GRAPHICAL AND CHARTING METHODS
Charting methods are trial and error approaches that do not quarantee
an optimal production plan, but they require only limited computations and
can be performer by clerical staff.
D P
Cumulative Demand Cumulative Production
D C
Projected Demand v. Capacity
Time
Time
Graph of Forcast Demand and Capacity
Graph of cumulative level Production and Demand
Steps in the production planning
Determine the forcast demand in each period
Determine capacity for regular time, overtime, and subcontracting in each period.
Find labor costs, hiring and layoff costs and inventory holding costs
Consider policy that company may apply to the workers and to stock levels.
Develop alternative plans and examine their total costs. Choose the proper plan.

17. PRODUCTION PLANNING MODEL (Function)
Current status
Production rates
Work force size
Inventory levels
Production plan
Production rates
Work force size
Inventory levels
Production planning function
Demand forecasts
Capacity constraints
Equipment
Labour
Materials
Overtime
Extra shifts
Subcontracting

18. Planning period (month)
Example
500
Total
1.800
Planning period (month)
Demand forcast [unit]
200 06 05 04 03 02 01
300
400
Capacity
Regular labor = 300 unit/m
Overtime = 75 unit/m
Subcontracting = 50 unit/m
Initial inventory = 0
Final inventory = 0
Costs
Regular time production = 20 $/unit
Overtime production = 30 $/unit
Subcontracting = 40 $/unit
Holding = 7 $/unit/m
Shortages = 50 $/unit/m
Increase production = 35 $/unit/m
Decrease production = 35 $/unit/m
Time D C
demand
capacity

19. Plan A – LEVEL CAPACITY STRATEGY (pure)
PRODUCTION PLAN [units]
Planning period
DEMAND [units]
Regular
Inventory
Shortages
January
200
300
400
1.800
500
300
100
February
300
200
March
300
200
April
300
100
May
300
100
June
300
100
TOTAL [units]
1.800
700
100
Partial costs [$]
36.000
4.900
5.000
TOTAL COSTS = $45.900

20. Plan B – CHASE DEMAND STRATEGY (pure)
PRODUCTION PLAN [units]
Planning period
Demand [units]
Regular
Increase
Decrease
Inventory
January
200
300
400
1,800
500
200
300
400
500
1,800
36,000
100
February
March
100
April
100
May
100
June
300
Total [units]
300
400
Partial costs [$]
10,500
14,000
TOTAL COSTS = $60.500

21. PRODUCTION PLAN [units]
Plan C – MIXED STRATEGY
PRODUCTION PLAN [units]
Planning period
DEMAND [units]
Regulartime
Overtime
Subcontracting
Inventory
January
200
300
400
1,800
500
300
1,800
36,000
100
February
200
March
200
April
100
May 75 25
June
100
TOTAL [unit] 75 25
700
PARTIAL COSTS [unit]
2,250
1,000
4,900
TOTAL COSTS = $44.150

22. Example of Transportation Matrix use in Production Planning
500
Total
1.800
Planning period (month)
Demand forcast [unit]
200 06 05 04 03 02 01
300
400
Capacity
Regular labor =300 unit/m
Overtime =75 unit/m
Subcontracting = 50 unit/m
Initial inventory = 0
Final inventory = 0
Costs
Regular time production = 2 $/unit
Overtime production = 3 $/unit
Subcontracting = 6 $/unit
Holding = 3 $/unit/m
Increase production = 0 $/unit/m
Decrease production = 0 $/unit/m
Increasing of regular time capacity above 300 units is imposible
Zwiększenie zdolności produkcyjnej czasu nominalnego powyżej 300 szt. jest niemożliwe
Time D C
demand
capacity

23. Transportation matrix
Period 1 2 3 4 5 6
Unused capacity
Capacity R 8 11 14 17
300 O 9 12 15 18 50 S 21 75
Demand
200
400
500

24. Transportation matrix
Period 1 2 3 4 5 6
Unused capacity
Capacity R 8 11 14 17
300 O 9 12 15 18 50 S 21 75
Demand
200
400
500
200
100
200
100
300 50
300 50 75
300 50 75
200
100

25. Production Plan PLAN [units] Planning period Demand [units] Regular
Overtime
Subcontract
Inventory
January
200
300
400
1.800
500
200
February
200
March
300 50 50
Appril
300 50 75 75
May
300 50 75
June
200
TOTAL [units]
1.500
150
150
125
Partial cost [zł]
3000
450
900
375
Total cost = $ 4725