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Sales and Operations Planning (Aggregate Planning)

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Presentation on theme: "Sales and Operations Planning (Aggregate Planning)"— Presentation transcript:

1 Sales and Operations Planning (Aggregate Planning)

2 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 2 Sales and Operations Planning Strategic and tactical considerations Top-down planning Bottom-up planning Optimization techniques

3 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 3 Back to Pennington Cabinet Strategic Capacity Level: Five machines, nine assembly teams Company produces make-to-stock cabinets for sale at Lowes, etc. Effective capacity: 5,000 jobs per year OR about 420 jobs per month

4 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 4 Pennington (continued) Raw Demand for next 6 months: January150 jobs February250 March350 April450 May600 June650 What are our options... ?

5 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 5 Pennington (again) Monthly capacity = 420 Raw Demand April Need 450

6 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 6 Sales and Operations Planning (SOP) Purpose: Select capacity options over the intermediate time horizon Capacity options: –Workforces –Shifts –Overtime –Subcontracting –Inventories –etc.

7 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 7 Time Horizon View... Short-Range Plan (days, weeks out) SOP (months out) Long-Range Plan (years out) Capacity levels considered frozen in the short-term Changes in adjustable capacity possible Changes in fixed capacity possible

8 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 8 SOP continued ( months out) Outside of time frame strategic planning Inside of time frame tactical planning Big Picture approach to planning Families or groups (aggregation) of: –Products –Resources –Technologies or skills Provide rough estimates

9 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 9 Position in the Overall Business Planning Cycle DecisionsTime Frame Product and process Bricks and Mortar 18+ months Employment and overall inventory levels What demand to meet? 2 to 18 months Specific products and times Scheduling of people and equipment Less than 2 months Long-Range Plans SOP Short-Range Plans

10 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 10 Inputs to the Process SOPs Strategic Capacity Levels Existing buildings Processes Demand Management Forecasts of customer demand Need for spares, etc. Pricing External Capacities Suppliers Subcontractors

11 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 11 Advantages of SOP Negotiated process –Agreed demand Functional coordination –Budgets and cash flow analyses Reduces operations task to meeting the plan

12 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 12 SOP Approaches Top-Down Similar products OR stable mix Standards available for planning –time, cost requirements from history and/or planning documentation Can Average product Bottom-Up Different products AND unstable mix Requires forecasts and production data for individual products Can be extremely data- intensive

13 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 13 Top-Down Planning 1.Develop the aggregate sales forecast and planning values. 2.Translate the sales forecast into resource requirements. Personnel, equipment, materials 3.Generate alternative production plans. Chase, level, mixed 4.Select the best of the plans. Lowest cost, best fit to capability

14 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 14 Top-Down Example I (Product Data) Product% of TotalLabor/Unit A10010%40 hours B20050%20 hours C30020%15 hours D4005%10 hours E50010%20 hours F6005%10 hours

15 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 15 Top-Down Example II (Average Products) Product% of TotalLabor/Unit A10010%40 hours B20050%20 hours C30020%15 hours D4005%10 hours E50010%20 hours F6005%10 hours 10%(40) + 60%(20) + 20%(15) + 10%(10) = 20 hours

16 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 16 Top-Down Example III (Conditions or Constraints) Agreed upon demand to be met for upcoming 12 month period Can vary workforce and inventory levels No backordering Average unit requires 20 worker hours Each worker works 160 hours per month

17 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 17 Top-Down Example IV (Demand Forecast for 12 months) MonthDemandMonthDemand March1592September2504 April1400October2504 May1200November3000 June1000December3000 July1504January2504 August1992February1992

18 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 18 Top-Down Example V (Other tidbits of data …) Hiring cost = $300 Firing cost = $200 Inventory holding cost = $6 / unit / month Start and end with 227 workers (goal) Start and end with about 1000 units in inventory (goal)

19 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 19 Detail of First Six Months from Level Strategy Note: We develop a level strategy by setting Actual Employees equal to the average required for the 12 month planning period MonthDemand Demand in Employee Hours Employees to Meet Production Plan Actual Employees Actual ProductionFiringsHirings Ending Inventory March April May June July August

20 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 20 Detail of First Six Months from Chase Strategy Note: We develop a chase strategy by setting Actual Employees equal to the number needed in each period MonthDemand Demand in Employee Hours Employees to Meet Production Plan Actual Employees Actual ProductionFiringsHirings Ending Inventory March April May June July August

21 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 21 Another View...

22 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 22 Cost Details from the Spreadsheets... Level strategy Chase strategy

23 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 23 Top-Down Example (Other Issues …) Are complete costs shown? –Expand out for budget and cash flow analysis Input (suppliers) and output (logistics and warehousing) considerations –Lead time, materials availability, storage space? Variations in actual production –Scrap, rework, equipment breakdowns

24 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 24 Top-Down Example (Expand the options …) We can now subcontract production Maximum subcontract of 1400 units per month Cost is $5 more per unit than internal production cost Will this option: – 1) increase costs? – 2) decrease costs? – 3) have no effect on costs?

25 ©2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield Chapter 12, Slide 25 Second Approach: Bottom-Up SOP Products with very different requirements Requires forecasts and production data for individual products Can be extremely data-intensive


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