Presentation on theme: "Sales and Operations Planning (Aggregate Planning)"— Presentation transcript:
1Sales and Operations Planning (Aggregate Planning) Chapter 10
2Chapter 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.
5Goals of S&OPTo 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.
6Major ApproachesTop-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.
8Planning ValuesPlanning 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.
9Top-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.
10Top-Down Example – Pennington Cabinets 12 monthsales forecast
11Top-Down Example – Pennington Cabinets Table 10.3
12Top-Down Example – Pennington Cabinets Forecastexceeds capacityin peak monthsFigure 10.3
13Top-Down Example – Pennington Cabinets Translate the Sales Forecast into Resource RequirementsFor example:April800 * 20 = 16,000 hrs16,000/160 = 100 wkrsTable 10.4
14Alternative 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.
16Level Production Plan Actual Workers Regular Production Hold workforce constant at 105 (average workforce over 12-month planning horizon)Regular Production105 x (160 hours per month/20 hours per set) = 840 sets per month or 10,080 sets per year
17Level 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.
20Chase Production PlanActual 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.
23Mixed Production PlanBy 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.
26Bottom-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.
29Bottom-Up ExampleThe 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.
31Net cash flow = cash inflows – cash outflows Cash Flow AnalysisNet cash flow – The net flow of dollars into or out of a business over some time period.Net cash flow = cash inflows – cash outflows
32Cash Flow AnalysisDifferent sales scenarios can have a significant effect on cash flow as shown above.Figure 10.5
33Choosing 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?
35Rolling 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
36Implementing S&OP Developing the foundation Build managerial support and infrastructure to make it a success.Integrating and streamlining the processUpdate the plan and use the results for decision-making.Gaining a competitive advantageMake S&OP a core competency.
37Service Considerations Making sales match capacityMaking capacity (typically the workforce) match sales
38Making 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)
39Making 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.
40S&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.
41Sales and Operations Planning Case Study Covolo Diving Gear, Part 2
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