1 ISQA 459 Sales & Operations Planning Planning production to meet the firms strategic objectivesDemand vs. SupplyVolumeMixHow is sales plan different from operations plan?Demand > SupplyDemand < Supply
2 Balance Supply & Demand Intermediate Term (3-18 months)APP = Competitive Advantage: Anheuser-Busch- 40% of US beerProduction of certain brands in specific plantsHigh volume & low variety/plantLabor requirementsMeticulous cleaning between batchesInventory CapacityGoal:High facility utilizationWhy?
3 Hierarchical Planning Annual demand byitem and by regionMonthly demandfor 15 months byproduct familyfor quarter byitemForecasts neededAllocatesproductionamong plantsDeterminesseasonal plan byDetermines monthlyitem productionschedulesDecision ProcessDecision LevelCorporatePlant managerShopsuperintendent55
4 At this stageGenerally Planning for a product line or family (AGGREGATE) not individual SKUsHow much beer at each plant of each typeNot container types, etc.InputsStrategic objectives, demand forecasts, company policy, financial constraints, capacity constraints.OutputsSize of workforce, production per month (units or $), inventory levels, and units subcontracted, back ordered, or lost.
5 Aggregate PlanningGoal: Specify the optimal combination of the following variables to minimize costproduction rate (units completed per unit of time)workforce level (number of workers)inventory on hand (inventory carried from previous period)66
6 Balancing Aggregate Demand and Aggregate Production Capacity Suppose the figure to the right represents forecast demand in units.10000100008000800070006000550060004500Now suppose this lower figure represents the aggregate capacity of the company to meet demand.40002000JanFebMarAprMayJun9000What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up.10000800080006000600045004000400040002000JanFebMarAprMayJun99
7 Aggregate Planning Examples: Unit Demand and Cost Data Suppose we have the following unit demand and cost information:Demand/mo Jan Feb Mar Apr May JunMaterials $5/unitHolding costs $1/unit per mo.Marginal cost of stock-out $1.25/unit per mo.Hiring and training cost $200/workerLayoff costs $250/workerLabor hours required hrs/unitStraight time labor cost $8/hourBeginning inventory unitsProductive hours/worker/day 7.25Paid straight hrs/day 81111
8 Cut-and-Try Example: Determining Straight Labor Costs and Output Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and dollars/worker?Demand/mo Jan Feb Mar Apr May JunProductive hours/worker/day 7.25Paid straight hrs/day 81212
9 Cut-and-Try Example: Determining Straight Labor Costs and Output Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and dollars/worker?7.25x22Demand/mo Jan Feb Mar Apr May JunProductive hours/worker/day 7.25Paid straight hrs/day 87.25/0.15=48.33 & 48.33x22=22x8hrsx$8=$14081212
10 Chase Strategy (Hiring & Firing to meet demand) Lets assume our current workforce is 7 workers.First, calculate net requirements for production, or Demand-Begin Inv.Then, calculate number of workers needed to produce the net requirements, or Net req/Units per worker or # workersFinally, determine the number of workers to hire/fire. Current Workers-Required = (-) hire or (+) fire1313
11 Chase Strategy (Hiring & Firing to meet demand) Lets assume our current workforce is 7 workers.First, calculate net requirements for production, or =4250 unitsThen, calculate number of workers needed to produce the net requirements, or 4250/ =3.997 or 4 workers **Round-upFinally, determine the number of workers to hire/fire. In this case we only need 4 workers, we have 7, so 3 can be fired.1313
12 Complete the calculations for the next two months of the planning horizon. 1414
13 Complete calculations for the next two months planning horizon with the other costs included. 1515
14 Level Workforce Strategy (Surplus and Shortage Allowed) Lets take the same problem as before but this time use the Level Workforce strategy.This time we will seek to use a workforce level of 6 workers.1616
15 Complete the calculations for next two months in the six month planning horizon. 1717
16 Complete calculations for the next two months in the six month planning horizon with the other costs included.LaborMaterialStorageStock-out1818