1. Visual 3-1 Sales and Operations Planning Purpose of Sales and Operations Planning General Design of Sales and Operations Planning Approaches to Sales and Operations Planning Strategies for Sales and Operations Planning Balancing Resources for Sales and Operations Planning Qualitative Issues Some Business Environment Issues

2. Visual 3-2 Planning and Control System Sales and Operations

3. Visual 3-3 Sales and Operations Planning Strategic plans for a company –determine business plans determine the product and service mix determine planned market penetration determine market approaches –are too general to… coordinate action plans resource needs –of Operations, Marketing, Sales, Finance, Information Technology, Human Resources

4. Visual 3-4 Sales and Operations Planning S&OP is sometimes called... Aggregate planning Production planning Staffing planning (service industries)

5. Visual 3-5 Sales and Operations Planning S&OP is the preferred name... Production planning –only one portion of S&OP Human Resources, Information Technologies, Finance –important –represents challenges It effectively indicates the tradeoffs between the two functions of a firm

6. Visual 3-6 3.1 Purpose of S&OP S&OP is seldom used for the actual scheduling of production activity Its primary purpose is… –to plan for resources –coordinate resources type quantity timing Time horizon for S&OP is determined by how long in the future the company needs to secure these resources

7. Visual 3-7 3.1 Purpose of S&OP Manufacturing tools can take longer than a year to design and build Certain staff members may also take quite a bit of time to… –train these staff members –recruit suitable employees with the correct skillsets Finance needs what funds will be required over what time periods

8. Visual 3-8 3.1 Purpose of S&OP S&OP is the major source of planning for… Inventory levels Cash flow Human resource needs –number of people –skill levels –timing of need –training program

9. Visual 3-9 3.1 Purpose of S&OP S&OP is the major source of planning for… Capital needs Production outputs Capacity planning Sales and marketing activities –sales promotions –advertising –pricing –new product introductions, expansion of mkts

10. Visual 3-10 3.1 Purpose of S&OP In service organizations requiring only people... the time horizon is typically shorter –especially if these employees are easy to obtain or train some firms are so flexible they have no formal S&OP –handled by Operations Manager or GM

11. Visual 3-11 3.1 Purpose of S&OP Objectives of the S&OP... Support and measure the business plan Support the customer Ensure that plans are realistic Manage change effectively Manage finished goods inventory or backlog to better service the customer Control costs Measure performance Build teamwork

12. Visual 3-12 3.2 General Design of S&OP Products and services are often aggregated along family lines –key determinant is grouping those products and services that utilize similar resources the function of the activity is to plan resources company manufactures several types of tables –all use similar resources –all require similar skillset in employees –firms sometimes group or aggregate by labor hours or revenues

13. Visual 3-13 3.2 General Design of S&OP Aggregation is important since one of the primary source of demand estimation is the forecast Forecast are more accurate when developed in aggregate v. specific plans –develop these forecasts –coordinate with strategic plans

14. Visual 3-14 3.2 General Design of S&OP Plans that could impact demand… –advertising campaigns –promotions –pricing changes –strategic moves into new markets –moves against competition –development of new products –new uses for existing products These plans need to be coordinated with the necessary resources needed

15. Visual 3-15 3.2 General Design of S&OP Plans that could impact demand… –advertising campaigns –promotions –pricing changes –strategic moves into new markets –moves against competition –development of new products –new uses for existing products

16. Visual 3-16 3.2 General Design of S&OP Other issues involve the aggregation of time –buckets of time weeks months other involve what time period is useful –aggregate as much as possible so useful plans can be made type of product or service nature of customers being served process being used to deliver the product / service

17. Visual 3-17 3.3 Approaches to S&OP The primary purpose of S&OP is to establish decisions about… Sales volumes Customer service goals Rates of production Inventory levels Order backlogs Sales, Marketing, Operations, Finance and Product Development must all work together, guided by strategic plan.

18. Visual 3-18 3.3 Approaches to S&OP The primary purpose of S&OP is to establish decisions about… Sales volumes Customer service goals Rates of production Inventory levels Order backlogs Sales, Marketing, Operations, Finance and Product Development must all work together, guided by strategic plan.

19. Visual 3-19 3.3 Approaches to S&OP The strategic planning process is used to make the business plan… Expressed in financial terms –financial planning and S&OP need reconciled Top Management is involved –they “own” the business plan –their involvement lends support to the process all employees must work to support the S&OP

20. Visual 3-20 3.3 Make-to-Stock View of an S&OP Diagram in Figure 3.1 provides a make-to- stock example… Sales in past three months –11,000 more units sold than in the plan Production in past three months –production was 4,000 less than in the plan Inventory in the past three months –dropped by 15,000 units

21. Visual 3-21 3.3 Make-to-Stock View of an S&OP Diagram in Figure 3.1 provides a make-to- stock example… Look at actual v. planned sales Look at actual v. planned production Look at actual v. planned inventory Plans need reviewed at the end of each month New plans need to be developed at the end of each month S&OP is dynamic

22. Visual 3-22 3.3 Make-to-Order View of an S&OP Diagram in Figure 3.2 provides a make-to- order example… Typically no finished goods inventory –orders are taken, production starts Orders taken and waiting for production are called backlog

23. Visual 3-23 3.4 Strategies for S&OP Specific plans are now needed as to how the plan will most effectively be accomplished. Some techniques –environments are too complex cannot capture all variables and conditions difficult to set up and manage –simplifying assumptions are made make the mathematical model manageable simpler does not reflect the market –many managers are not adequately trained

24. Visual 3-24 3.4 Strategies for S&OP Second approach is to simulate –use of computer rapid effective inexpensive perform “what if” analysis Third approach is spreadsheet simulation –do not offer an optimal solution merely rapid and simple solution heavily used because of rapid response and ease of use

25. Visual 3-25 3.4 Strategies for S&OP Trade-off approach –develop the best alternative –align resources to meet expected demand –maximize firm profits –other attempting to meet all customer demand attempting to minimize inventory investment attempting to minimize adverse impact due to layoffs –each has a negative on profitability

26. Visual 3-26 3.4 Strategies for S&OP Three general categories of approaches… Level Chase Combination

27. Visual 3-27 3.4 Strategies for S&OP Level approach… use of a level set of resources –demand will fluctuate around those resources common for firms with resources that are difficult or expensive to alter used in lean environments examples: –doctors, dentists (appointments) –hotels, airlines (reservations, pricing strategy) –chemical processing

28. Visual 3-28 3.4 Strategies for S&OP Chase strategy… demand is not altered, resources are –raised or lowered opposite of level strategy mid-tier manufacturers service industries –banks –grocers –tax services –utilities

29. Visual 3-29 3.4 Strategies for S&OP Combination strategy… most common approach –mix and match characteristics figure 3.3 through 3.7

30. Visual 3-30 3.5 Balancing Resources in S&OP Two methods… Supply side (internal strategy) –attempt is made to change production Demand side (external strategy) –attempt is made to alter demand through customers

31. Visual 3-31 3.5 Balancing Resources in S&OP Internal strategy (more commonly used in chase strategies)… Hire and fire temp workers overtime / slack time subcontracting inventory backlog do not meet demand change production rates

32. Visual 3-32 3.5 Balancing Resources in S&OP External strategy (more commonly used in level approaches)… Pricing –lower increases demand Promotions –incentives increase demand Advertising Reservations Package offerings

33. Visual 3-33 3.6 Discussion Example

34. Visual 3-34 3.7 Qualitative Issues Focuses mostly on the financial side... Human factor –layoffs impact morale recalled employees may have lost their edge less dedication to company –Hiring has implications learning curve impact efficiency of those who are training –temporary workers learning curve efficiency

35. Visual 3-35 3.7 Qualitative Issues Focuses mostly on the financial side... The customer factor –assumes customer actions are predictable stock out affect increased price affect The forecast factor –should always be considered incorrect –contingency needed to deal with error

36. Visual 3-36 3.7 Qualitative Issues Focuses mostly on the financial side... External environmental factors –labor contracts or union activities –government regulations –competitive forces

37. Visual 3-37 3.8 Some Business Environment Issues Many different issues need considered when planning... Level of detail –should the time aggregation be in weeks, months, quarters? Changes in market must be considered capital intensive market cannot look at days, rather quarters Level of aggregation –aggregate whatever level of products or services as the resources

38. Visual 3-38 3.8 Some Business Environment Issues Many different issues need considered when planning... Time horizon –plan at least as long as it takes to make a change in the resource base how long does it take to train new workers –current workforce flexibility –current equipment flexibility –ease of capital expansion

39. Visual 3-39 Chapter 3 Homework Discussion question 1 Exercise 1, 8, 9 Study for test on Chapters 1,2,3