1. ISQA 459 Sales & Operations Planning
Planning production to meet the firms strategic objectives
Demand vs. Supply
Volume
Mix
How is sales plan different from operations plan?
Demand > Supply
Demand < Supply

2. Balance Supply & Demand
Intermediate Term (3-18 months)
APP = Competitive Advantage: Anheuser-Busch- 40% of US beer
Production of certain brands in specific plants
High volume & low variety/plant
Labor requirements
Meticulous cleaning between batches
Inventory Capacity
Goal:
High facility utilization
Why?

3. Hierarchical Planning
Annual demand by
item and by region
Monthly demand
for 15 months by
product family
for quarter by
item
Forecasts needed
Allocates
production
among plants
Determines
seasonal plan by
Determines monthly
item production
schedules
Decision Process
Decision Level
Corporate
Plant manager
Shop
superintendent 5 5

4. At this stage
Generally Planning for a product line or family (AGGREGATE) not individual SKUs
How much beer at each plant of each type
Not container types, etc.
Inputs
Strategic objectives, demand forecasts, company policy, financial constraints, capacity constraints.
Outputs
Size of workforce, production per month (units or $), inventory levels, and units subcontracted, back ordered, or lost.

5. Aggregate Planning
Goal: Specify the optimal combination of the following variables to minimize cost
production rate (units completed per unit of time)
workforce level (number of workers)
inventory on hand (inventory carried from previous period) 6 6

6. Balancing Aggregate Demand and Aggregate Production Capacity
Suppose the figure to the right represents forecast demand in units.
10000
10000
8000
8000
7000
6000
5500
6000
4500
Now suppose this lower figure represents the aggregate capacity of the company to meet demand.
4000
2000
Jan
Feb
Mar
Apr
May
Jun
9000
What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up.
10000
8000
8000
6000
6000
4500
4000
4000
4000
2000
Jan
Feb
Mar
Apr
May
Jun 9 9

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 Jun
Materials $5/unit
Holding costs $1/unit per mo.
Marginal cost of stock-out $1.25/unit per mo.
Hiring and training cost $200/worker
Layoff costs $250/worker
Labor hours required hrs/unit
Straight time labor cost $8/hour
Beginning inventory units
Productive hours/worker/day 7.25
Paid straight hrs/day 8 11 11

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 Jun
Productive hours/worker/day 7.25
Paid straight hrs/day 8 12 12

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?
7.25x22
Demand/mo Jan Feb Mar Apr May Jun
Productive hours/worker/day 7.25
Paid straight hrs/day 8
7.25/0.15=48.33 & 48.33x22=
22x8hrsx$8=$1408 12 12

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 # workers
Finally, determine the number of workers to hire/fire. Current Workers-Required = (-) hire or (+) fire 13 13

11. Chase Strategy (Hiring & Firing to meet demand)
Lets assume our current workforce is 7 workers.
First, calculate net requirements for production, or =4250 units
Then, calculate number of workers needed to produce the net requirements, or 4250/ =3.997 or 4 workers **Round-up
Finally, determine the number of workers to hire/fire. In this case we only need 4 workers, we have 7, so 3 can be fired. 13 13

12. Complete the calculations for the next two months of the planning horizon.14 14

13. Complete calculations for the next two months planning horizon with the other costs included.15 15

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. 16 16

15. Complete the calculations for next two months in the six month planning horizon.17 17

16. Complete calculations for the next two months in the six month planning horizon with the other costs included.
Labor
Material
Storage
Stock-out 18 18