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Sales and Operations Planning

Sales and Operations Planning

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Sales and Operations Planning

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  1. Sales and Operations Planning Chapter 14

  2. How Sales and Operations Planning fits the Operations Management Philosophy Operations As a Competitive Weapon Operations Strategy Project Management Process Strategy Process Analysis Process Performance and Quality Constraint Management Process Layout Lean Systems Supply Chain Strategy Location Inventory Management Forecasting Sales and Operations Planning Resource Planning Scheduling

  3. Sales and Operations Planning • Sales and operations planning (S&OP): The process of planning future aggregate resource levels so that supply is in balance with demand. • Staffing plan: A sales and operations plan of a service firm, which centers on staffing and other human resource–related factors. • Production plan: A sales and operations plan of a manufacturing firm, which centers on production rates and inventory holdings.

  4. Aggregation • The sales and operations plan is useful because it focuses on a general course of action, consistent with the company’s strategic goals and objectives, without getting bogged down in details. • Product family: A group of customers, services, or products that have similar demand requirements and common process, labor, and materials requirements. • A company can aggregate its workforce in various ways as well, depending on its flexibility. • The company looks at time in the aggregate – months, quarters, or seasons—rather than in days or hours.

  5. The Relationship of Sales and Operations Plansto Other Plans

  6. Managerial Inputs from FunctionalAreas to Sales and Operations Plans

  7. Plan Objectives Six objectives usually are considered during development of a plan: • Minimize Costs/Maximize Profits • Maximize Customer Service • Minimize Inventory Investment • Minimize Changes in Production Rates • Minimize Changes in Workforce Levels • Maximize Utilization of Plant and Equipment

  8. Reactive Alternatives • Reactive alternatives are actions that can be taken to cope with demand requirements. • Anticipation inventory is inventory that can be used to absorb uneven rates of demand or supply. • Workforce adjustment: Hiring and laying off to match demand. • Workforce utilization: Use of overtime and undertime. • Vacation schedules: Use of plant-wide vacation period, vacation “blackout” periods.

  9. Reactive Alternatives • Subcontracting:Outsourcingto overcome short-term capacity shortages. • Backlogs, Backorders,and Stockouts: • Backlog: An accumulation of customer orders that have been promised for delivery at some future date. • Backorder: A customer order that cannot be filled immediately but is filled as soon as possible. • Stockout: An order that is lost and causes the customer to go elsewhere.

  10. Aggressive Alternatives • Aggressive alternatives are actions that attempt to modify demand and, consequently, resource requirements. • Complementary products: Services or products that have similar resource requirements but different demand cycles. • Creative Pricing:Promotional campaigns designed to increase sales with creative pricing.

  11. Planning Strategies • Chase strategy: A strategy that involves hiring and laying off employees to match the demand forecast. • Level-utilization strategy: A strategy that keeps the workforce constant, but varies its utilization to match the demand forecast. • Level-inventory strategy: A strategy that relies on anticipation inventories, backorders, and stockouts to keep both the output rate and the workforce constant. • Mixed strategy: A strategy that considers and implements a fuller range of reactive alternatives than any one “pure” strategy.

  12. Constraints and Costs The planner usually considers several types of costs when preparing sales and operations plans. • Regular-Time Costs: These costs include regular-time wages plus contributions to benefits, Social Security, retirement funds, and pay for vacations and holidays. • Overtime Costs: Overtime wages typically are 150 percent of regular-time wages. • Hiring and Layoff Costs: Include the costs of advertising jobs, interviews,training programs, exit interviews, severance pay, and lost productivity. • Inventory Holding Costs • Backorder and Stockout Costs

  13. Chase StrategyApplication 14.1

  14. Level-Utilization StrategyApplication 14.2

  15. Mixed StrategyApplication 14.3 Key Ideas:  Hire only 7 in quarter 3, making maximum use of overtime to compensate.  Reduce the amount of undertime in quarter 3.  Reduce the layoffs required in quarter 4.

  16. Sales and Operations Planning as a Process • Sales and operations planning is a decision-making process, involving both planners and management. • The process itself, typically done on a monthly basis, consists of six basic steps.

  17. Decision Support Tools • Spreadsheets can be used, including ones that you develop on your own. • Input values • Derived values • Utilized time • Calculated values • The Transportation method of production planning to solve production planning problems assumes that a demand forecast is available for each period, along with a possible workforce adjustment plan.

  18. Planning Using a Spreadsheet

  19. S&OP Spreadsheetfor a Make-to-Stock Family