Sales and Operations Planning

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Sales and Operations Planning

• Chapter 14

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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
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Planning at Whirlpool

• Whirlpool begins production of room air
  conditioners in the fall and holds them as
  inventory until they are shipped in the spring.
• Building inventory in the slack season allows the
  company to even out production rates over much of
  the year and still satisfy demand in the peak
  periods.
• However, when summers are hotter than usual,
  demand increases dramatically and stockouts can
  occur.
• If Whirlpool increases its output and the summer
  is hot, it stands to increase its sales and
  market share. But if the summer is cool, the
  company is stuck with expensive inventories.
• Whirlpool prefers to make its production plans
  based on the average year, taking into account
  industry forecasts for total sales and
  traditional seasonalities.

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Sales and Operations Planning

• Sales and operations planning (SOP) 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 resourcerelated factors.
• Production plan A sales and operations plan of a
  manufacturing firm, which centers on production
  rates and inventory holdings.

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Aggregation

• The sales and operations plan is useful because
  it focuses on a general course of action,
  consistent with the companys 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 seasonsrather than in days
  or hours.

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The Relationship of Sales and Operations
Plansto Other Plans

• A financial assessment of an organizations near
  future (1 or 2 years ahead) is called either a
  business plan (in for-profit firms) or an annual
  plan (in nonprofit services).
• Business plan A projected statement of income,
  costs, and profits.
• Annual plan or financial plan A plan for
  financial assessment used by a nonprofit service
  organization.

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The Relationship of Sales and Operations
Plansto Other Plans
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The Decision Context

• Information inputs to Sales and Operations plans
• Business or Annual plan
• Operations Strategy
• Capacity Constraints
• Demand Forecast

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Managerial Inputs from FunctionalAreas to Sales
and Operations Plans
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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

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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.

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Reactive Alternatives

• Subcontracting Outsourcing to 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.

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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.

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Planning Strategies

• Chase strategy A strategy that involves hiring
  and laying off employees to match the demand
  forecast.
• Level strategy A strategy that keeps the
  workforce constant, but varies its utilization
  and inventory to match the demand forecast.
• Mixed strategy A strategy that considers and
  implements a fuller range of reactive
  alternatives than any one pure strategy.

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Hallmark Strategy

• Hallmark spends considerable resources to
  effectively produce and distribute more than
  40,000 different products through 43,000 retail
  outlets in the United States alone.
• Hallmark has never used layoffs to adjust
  production rates. Employee flexibility is the key
  to this strategy.
• Hallmark follows a philosophy of retraining its
  employees continually to make them more flexible.
• To keep workers busy, Hallmark shifts production
  from its Kansas City plant to branch plants in
  Topeka, Leavenworth, and Lawrence, Kansas, to
  keep those plants fully utilized.
• It uses the Kansas City plant as its swing
  facility. When demand is down, Kansas City
  employees may take jobs in clerical positions,
  all at factory pay rates. They might also be in
  classrooms learning new skills.

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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