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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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
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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-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.

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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

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Chase StrategyApplication 14.1
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Level-Utilization StrategyApplication 14.2
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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.

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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.

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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.

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Planning Using a Spreadsheet
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SOP Spreadsheetfor a Make-to-Stock Family