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WU BU 347 - Sales and Operations Planning

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Sales and Operations PlanningHow Sales and Operations Planning fits the Operations Management PhilosophyPlanning at WhirlpoolSlide 4AggregationThe Relationship of Sales and Operations Plans to Other PlansSlide 7The Decision ContextManagerial Inputs from Functional Areas to Sales and Operations PlansPlan ObjectivesReactive AlternativesSlide 12Aggressive AlternativesPlanning StrategiesHallmark StrategyConstraints and CostsData for Applications 14.1-14.3Chase Strategy Application 14.1Level-Utilization Strategy Application 14.2Mixed Strategy Application 14.3Sales and Operations Planning as a ProcessDecision Support ToolsSpreadsheet 4-period WorksheetSpreadsheet 6-period WorksheetPlanning Using a SpreadsheetS&OP Spreadsheet for a Make-to-Stock FamilyThe Transportation Method a special case of linear programmingThe Transportation Method Example 14.2Slide 29Slide 30Slide 31Slide 32Application 14.4Transportation Method Application 14.4Transportation Method Application 14.4Bull Grin Company Production, Shipments, and InventoriesBull Grin Company Production, Shipments, and InventoriesTotal Cost of Bull Grin Company PlanSolved Problem 1Chase StrategyThe level-utilization strategy calls for three employees to be hired in the first quarter and for none to be laid off.Mixed Strategy© 2007 Pearson EducationSales and Operations PlanningChapter 14© 2007 Pearson EducationHow Sales and Operations Planning fits the Operations Management Philosophy Operations As a Competitive WeaponOperations StrategyProject ManagementProcess StrategyProcess AnalysisProcess Performance and QualityConstraint ManagementProcess LayoutLean SystemsSupply Chain StrategyLocationInventory ManagementForecastingSales and Operations PlanningResource PlanningScheduling© 2007 Pearson EducationPlanning 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.© 2007 Pearson EducationSales 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.© 2007 Pearson EducationAggregation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.© 2007 Pearson EducationThe Relationship of Sales and Operations Plansto Other PlansA financial assessment of an organization’s 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.© 2007 Pearson EducationThe Relationship of Sales and Operations Plansto Other Plans© 2007 Pearson EducationThe Decision ContextInformation inputs to Sales and Operations plansBusiness or Annual plan Operations StrategyCapacity ConstraintsDemand Forecast© 2007 Pearson EducationManagerial Inputs from FunctionalAreas to Sales and Operations Plans© 2007 Pearson EducationPlan ObjectivesSix objectives usually are considered during development of a plan:1. Minimize Costs/Maximize Profits2. Maximize Customer Service3. Minimize Inventory Investment4. Minimize Changes in Production Rates5. Minimize Changes in Workforce Levels6. Maximize Utilization of Plant and Equipment© 2007 Pearson EducationReactive 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.© 2007 Pearson Education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.Reactive Alternatives© 2007 Pearson EducationAggressive 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.© 2007 Pearson EducationPlanning 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

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