Chapter 8 S OP Sales and Operations Planning process that helps firms provide better customer service lower inventory shorten customer lead times stabilize production rates and give top management a handle on the business Companies use to keep demand and supply in balance and to coordinate distribution marketing and financial plans Consists of a series of meetings finishing with high level meeting S OP meeting tat makes key intermediate term decisions Develops a sales plan that extends through the next 3 to 18 months 24 months Top Management Planning process for risk assessment and management Risks include profit revenue market share capacity customer service Takes place at individual product family level Intermediate Range Planning weekly monthly or quarterly 3 to 18 months 1 Long Range Planning done annually horizon greater than one year 2 3 Short Range Planning daily or weekly 1 day to 6 months S OP Processes Business Objectives Demand Planning Production Planning Aggregate Operations Plan a plan for labor and production for the intermediate term with the objective to minimize the cost of resources needed to meet demand Concerned with setting production rates by product group or other broad categories for the intermediate term Precedes the master schedule Purpose is to specify the optimal combination of production rate workforce level and inventory on hand Production Rate the number of units completed per unit of time per hour per day Workforce level number of workers needed for production Production Production Rate X Workforce Level Inventory on hand unused inventory carried over from the previous period Can develop aggregate plan by simulating various master production schedules and calculating corresponding capacity requirements to see if adequate labor and equipment exist at each work center Production Planning Strategies plans for meeting demand that involve trade offs in the number of workers hours inventory and shortages 1 Chase Strategy match the production rate to the order rate by hiring and laying off employees as the order rate varies motivational impacts employees may slow down out of fear of losing their jobs 2 Stable Workforce variable work hours vary the output by varying the number of hours worked through flexible work schedules or overtime avoids emotional and tangible costs of hiring and firing 3 Level Strategy maintain a stable workforce working at a constant output rate shortages and surpluses are absorbed by fluctuating inventory levels order backlogs and lost sales employees benefit from stable work hours Pure Strategy simple strategies that uses just one of these options Mixed Strategy two or more of these used in combination Production Plan Demand Plan Change in Backlog of periods If Beg Inventory End Inventory subtract If Beg Inventory End Inventory add Inputs to the Production Planning System External to the firm External Capacity subcontractors Competitors behavior Raw material availability Market demand Economic Conditions Internal to the firm Current physical capacity Current workforce Inventory levels Activities required for production Relevant Costs to aggregate production plan 1 Basic production costs fixed and variable costs incurred in producing a given product type in a given time period direct and indirect labor costs 2 Costs associated with changes in production rates those involved in hiring training and 3 laying off personnel can hiring temporary help to avoid Inventory holding costs cost of capital tied up in inventory storing insurance taxes spoilage and obsolescence 4 Backordering costs costs of expediting loss of customer goodwill loss of sales revenues resulting form backordering hard to measure Yield Management allocating the right type of capacity to the right type of customer at the right price and time to maximize revenue or yield Powerful approach to making demand more predictable Demand Review Reviewing actual bookings demand Happens 3 4 times during the month the last of which is referred to the Pre S OP Review demand plan of record that was approved in the last S OP against MTD month to date actuals Usually the master scheduler facilitates this review or materials manager Adjustments made to the production plan when necessary S OP metrics still measure the original plan Master Scheduling Master Scheduling The link in the ERP process that connects S OP to the fulfillment process It can be used in both manufacturing and service applications Translates product family units into SKU stock keeping units in an ERP system Drives only independent demand requirements quantity and dates for top levels Manage the Rough Cut Capacity Planning to create the correct drum beat for the schedule SKU interchangeable with part numbers and item numbers The identifiers that companies use to track material movement from suppliers through the internal processes and to the customer Independent Demand usually the top level in the Bill of Material BOM Components can also be independent demand when purchased by customers for service use Dependent Demand created by components to independent demand Calculated and summarized through a BOM explosion in the software The explosion is the process of systematically moving through the full BOM structure top to bottom and consolidating and summarizing time phased requirements for upper level Bills of Material Master Scheduler the function that prepares the S OP spreadsheets for the S OP review cycle facilitates the weekly Demand Review process and the Pre S OP often establishes the time fence rules and the inventory strategy Have the responsibility to develop PBOMs as needed maintain PBOMs as needed make sure actual orders consume quantities within the PBOM so as to not double requirements Time Fence Rules indicate where changes can be made to the schedule and affect costs at different levels of severity Planning BOM there are often a common parts b features and c options Ratios within features and options are structured into the planning BOM to manage mix within the product families Typically only one per product family Typically a planning BOM for each month in the 12 rolling minimum month S OP horizon Can be designed without common parts Features should add up to 100 b c the top level demand item cannot be purchased without these features Options do not have to add up to 100 b c they are only required for the percentage of demand that desires them Planning BOMs are placed in each future unknown month to