Chapter 8 S&OPSales 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 level1. Long Range Planning: done annually, horizon greater than one year2. Intermediate Range Planning: weekly, monthly, or quarterly, 3 to 18 months3. Short Range Planning: daily or weekly, 1 day to 6 months S&OP Processes – Business Objectives, Demand Planning, Production PlanningAggregate 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, andinventory on handProduction 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 LevelInventory 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 centerProduction Planning Strategies: plans for meeting demand that involve trade-offs in the number of workers hours, inventory, and shortages1. 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 jobs2. 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 costsof hiring and firing3. 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 optionsMixed Strategy: two or more of these used in combinationProduction Plan = (Demand Plan +/– Change in Backlog) ÷ # of periodsIf Beg Inventory > End Inventory, subtractIf Beg Inventory < End Inventory, addInputs to the Production Planning SystemExternal to the firm:- External Capacity (subcontractors)- Competitors’ behavior- Raw material availability- Market demand- Economic ConditionsInternal to the firm:- Current physical capacity- Current workforce- Inventory levels- Activities required for productionRelevant 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 costs2. Costs associated with changes in production rates: those involved in hiring, training, and laying off personnel; can hiring temporary help to avoid3. Inventory holding costs: cost of capital tied up in inventory, storing, insurance, taxes, spoilage, and obsolescence4. Backordering costs: costs of expediting, loss of customer goodwill, loss of sales revenues resulting form backordering; hard to measureYield 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 predictableDemand ReviewReviewing 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 planMaster SchedulingMaster 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 scheduleSKU: 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 customerIndependent Demand: usually the top level in the Bill of Material (BOM)- Components can also be independent demand when purchased by customers for service useDependent 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 MaterialMaster 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 requirementsTime Fence Rules: indicate where changes can be made to the schedule and affect costs at different levels of severityPlanning 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