Chapter 10 Sales and Operations Planning S OP A process to develop tactical plans by integrating marketing plans for new and existing products with the management of the supply chain The process brings together all the plans for the business into one integrated set of plans Also called aggregate planning A routine process led by senior management that evaluates revised time phased projections for supply demand and the resulting financials A decision making process that ensures that the tactical plans in all business functions are aligned and support the overall business plan The objective is to reach consensus on a single operating plan that allocates the critical resources of people capacity materials time and money to most effectively meet marketplace demands in a profitable way What is S OP Planning methodology that shows how tactical capacity will meet expected customer demand Integrated decisions making process to minimize uncertainty between all supply chain partners and senior leadership A consensus forecast and operational plan that can be evaluated with common metrics coordinating mechanism that links strategic business plans and provides operational guidance for tactical planning Interfaces between sales operations marketing finance Monthly S OP Process 1 Run sales forecast reports end of month data 2 Demand planning phase statistical forecasts field sales worksheets 3 Supply Planning phase management forecasts 1st pass spreadsheets 4 Pre S OP meeting capacity constraints 2nd pass spreadsheets recommendations and agenda for executive S OP 5 Exec S OP meeting decisions authorized company game plan S OP Planning goals Translate demand forecasts into resource requirements in order to reduce costs Control minimize inventory Meet customer needs How does S OP tie to capacity S OP planning cannot exceed plant capacity Three basic S OP strategies Level capacity production is constant Chase capacity productions changes based on forecast Mixed approach both production inventory change may rely on analytical techniques such as linear programming to find some optimal combination Level Production Plan maintain a steady rate of regular time production build up inventory periods of low demand use build up inventory overtime during periods of high demand production is constant level the workforce incur no hiring firing costs may use overtime absorb demand changes using inventory greater inventory costs Chase Production Plan Increase and decrease the rate of production to match the forecast demand Production varies with demand Increase decrease workforce based on demand High hiring firing layoff costs can create big HR problems unions benefits goodwill etc Minimize inventories good for maintaining efficiency less inventory costs always above or equal to the demand blocky not a smooth curve flexibility cost of holding finished goods inventory is very high production is based off how much you need Main incremental costs are largely those related to adding time removing shifts hiring or laying off workers Use when costs of holding finished goods inventory is high or costs of changing production level is low Top Down Planning Sequence Corporate Strategic Planning Market economic political analysis Business Plan what will we produce Inputs or outputs somewhat constant Tactical or Production Plan What is the rate of production S OP Detailed Planning Control Master schedule What to produce and in what sequence MRP Components of Manufacturing Planning S OP Aggregate Plan Aggregate demand labor capacity inventory requirements Master Schedule Record How much of each product to make over the planning horizon When customer orders will be filled What products capabilities are remaining for opportunities Materials Requirements Plan MRP the process that translates a Master Production Schedule MPS into the detailed time phased resources requirements needed to produce components subassemblies which eventually become an end item or final product MRP is a system designed specifically to manage dependent demand items Independent demand demand for items over which a company does not exercise control the end item or finished good Dependent demand demand for items tied directly to company production of another item parts and pieces that make up that end item or finished good MRP is focused on dependent demand Quantities timing of each part to be on hand to meet the master schedule Quantities receipt timing of new supply orders Identification of production supply chain constraints bottlenecks Master Production Schedule MPS Follows directly from the S OP decisions and includes gross production requirements Time phased production plan for each end item taking into account lead times of the sourced items Example master production schedule for Campbell s soup Strategic Planning Planning that takes place at the highest levels of the firm addressing needs that might not arise for years into the future Tactical Planning Planning that covers a shorter period usually 12 to 24 months out although the planning horizon may be longer in industries with very long lead times ex engineer to order firms usually more detailed but it is constrained by the longer term strategic decisions such as size of facility and types of processes used Detailed planning and control planning that covers time periods ranging from weeks down to just a few hours out Managers have few options for adjusting capacity levels Bill of materials BOM A listing of raw materials parts sub assemblies and assemblies needed to produce one unit of a product shows all the dependent demand items Product Structure Tree Visual depiction of the requirements in a bill of materials where all components are listed by levels and lead times shows parent child relationships Structure trees can be used to determine Gross requirements for dependent demand items used to make an end item MRP Inventory Purchasing Record Inventory records contains data on every component data would include the amount on hand planned receipts or production runs other relevant information safety stock minimum order quantity cost stock on hand storage location average lead time purchasing data would include source of supply information price terms etc MRP Definitions 1 Gross requirements demand for item by time period follows plan and schedule 2 Scheduled receipts quantity already on order receipt date what comes in released orders become scheduled receipts 3 Projected Ending Inventory