Module 5 Learning about Sales and Operations Planning Sales and Operations Planning Process for integrating marketing and operations plan to develop a tactical plan Attempt to manage capacity in order to balance supply and demand cost efficiency or profits S OP is tactical make decisions about capacity in intermediate form Capacity A measure of the ability that a firm has to meet demand time and volume for its goods or services Factors that affect capacity a Car manufacturers of production line machine robots b Beauty salons of beauty supply c Consulting firms of consultants hours able to work d Airlines seat miles on a given period of time e Retailer measure profitability productivity per square foot f Hotels of rooms personnel available g Hospitals rooms personnel The Challenge Balance Leader and Laggard to Demand Types of Capacity Operational days weeks out Limited ability to adjust capacity Detailed planning Lowest risk Commitment is low short term Time Horizon View Tactical months out Workforce inventory subcontracting decisions Intermediate level planning Moderate risk Work force hire layoff subcontracting 3rd party Capacity time frame Strategic years out Brick Mortar decisions Long term High level planning High risk Buildings production facilities distribution centers Short Range Plan days weeks Capacity levels considered frozen in the short term S OP months out TACTICAL Changes in adjustable capacity possible workers shifts subcontracting inventory policies Long Range Plan years out Changes in fixed capacity possible Sales and Operations Planning Capacity Options Purpose select capacity options over the intermediate time horizon Workforce shifts overtime subcontracting excess work inventories buffer capacity with inventory Budget allocations HR side who what hour over time compensations 1 S OP A Big Picture Approach to Planning Capacity directions managements Groups aggregation of products resources technologies or skills by similarities Such as raw materials labor requirements product requirements Provides a rough estimates not looking for a detailed plan waste economies of effort if detailing Inputs to the S OP Process Fiscal planning need to know you have enough to support this organization Internal Capacities existing buildings processes capacity shut plant down Demand Management forecasts of customer demand marketing pricing pricing strategy External Capacities suppliers able to deliver subcontractors capacities of suppliers Benefits of S OP Planning Quantitative Benefits Improved forecast accuracy Higher customer service business fulfills demand in tune with business mediating consumers More stable supply Better new product introduction Qualitative Benefits Faster and better aligned decision making Better organizational teamwork force people to take together and bring to support the top Greater accountability for performance output is owned by participating process Better business visibility improved relationship between parts of process S OP people will complete all of our plan consensus arises Planning Values Expressing Demand in the Language of Supply Planning values translate forecast into a language all departments will understand Different inputs into process by translating forecast into labor and materials and ultimately money How much is required based on planning value Resources required Costs o Labor hours per unit Material quantities Equipment hours Subcontractors o Materials Labor Subcontractors Hiring firing costs Inventory holding costs Main driver of consensus for everyone increased profits maximized profits effect of cash flows Aggregate Production Planning Costs NO RETAIL PLANNING ON TACTICAL LEVEL Aggregate group products with similar material needs plan production together Holding inventory having inventory on hand Regular production average labor and benefits Overtime working more hours than standard Hiring finding acquiring and training new employees Backorder lost sales expediting supply lost good will higher lower likelihood Fire layoff separation packages o Lagging strategy keeps capacity below actual demand o Leading strategy keeps more capacity than needed to meet demand S OP Approaches Top Down Standards available for planning time cost requirements from history and or planning documentation Top highest level of aggregation P298 similar products OR stable mix can average product Grouping of product aggregated forecasting planning rates Product similarities share same planning values of resources Top Down Planning similar products and stable mix 1 Develop the aggregate sales forecast and panning values 10 1 2 Translate the sales forecast into resource requirements personnel equipment materials 10 2 10 3 3 Generate alternative production plans chase level mixed 10 4 5 6 2 Alternative Production Plans Level Level produce at a constant rate use changing inventory levels to buffer supply and demand Creating a Level Aggregate Plan P level production rate BI beginning inventory Alternative Production Plans Chase Chase change production to match demand inventory remains relatively stable and low Di demand in period I N number of planning periods EI desired ending inventory level Creating a Chase Aggregate Plan Option 1 produce everything in house varying workforce level hire fire temps in holidays harvests Option 2 produce everything in house workforce meets lowest demand period overtime for higher demand Option 3 produce everything in house workforce meets lowest demand period subcontractor for higher demand Aggregate Planning Strategies Mixed Mix combination of level and chase strategies chase sometimes level sometimes 3 Choosing the Best Plan Level little hiring cost big inventory P302 Chase little inventory big hiring cost Mixed in between Highly skilled labor think twice before hiring P300 Ex10 3 Calculating Level Ex10 5 Calculating Chase Ex10 6 Mixed S OP Approaches Bottom Up Different products unstable mix Date intensive and requires forecasts and production data for individual products Can t group hiring early in the process based on similar needs 1 Deal with individual forecast and planning values 2 Calculate requirements each 3 Add together to find total loads on resources labor share resources not at same level Bottom Up Planning Load Profile Problem 5 on Book Dynamic pricing price manipulation to force sales to match up with available capacity airline tickets Trying to get 100 utilization match price with capacity undesirable place