Sales and Operations Planning CHAPTER 13 Sales and Operations Planning McGraw-Hill/Irwin Copyright © 2014 McGraw-Hill Higher Education. All rights reserved.

Learning Objectives LO13-1 Describe sales and operations planning LO13-2 Define contents of an aggregate plan LO13-3 Explain relevant aggregate plan costs LO13-4 Contrast aggregate planning strategies LO13-5 Develop alternative aggregate plan LO13-6 Explain differences in service and manufacturing aggregate planning

Sales and Operations Planning Sales and Operations Planning (S&OP): process for integrating marketing and operations plan to develop a tactical plan Attempt to balance supply and demand Supply Demand S&OP LO13-1 13–3

Balancing Objectives Finance Marketing/Sales Operations LO13-1 High ROI Maximize return Minimize risk High contribution customers Marketing/Sales Aggregate planning Many product variations Fast response, high service Maximize revenue Operations Detail planning Fewer products Long, stable production runs Maximize output, minimize cost Reduce variance, maintain ‘up-time’ Efficient grouping of supply & demand LO13-1 13–4

Benefits of Sales & Operations Planning Quantitative benefits: Improved forecast accuracy Higher customer service More stable supply Better new product introduction LO13-1 13–5

Benefits of Sales & Operations Planning Qualitative benefits: Better organizational teamwork Faster and better aligned decision making Greater accountability for performance Better business visibility LO13-1 13–6

Aggregate Production Planning Costs Aggregate Production Planning: balances production, inventory, resources and demand 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 Fire/Layoff: separation packages Backorder/lost sales: expediting supply, lost good-will Subcontracting: unit cost and loss of control LO13-3 13–7

Aggregate Planning Strategies Level: produce at a constant rate, use changing inventory levels to buffer supply and demand LO13-5 13–8

Creating a Level Aggregate Plan Level: produce at a constant rate, use changing inventory levels to buffer supply and demand P = level production rate Di = demand in period i EI = desired ending inventory level BI = beginning inventory N = Number of planning periods LO13-5 13–9

Aggregate Planning Strategies Chase: change production to match demand, inventory remains relatively stable and low LO13-5 13–10

Creating a Chase Aggregate Plan Produce everything in house, vary the workforce level Produce everything in house, workforce level to meet lowest demand period, use overtime for higher demand Produce everything in house, workforce level to meet lowest demand period, use subcontractor to produce higher demand Chase: change production to match demand, inventory remains relatively stable and low Three options to consider: 1 2 3 LO13-5 13–11

Aggregate Planning Strategies Hybrid: combination of level and chase strategies LO13-5 13–12

Aggregate Planning for Service Yield Management: adjusting prices in response to demand levels Services can not create inventory to buffer demand Modify prices to encourage customers to purchase for service at supplier desired times Goal is to maximize revenue and profit LO13-6 13–13

Sales and Operations Management Summary Balancing supply and demand is difficult S&OP is a cross-functional process A sales and operations plan will either influence demand to match supply, or match supply to demand S&OP must be a dynamic, responsive process There are multiple costs to consider The three basic strategies for S&OP are Level, Chase and Hybrid Services use Yield Management