Sales and Operations Planning Chapter 14 Sales and Operations Planning Operations Management - 6th Edition Roberta Russell & Bernard W. Taylor, III Copyright 2009 John Wiley & Sons, Inc.

Lecture Outline The Sales and Operations Planning Process Strategies for Adjusting Capacity Strategies for Managing Demand Quantitative Techniques for Aggregate Planning Hierarchical Nature of Planning Aggregate Planning for Services Copyright 2009 John Wiley & Sons, Inc.

Sales and Operations Planning Determines the resource capacity needed to meet demand over an intermediate time horizon Aggregate refers to sales and operations planning for product lines or families Sales and Operations planning (S&OP) matches supply and demand Objectives Establish a company wide game plan for allocating resources Develop an economic strategy for meeting demand Copyright 2009 John Wiley & Sons, Inc.

Sales and Operations Planning Process Copyright 2009 John Wiley & Sons, Inc.

The Monthly S&OP Planning Process Copyright 2009 John Wiley & Sons, Inc.

Meeting Demand Strategies Adjusting capacity Resources necessary to meet demand are acquired and maintained over the time horizon of the plan Minor variations in demand are handled with overtime or under-time Managing demand Proactive demand management Copyright 2009 John Wiley & Sons, Inc.

Strategies for Adjusting Capacity Level production Producing at a constant rate and using inventory to absorb fluctuations in demand Chase demand Hiring and firing workers to match demand Peak demand Maintaining resources for high-demand levels Overtime and under-time Increasing or decreasing working hours Subcontracting Let outside companies complete the work Part-time workers Hiring part time workers to complete the work Backordering Providing the service or product at a later time period Copyright 2009 John Wiley & Sons, Inc.

Strategies for Managing Demand Shifting demand into other time periods Incentives Sales promotions Advertising campaigns Offering products or services with counter-cyclical demand patterns Partnering with suppliers to reduce information distortion along the supply chain Copyright 2009 John Wiley & Sons, Inc.

Mixed Strategy Combination of Level Production and Chase Demand strategies Examples of management policies no more than x% of the workforce can be laid off in one quarter inventory levels cannot exceed x dollars Many industries may simply shut down manufacturing during the low demand season and schedule employee vacations during that time Copyright 2009 John Wiley & Sons, Inc.

Collaborative Planning Sharing information and synchronizing production across supply chain Part of CPFR (collaborative planning, forecasting, and replenishment) involves selecting products to be jointly managed, creating a single forecast of customer demand, and synchronizing production across supply chain Copyright 2009 John Wiley & Sons, Inc.

Aggregate Planning for Services Most services cannot be inventoried Demand for services is difficult to predict Capacity is also difficult to predict Service capacity must be provided at the appropriate place and time Labor is usually the most constraining resource for services Copyright 2009 John Wiley & Sons, Inc.

Beni Asllani University of Tennessee at Chattanooga Chapter 15 Resource Planning Operations Management - 6th Edition Roberta Russell & Bernard W. Taylor, III Beni Asllani University of Tennessee at Chattanooga Copyright 2009 John Wiley & Sons, Inc.

Lecture Outline Material Requirements Planning (MRP) Capacity Requirements Planning (CRP) Enterprise Resource Planning (ERP) Customer Relationship Management (CRM) Supply Chain Management (SCM) Product Lifecycle Management (PLM) Copyright 2009 John Wiley & Sons, Inc.

Resource Planning for Manufacturing Copyright 2009 John Wiley & Sons, Inc.

Material Requirements Planning (MRP) Computerized inventory control and production planning system When to use MRP? Dependent demand items Discrete demand items Complex products Job shop production Assemble-to-order environments Copyright 2009 John Wiley & Sons, Inc.

Demand Characteristics 1 2 3 4 5 Week 400 – 300 – 200 – 100 – No. of tables Continuous demand M T W Th F M T W Th F Discrete demand Independent demand 100 tables Dependent demand 100 x 1 = 100 tabletops 100 x 4 = 400 table legs Copyright 2009 John Wiley & Sons, Inc.

Material Requirements Planning Planned order releases Work orders Purchase orders Rescheduling notices Item master file Product structure Master production schedule Copyright 2009 John Wiley & Sons, Inc.

MRP Inputs and Outputs Inputs Outputs Master production schedule Product structure file Item master file Outputs Planned order releases Work orders Purchase orders Rescheduling notices Copyright 2009 John Wiley & Sons, Inc.

Master Production Schedule Drives MRP process with a schedule of finished products Quantities represent production not demand Quantities may consist of a combination of customer orders and demand forecasts Quantities represent what needs to be produced, not what can be produced Quantities represent end items that may or may not be finished products Copyright 2009 John Wiley & Sons, Inc.

Lot Sizing in MRP Systems Lot-for-lot ordering policy Fixed-size lot ordering policy Minimum order quantities Maximum order quantities Multiple order quantities Economic order quantity Periodic order quantity Copyright 2009 John Wiley & Sons, Inc.

Planned Order Report Item #2740 Date 9 - 25 - 05 On hand 100 Lead time 2 weeks On order 200 Lot size 200 Allocated 50 Safety stock 50 SCHEDULED PROJECTED DATE ORDER NO. GROSS REQS. RECEIPTS ON HAND ACTION 50 9-26 AL 4416 25 25 9-30 AL 4174 25 0 10-01 GR 6470 50 - 50 10-08 SR 7542 200 150 Expedite SR 10-01 10-10 CO 4471 75 75 10-15 GR 6471 50 25 10-23 GR 6471 25 0 10-27 GR 6473 50 - 50 Release PO 10-13 Key: AL = allocated WO = work order CO = customer order SR = scheduled receipt PO = purchase order GR = gross requirement Copyright 2009 John Wiley & Sons, Inc.

Capacity Requirements Planning (CRP) Creates a load profile Identifies under-loads and over-loads Inputs Planned order releases Routing file Open orders file Copyright 2009 John Wiley & Sons, Inc.

CRP MRP planned order releases Routing file Capacity requirements planning Open orders Load profile for each process Copyright 2009 John Wiley & Sons, Inc.

Calculating Capacity Maximum capability to produce Rated Capacity Theoretical output that could be attained if a process were operating at full speed without interruption, exceptions, or downtime Effective Capacity Takes into account the efficiency with which a particular product or customer can be processed and the utilization of the scheduled hours or work Effective Daily Capacity = (no. of machines or workers) x (hours per shift) x (no. of shifts) x (utilization) x ( efficiency) Copyright 2009 John Wiley & Sons, Inc.

Calculating Capacity (cont.) Utilization Percent of available time spent working Efficiency How well a machine or worker performs compared to a standard output level Load Standard hours of work assigned to a facility Load Percent Ratio of load to capacity Load Percent = x 100% load capacity Copyright 2009 John Wiley & Sons, Inc.

Load Profiles graphical comparison of load versus capacity Leveling underloaded conditions: Acquire more work Pull work ahead that is scheduled for later time periods Reduce normal capacity Copyright 2009 John Wiley & Sons, Inc.

Reducing Over-load Conditions Eliminating unnecessary requirements Rerouting jobs to alternative machines, workers, or work centers Splitting lots between two or more machines Increasing normal capacity Subcontracting Increasing efficiency of the operation Pushing work back to later time periods Revising master schedule Copyright 2009 John Wiley & Sons, Inc.

Relaxing MRP Assumptions Material is not always the most constraining resource Lead times can vary Not every transaction needs to be recorded Shop floor may require a more sophisticated scheduling system Scheduling in advance may not be appropriate for on-demand production. Copyright 2009 John Wiley & Sons, Inc.

Enterprise Resource Planning (ERP) Software that organizes and manages a company’s business processes by sharing information across functional areas integrating business processes facilitating customer interaction providing benefit to global companies Copyright 2009 John Wiley & Sons, Inc.

ERP’s Central Database Copyright 2009 John Wiley & Sons, Inc.

Selected Enterprise Software Vendors Copyright 2009 John Wiley & Sons, Inc.

ERP Implementation Analyze business processes Choose modules to implement Which processes have the biggest impact on customer relations? Which process would benefit the most from integration? Which processes should be standardized? Align level of sophistication Finalize delivery and access Link with external partners Copyright 2009 John Wiley & Sons, Inc.

Customer Relationship Management (CRM) Software that Plans and executes business processes Involves customer interaction Changes focus from managing products to managing customers Analyzes point-of-sale data for patterns used to predict future behavior Copyright 2009 John Wiley & Sons, Inc.

Supply Chain Management Software that plans and executes business processes related to supply chains Includes Supply chain planning Supply chain execution Supplier relationship management Distinctions between ERP and SCM are becoming increasingly blurred Copyright 2009 John Wiley & Sons, Inc.

Product Lifecycle Management (PLM) Software that Incorporates new product design and development and product life cycle management Integrates customers and suppliers in the design process though the entire product life cycle Copyright 2009 John Wiley & Sons, Inc.

Copyright 2009 John Wiley & Sons, Inc. All rights reserved Copyright 2009 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein. Copyright 2009 John Wiley & Sons, Inc.