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

2. 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

3. 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

4. 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

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

6. 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

7. 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

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

9. 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

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

11. 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

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

13. 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

14. 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