0. Sales and Operations Planning
Spring, 2014
Supply Chain Management: Strategy, Planning, and Operation
Chapter 9
Byung-Hyun Ha

1. Contents Introduction Managing supply Managing demand
Further discussion

2. Introduction Predictable variability
Change in demand that can be forecasted
Results of sales planning (a kind of demand planning or shaping)
Maximizing profitability in aggregate planning
Managing supply
Production capacity, inventory
Managing demand
e.g., by sales planning

3. Managing Supply Managing capacity Managing inventory
Time flexibility from workforce
Use of seasonal workforce
Use of subcontracting
Use of dual facilities – dedicated and flexible
Designing product flexibility into production processes
Managing inventory
Using common components across multiple products
Building inventory of high demand or predictable demand products

4. Managing Demand Demand increases by promotion Market growth
Increased sales, increased market size
Stealing share
Increased sales, same market size
Forward buying
Same sales, same market size

5. Managing Demand Example: Red Tomato Tools (1)
Promotion effect in a specific period
Unit price: $40
Period demand increase by 10% for $1 discount
Forward-moving of 20% of two following months’ demand
Change in demand by promotion
Original
Discounting price in January
Discounting price in April
Jan
Feb
Mar
Apr
May
Jun
1,600
3,000
3,200
3,800
2,200
Profit:
$217, 725
Jan
Feb
Mar
Apr
May
Jun
3,000
2,400
2,560
3,800
2,200
Profit:
$221, 485
Jan
Feb
Mar
Apr
May
Jun
1,600
3,000
3,200
5,060
1,760
Profit:
$211,283

6. Managing Demand Example: Red Tomato Tools (2)
Large increase demand from promotion
Unit price: $40
Period demand increase by 100% for $1 discount
Forward-moving of 20% of two following months’ demand
Change in demand by promotion and its results
Original
Discounting price in January
Discounting price in April
Jan
Feb
Mar
Apr
May
Jun
1,600
3,000
3,200
3,800
2,200
Profit:
$217, 725
Jan
Feb
Mar
Apr
May
Jun
4,400
2,400
2,560
3,800
2,200
Profit:
$242, 801
Jan
Feb
Mar
Apr
May
Jun
1,600
3,000
3,200
8,480
1,760
Profit:
$247, 320

7. Managing Demand Example: Red Tomato Tools (3)
Large increase demand from promotion
Unit price: $31
Period demand increase by 100% for $1 discount
Forward-moving of 20% of two following months’ demand
Change in demand by promotion and its results
Original
Discounting price in January
Discounting price in April
Jan
Feb
Mar
Apr
May
Jun
1,600
3,000
3,200
3,800
2,200
Profit:
$73,725
Jan
Feb
Mar
Apr
May
Jun
4,400
2,400
2,560
3,800
2,200
Profit:
$84,410
Jan
Feb
Mar
Apr
May
Jun
1,600
3,000
3,200
8,480
1,760
Profit:
$69,120

8. Managing Demand Impact on promotion timing Factor Impact
High forward buying
High ability to steal market share
High ability to increase overall market
High margin
Low margin
High manufacturer holding costs
High costs of changing capacity
High retailer holding cost
High promotion elasticity of consumer
Favor promotion during low-demand periods
Favor promotion during peak-demand periods
Decreases forward buying by retailer

9. Further Discussion S&OP as an optimization problem?
Implementing in Practice
Coordinate planning across enterprises in the supply chain
Take predictable variability into account when making strategic decisions
Design S&OP to understand and manage the drivers of demand usage
Ensure that the S&OP process modifies plan as the reality or forecasts change