Operations Planning & Control Session 8-9 2025 PDF

Operations Planning & Control Sales and Operations Planning a.k.a Aggregate Planning Session 8-9 Dr. Aditya K Sahu Quick Recap! 2 ◼ Collaborative planning, forecasting, and replenishment (CPFR)...

Operations Planning & Control Sales and Operations Planning a.k.a Aggregate Planning Session 8-9 Dr. Aditya K Sahu Quick Recap! 2 ◼ Collaborative planning, forecasting, and replenishment (CPFR) 3 ◼ What is Sales & Operations Planning (S&OP)? 4 5  Frito-Lay ◼ Consider the dilemma of the executive staff at Frito-Lay Company at their monthly planning meeting. Things are tough and it seems that everyone is complaining. 6 ◼ The president has been reviewing reports from marketing. “We keep running out of product. How can we sell stuff if we don’t have it when the customer wants it? ◼ And the response time on customer questions is terrible. It is often days between when the question comes in and when we get around to responding. This cannot continue.” ◼ The supply chain executive responds, “Our forecast from marketing was terrible last month. They sold 30 percent more than they had forecast. How do you expect us to keep this stuff in stock?” ◼ Marketing chimes in with, “We had a great month, what are you complaining about? We told you mid-month that things were going well.” The plant manager replies, “There is no way that we can react that quickly. What are you expecting from us? Our schedules are fixed six weeks into the future. You want us to be efficient, don’t you?” ◼ The president asks, “Should we just bump everything up 30 percent for next month? I sure don’t want to run out again.” 7 ◼ Marketing responds, “Only if you are willing to keep running that 2-for-1 deal that we were running last month. Our customers pass that discount on to their customers and that keeps sales going. I am not sure that we are making much money when we discount like that.” ◼ This wakes up the finance guy, “Oh, so now I understand why we have such a big negative revenue variance. We can’t give the stuff away anymore.” ◼ This is struggle between those selling the product, those supplying the product, and those keeping track of the money goes on month after month. ◼ The problem is one of matching supply with demand at a price that makes the firm profitable. ◼ It is a difficult balancing act and one that plays out at most companies. ◼ Today, many companies are using a business process called sales and operations planning (S&OP) to help avoid such problems. 8 The Planning Sequence  Business Planning Exercise ◼ Business plan is strategic in nature and addresses the following questions: ❑ Should we meet the projected demand entirely or a portion of the projected demand? ❑ What resources should we commit to meet the chosen demand during the planning horizon? ◼ S&OP/Aggregate production planning seeks to translate business plans into operational decisions 10 The Production Planning Environment 11 ◼ S&OP is function of setting the overall level of manufacturing output (production plan) and other activities to best satisfy the current planned levels of sales (sales plan and/or forecasts), while meeting general business objectives of profitability, productivity, competitive customer lead times, etc., as expressed in the overall business plan. ◼ The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans. 12  What is purpose of S&OP or Aggregate Planning? ◼ The term Sales and operations planning has been coined by companies to refer to the process that helps companies keep demand and supply in balance. ◼ To reach consensus on a single operating plan that allocates the critical resources of people, capacity, materials, time, and to most effectively meet the Demand. 13  Aggregate Operations Planning- Why is it necessary? ◼ Demand fluctuations ◼ Capacity fluctuations ◼ Difficulty level in altering operation rates  Operating systems are complex, and varying the rate of operation requires prior planning and coordination with other trading partners. Aggregate Operations Planning is done in an organization to match the demand with the supply on a period-by-period basis in a cost-effective manner. 14 Why is S&OP Planning important? ◼ Factors responsible for the imbalance between Supply & Demand Promotions New Product Introductions Packaging Changes Changing demand patterns ◼ Companies that use S&OP – stand competitive advantage by gaining the visibility and agility to improve product management and promotional planning, Help minimize unnecessary build-ups of inventory and better predict revenue 15  What are the conflicts in Traditional Planning Approach ? Functions Objectives Implications High Marketing ✓ High Revenues Customer Service ✓ High Availability Low Many ✓ Low Production cost Disruptions to Productions ✓ Long production Runs Few Production High ✓ Low Investment & Cost Inventories Finance ✓ Few Fixed Costs Low Hence the Need for a Collaborative Backlog Financial Marketing Plan Plan Plan ◼ S&OP gives a complete picture of forecasted demand, supply capacity and corresponding financial information. ◼ S&OP is a vehicle for communication that puts the vision, strategy, financial and tactical plans of a business into one unified operating plan in order to optimize the allocation of critical resources 18 S&OP or Aggregate Plan S&OP/ Aggregate Production Planning Framework Alternatives for Forecasting Modifying demand Arriving at effective Targeted Demand Period-by-period to be fulfilled Demand to be met Arriving at Actual period-by-period Period-by-Period - Supply Schedules Supply Schedules Alternatives for Modifying supply 20 The Planning Process Types of Planning Long-range planning Planning focusing on a horizon greater than one year Usually performed annually Intermediate-range planning Planning focusing on a period from 3 to 18 months (S&OP) Usually performed by doing weekly, monthly, or quarterly time increments Short-range planning Planning covering a period from 1 day to 6 months Usually performed by doing Daily or weekly time increments Overview of Major Operations and Supply Planning Activities Sales & Operations Planning or Aggregate Planning ◼ The decisions involve ❑ Amount of resources (productive capacity and labor hours) to be committed ❑ Rate at which goods and services need to be produced during a period ❑ Inventory to be carried forward from one period to the next ◼ Example ❑ Produce at the rate of 9000 units/day (January-March) , 11,000 units/day (April-August) & 10,000 units/day (September-December) ❑ Carry 10% of monthly production as inventory (during first 9 months) ❑ One shift throughout the year with 20% over time (July-October) 24 Aggregate Planning (product families) Aggregate Planning Inputs ◼ Resources ◼ Costs  Workforce/production rates  Inventory carrying  Facilities and equipment  Back orders  Hiring/firing  Overtime ◼ Demand forecast  Inventory changes  Subcontracting ◼ Policies  Workforce changes  Subcontracting  Overtime  Inventory levels/changes  Back orders Aggregate Planning Outputs ◼ Total cost of a plan ◼ Projected levels of  Inventory  Output  Employment  Subcontracting  Backordering Aggregate Planning Strategies 1. Proactive  Alter demand to match capacity 2. Reactive  Alter capacity to match demand 3. Mixed  Some of each Options for Altering Demand: ◼ Pricing  Used to shift demand from peak to off-peak periods  Price elasticity is important ◼ Promotion  Advertising and other forms of promotion ◼ Back orders  Orders are taken in one period and deliveries promised for a later period ◼ New demand  Create new demand to absorb excess capacity generated due to peak time demands 30 Alternatives for managing Demand ◼ Reservation of Capacity ❑ Hospital Appointment system ◼ Influencing Demand ❑ Special Tariffs ❖ Late-night calls ❖ Midnight flight ❑ Limited period special offers Aggregation on the supply side is done by ❖ Happy hours (Selected time of day) product families, and on the demand side, it is done by groups of customers. 31  Options for Altering Supply: ◼ Hire and layoff workers ◼ Overtime/slack time ◼ Part-time workers ◼ Inventories ◼ Subcontracting Alternatives for managing Supply ◼ Inventory Based Alternatives ❑ Carrying Inventory ❑ Stock out, Backordering/Backlogging ◼ Capacity Adjustment Alternatives ❑ Hiring/Lay-off of workers ❑ Varying shifts ❑ Varying Working Hours (OT,UT) ◼ Capacity Augmentation Alternatives ❑ Sub-contracting/Outsourcing ❑ De-bottlenecking (temporary capacity expansion) ❑ Addition of new capacity 33 Aggregate Production Planning - Two generic strategies ▪ So far, we have identified several alternatives for bridging the supply– demand gap during the planning horizon. However, we are still uncertain about the specific combination of these that should be used, and the implications of these in practice. Two generic strategies ▪ In level strategy, the emphasis is not to disturb the existing production rate at all. ▪ In chase strategy, no effort is made to carry inventory from one period to another; the supply – demand mismatch is addressed during each period by employing capacity related alternatives 34  Aggregate Operations Planning (two generic strategies) APP Strategy AOP alternatives applicable Key features Inventory based alternatives Inventory as the critical link between (a) Build Inventory the periods; Level Strategy Made-to-stock environments; (b) Backlog/Backorder/Shortage Products with low risks of obsolescence Capacity adjustment alternatives (a) Over Time/Under Time No inventory carried from one period (b) Vary no. of shifts to another; Chase Strategy (c) Hire/Lay-off workers Made-to-order and project environments; Capacity augmentation alternatives Several service systems (a) Sub-contract/Outsource (b) De-bottleneck 35  ◼ The monthly sales and operations planning process How is it practiced by organizations? Step 5 EXEC SOP Decisions Meeting Step 4 Pre- SOP Meeting Recommendations for Executive S&OP Step 3 Supply Planning Capacity Constraint 1st pass spreadsheet STEP 2 Demand Planning Management Forecast 1st pass spreadsheet STEP 1 Data Gathering Statistical forecasts Field sales worksheet End of Month In-class exercise: Pure Strategies: Caselet 1 ◼ Quarter Sales Forecast (in units) ◼ Spring 80,000 ◼ Summer 50,000 ◼ Fall 120,000 ◼ Winter 150,000 ◼ Regular production costs per pound = $2.00 ◼ Inventory Carrying Cost = 0.50 $ per quarter ◼ Production per employee = 1,000 units per quarter ◼ Hiring Cost = $100 ◼ Firing Cost = $ 500 ◼ Beginning work force at each quarter = 100 workers Calculate the total cost as per Level and Chase production Strategies. Level Production Strategy Level Production (50,000+120,000+150,000+80,000)/4=100,000 pounds Quarter Sales Forecasting Production plan Inventory Spring 80,000 100000 20000 Summer 50000 100000 70000 Fall 120,000 100,000 50000 Winter 150,000 100,000 0 400000 140,000 Cost of level production strategy (400,000*$2.00)+(140,000*$.50)=$ 870,000 41 Chase Demand Strategy Quarter Sales Forecast Production Plan Worker Needed Worker Hired Worker Fired Spring 80000 80000 80 0 20 Summer 50,000 50000 50 0 30 Fall 120,000 120,000 120 70 0 Winter 150,000 150,000 150 30 0 100 50 Cost of Chase Demand Strategy (400,000*$2.00)+(100*$100)+(50*$500)=835,000 42 Caselet 2: In class decision sheet Quarter Sales Forecast Spring 120,000 Summer 60,000 Fall 100,000 Winter 120,000 Hiring Cost =$150 Firing Cost=$ 400 Regular production costs per unit =$3.00 Inventory Carrying Cost = 0.60 $ per quarter Production Per employee= 2,000 units per quarter Beginning work force at each quarter = 100 workers Calculate the total cost as per Level and Chase production Strategies. 44 45 46 Digital supply chain transformation at Jabil: integrated supply and demand planning via concurrent planning Case Study About Jabil https://www.youtube.com/watch?v=tSukQqa1Bng 48 Jabil: a global manufacturing solutions provider ◼ Jabil handles the sourcing of materials, manufacturing and, sometimes, the packaging and distribution of components and finished products for over 450 leading brands. ◼ They have a vast network of more than 27,000 suppliers, and they support production in over 15 different industries, from automotive and healthcare to aerospace and defense. 49 ◼ Using a manufacturing solutions provider allows companies to focus on innovation, marketing, sales and support, while Jabil takes care of finding the right suppliers, employing a skilled workforce, maintaining factories and facilities, automating production, monitoring quality, conducting testing and ultimately ensuring that products get to the right place at the right time. ◼ Jabil does the following for its customers: ◼ Innovates and develops designs optimized for performance and manufacturability. Rapidly prototypes for accelerated product introductions. ◼ Manufactures the highest-quality products and components using the latest automation and process technologies. ◼ Stringently validates and tests with proprietary, integrated methodologies. ◼ Ensures that customers build in the right location, source the right materials and reach target markets with intelligent, digital supply chain solutions. 50 51 ◼ Jabil’s manufacturing plants are equipped with diverse capabilities from additive manufacturing, metal stamping, 3D printing, and precision injection molding to sustainable, smart packaging solutions. 52 Sales and operations planning at Jabil ◼ Lizlet knew supply chains face constant disruption, from hurricanes and factory fires to raw material shortages and labor strikes. As a team of demand planners, they were faced with frequent demand changes (increases and decreases) that required adjusted forecasts that did not result in component shortages. ◼ The critical element underpinning almost all planning decisions was access to data. ◼ Like many large companies, Jabil had different software for different processes. For example, procurement might be done using one system, forecasting with another system, manufacturing resource planning within a third system and so on. ◼ All of these software systems were disconnected, and Jabil had to train people across several platforms, incurring costs for training, running and maintaining multiple systems. 53 Concurrent planning as a possible solution ◼ Concurrent planning technique was achieved in a supply chain planning software called RapidResponse that she recognized from her research on planning solutions. ◼ She watched a hypothetical supply disruption for a fictional company using real data playout. ◼ An alert was generated in the platform that one of the suppliers was experiencing a shortage. “This is exactly what I deal with every day!” thought Lizet. 54 55 ◼ The presenter then created what she called a scenario, a digital copy of the production plan. In this scenario, you could see which plants and customers the supply shortage would affect, and which parts would experience a production delay. Then, she quickly chose an alternate supplier and modified the demand plan based on a scorecard of different options. ◼ The scenario could be shared with other members of the planning team for review, and then implemented into the live plan immediately with the click of a button. It all took a matter of minutes – and that was the most astounding part. ◼ That kind of analysis would take her team of ten planners days or even weeks of sharing spreadsheets back and forth, and by the time they were done with a plan, the underlying data would have changed, causing them to start all over again. 56 ◼ Lizet raised her hand and asked, “How do you know you’re looking at the most up-to-date plan?” The presenter smiled and told her that all the data was updated in real time. ◼ Planners could see changes and get alerts as soon as a disruption occurred. They could see the costs and risks of any alternative solutions they wanted to try by creating scenarios, and then choosing the best one, all without making any actual changes to the live plan until they were ready. ◼ Lizet sat back in her chair and looked around the room. She thought to herself, “Surely someone will realize how valuable this is and make it happen.” 57 ◼ It looked like it had the potential to solve many of their biggest planning problems, the largest of which was the sea of disconnected Excel spreadsheets in which her whole department was swimming daily, and she knew she wasn’t alone. ◼ Her team of demand planners was just one of over ten teams globally that had to coordinate every day across hundreds of customers and suppliers. 58 Leading a supply chain transformation ◼ Lizet knew that eliminating volatility in supply chains is impossible, but with the right data and tools, it can be managed properly. She had a hunch that the concurrent planning technique would be the ideal replacement for siloed planning processes in disconnected tools. ◼ It became clear that the path to transformation would be filled with roadblocks. No one wanted to take on the costs and labor of integrating all the disparate planning systems within Jabil and deal with the cleaning, transforming and migration of data that would have to happen to fully integrate the supply chain from end-to-end. 59 ◼ While Lizet’s team had been struggling with demand planning and forecast issues, her counterpart on the operations management side, Valerie Garcia (she/her), Senior Planning Manager, was struggling with erroneous plans and trying to eliminate component shortage-related struggles. Another person who was having similar issues was Patrick Mahoney (he/his), Distribution Planning Manager. Patrick was on the logistics side of these issues and he was fed up being blamed to due lead time delays, transportation disruptions, and warehousing issues. ◼ Lizet knew that having strong peer support was going to be a critical success factor. Demand Planning (Lizet’s team), Operations Planning (Valerie’s team), and Logistics Planning (Patrick’s team) had to be on the same side for the integrated systems to work. 60 ◼ Struggling with the issues caused by the disconnected planning tools, Lizet champions implementing a fully integrated suite of services (built on top of the Kinaxis RapidResponse software platform). https://www.youtube.com/watch?v=ZJFH1aA_afc 61 ◼ Question 1: Describe the complexities associated with a global supply chain. https://earth.google.com/earth/d/1OPDez4vWqJtjkDCogTOubQODCuSLxN5 7?usp=sharing 62 ◼ Question 2: Explain the data needs for managing volatility and uncertainty in a global supply chain. ◼ Question 3: Contrast the siloed decision-making approach with the integrated approach in terms of data management, data- and decision-sharing, consolidation of processes and resolving emerging supply chain issues. 63 ◼ Earlier perspectives require separate processes for demand planning, materials requirements planning, master production scheduling and sales/operations planning. The supply chain perspective can be interpreted as yet another level. 64 Sales and operations planning components, relations within the components 65 ◼ The siloed approach typically contains several large-scale legacy systems. ◼ Primarily, these legacy systems are established as stand-alone tools, not taking advantage of agile cloud services. ◼ The data that is fed to the legacy systems is static and comes from multiple systems. This exposes data integrity issues. ◼ Furthermore, unsynchronized data could impact cross-divisional collaboration. ◼ The siloed approach also creates siloed processes and teams. Multiple systems typically require separate training and detailed maintenance, increasing the costs of operation. ◼ A siloed system, operates according to a load and chase approach. ◼ This is unfortunately reactive and not scalable as it uses manual Excel-based solutions. The lack of real-time data results in the procurement of excess materials. 66 ◼ For a global company operating across 100 locations, a business strategy and deployment plan necessitates an integrated system, intelligent data and greater collaboration across the globe. 68 ◼ Concurrent planning offers realistic, feasible and flexible planning as it integrates different components of the business strategy with real-time data. ◼ The concurrent system offers several benefits, including: developing demand and inventory strategies to achieve consistent customer satisfaction; relocating inventory where it is needed and identifying inventory rebalancing opportunities across multiple locations; determining material availability of critical and constraint components while considering customer priorities. calculating capacity needs across several calendars, work centers, sites and multisite aggregation; and managing supply allocation considering complex priority rules. 69 70 ◼ The main takeaway is that while supply chain uncertainties and disruptions introduce significant challenges in business management, a concurrent system with real-time data could make the uncertainties and disruptions manageable with the right plans. 71 ◼ Question 4: What are some challenges for a large-scale tech adaptation in a global company? 72 ◼ It is not easy for a large-scale company to drop the existing systems and replace them with the newest, shiniest solution. ◼ First of all, the new solution approach requires acceptance at different levels, from managers to high-level executives, convincing ◼ managers that the new solution is easier to use; superiors that the results will offer business value; and ◼ high-level executives that benefits obtained from the solution will outweigh the cost of ◼ acquiring and implementing the new solution. ◼ Ultimately, almost everybody in the organization must be on board. 73 ◼ To ensure the new Jabil S&OP solution was scalable, they considered three factors: ◼ People – Through this project, Jabil created a training and certification program to ensure the planners have the necessary skills and knowledge to use these advanced planning tools. Jabil also funded a Center of Excellence (CoE) of business process experts to support the subject matter expert (SME) community, who in turn supports the user community. ◼ Process – During the S&OP process, the customer, business unit and functional areas review the demand requirements and define the planning, inventory and capacity strategies that will better meet the stated business goals. This process required separate run capacities at different cadences. 74 ◼ Technology – An integrated S&OP solution enables Jabil’s teams to evaluate and right- size the demand, capacity and supply in a matter of hours. In the past, the same process would have taken days to complete. The solutions needed to accommodate many different planning strategies, calendars, product hierarchies, capacity master data, etc. ◼ The development of the Jabil S&OP solution commenced in 2016 and was completed by mid-2017. Jabil then spent several months training the hundreds of SMEs globally, who trained the end-users. In 2018, Jabil focused on deployment through a phased approach. By early 2019, Jabil had completed deployment in more than 200 business units serving multiple customers across the globe. ◼ A team of supply chain business process experts formed the CoE, which has the functional domain expertise, continues to innovate and enhance the solutions, monitors the process adherence and provides training. 75 ◼ Lizet's interview: www.youtube.com/watch?v=DKkDNjzCMDA 76 Thank You ☺