Unit 5B – Sales & Operations Planning PDF

Unit 5B – Sales & Operations Planning Chapter 5B - Sales and Operations Planning (Aggregate Planning) Aggregate = a whole formed by combining several elements Or, to form or group into a cluster Sales & Operations Planning – Unit 5B Outcomes 5.7 Describe each process in the Business...

Unit 5B – Sales & Operations Planning Chapter 5B - Sales and Operations Planning (Aggregate Planning) Aggregate = a whole formed by combining several elements Or, to form or group into a cluster Sales & Operations Planning – Unit 5B Outcomes 5.7 Describe each process in the Business Planning Cycle and distinguish among strategic, tactical and detailed planning, and control. 5.8 Define sales and operations planning (S&OP) and explain why it is important to an organization and its supply chain partners. 5.9 Discuss the production planning process including the strengths and weaknesses of level, chase, and mixed production strategies. 5.10 Examine how S&OP can be used to coordinate activities up and down the supply chain and the importance of cash flow analysis. 5.11 Describe the use of S&OP in service industries.​ 5.7 Business Planning Cycle – Capacity and Risk High Risk Capital including bricks and Years Strategic Business Planning mortar and process choices Workforce, inventory, Moderate Risk Sales and Operations Planning subcontracting and logistics 12 – 24 Months Critical or bottleneck resource Master Production Scheduling capacity checked Weeks Lowest Risk out Every resource used is checked Material Requirements Planning that capacity is available Production Purchasing In-house work gets done and Days/Hrs Activity Control issues resolved. Suppliers have capacity Figure 3 + Slide 3 5.7 - Time Horizons in the Planning Cycle Strategic planning Tactical planning Detailed planning and control Figure 10.1 Different Levels of Planning 5.8 - Sales and Operations Planning (S&OP) A process to develop tactical plans by integrating marketing plans for new and existing products with the management of the supply chain. © 2016 A PICS Dictionary Brings together all the plans for the business into one integrated set of plans. Also called Aggregate Planning.  5.8 - S&OP in the Planning Cycle Sales/Marketing Customer demand S&OP indicates how the organization will Customer needs Competitive Environment use its tactical capacity resources to meet expected customer demand. Purchasing Accounting/ External supply-supplier's Finance S&OP strikes a balance between the capabilities Cost Data Improvements from various needs and constraints of the suppliers Sales and Financials supply chain partners. Operations Planning S&OP serves as a coordinating mechanism for the various supply chain partners. Operations Engineering Supply Side New Product Design Capacity information Process Changes Production Plan S&OP expresses the business’s plans in terms that everyone can understand. 5.9 Production Planning Process 1. Develop the aggregate sales forecast and planning values. 2. Translate the sales forecast into resource requirements.  Personnel, equipment, materials 3. Generate alternative production plans.  Chase, level, mixed 4. Select the best of the plans.  Lowest cost, best fit to capability Slide 7  5.9 - Production Strategies for S&OP Level production plan – A S&OP plan in which production is held constant and inventory is used to absorb differences between production and the sales forecast. Chase production plan – A S&OP plan in which production is changed in each time period to match the sales forecast. Mixed production plan - A S&OP plan that varies both production and inventory levels in an effort to develop the most effective plan. Planning values – Values that decision makers use to translate a sales forecast into resource requirements and to determine the feasibility and costs of alternative sales and operations plans. (ie. Labour costs, supply costs, #s to produce, etc) Example of Level Production Strategy 1400 1200 1000 Number of Units 800 600 Sales Forecast Production Build 400 200 0 Period Figure 4 Slide 9 5.9 Level Production Plan Advantages Disadvantages Avoids the cost of changing resource Inventory carrying costs levels Not meeting customer demand Companies do not need to have excess capacity to meet peak demand. Do not need to hire and train new workers or lay off during slow periods. Protect highly skilled workers Slide 10 Example of Chase Production Strategy 1400 1200 1000 Number of Units 800 600 Sales Forecast Production Build 400 200 0 Period Figure 6 Slide 11 5.9 Chase Production Plan Disadvantages Advantages Must be able to meet Inventories are kept to a demand as it occurs, minimum therefore resources fluctuate as demand fluctuates. Hiring, laying off, overtime and extra shifts as well as idle resources can be expensive. Slide 12  Example – Pennington Cabinets – PLANNING VALUES Pennington Cabinets is a manufacturer of several different lines of kitchen and bathroom cabinets that are sold through major home improvement retailers. The VP of Marketing has provided a sales forecast for the next 12 months. The VP of Operations has provided Planning Values that need to be considered Sales Forecast Cabinet Set Planning Values blank Month (Cabinet Sets) $2,000 per cabinet Regular production cost: January 750 set February 760 Overtime production cost: $2,062 per cabinet set March 800 Average monthly inventory $40 per cabinet April 800 holding cost: set, per month Workforce Planning Values blank May 820 Average labour hours per Hours worked per month 20 hours 160 hours cabinet set: per employee: June 840 Estimated cost to hire a $1,750 July 910 worker: Production Planning Values Estimated cost to lay off a August 910 blank $1,500 worker: September 910 Maximum regular 848 cabinet sets production per month: October 880 November 860 Allowable overtime 1/10 of regular production per month: production December 840 Example – Pennington Cabinets (continued) The sales forecast shows an Figure 10.3 Graphing Expected expected peak from July Sales Levels versus Capacity through September Pennington can produce up to 848 cabinet sets a month, using regular production time. Pennington won’t be able to meet expected demand in the peak months with just regular production. Example – Pennington Cabinets (continued) The next step for Pennington is to translate the sales forecast into resource requirements. The key resource Pennington is concerned about is labour, although other resources could be examined, depending on the needs of the firm. Translating sales into labour hours and, ultimately, workers needed allows Pennington to see how demand drives resource requirements. Example – Pennington Cabinets – Mixed Production Plan By varying the production and inventory levels, the best plan can be developed. The number of potential mixed plans is essentially limitless. For example, overtime may be limited to 12 cabinet sets per month in October and November. Advantages Disadvantages An optimal solution can be made Can take quite a few variations balancing inventory carrying to get to optimal solution. costs and varying resource requirements. Subcontracting is an option.  5.10 - Organizing for and Implementing S&OP Questions to ask when choosing between alternative plans: Figure 10.6 Fine-Tuning the Sales and Operations What impact will the plan have on supply chain partners such as key suppliers and transportation providers? What are cash flows like? Do the supply chain partners and the firm itself have the space needed to hold any planned inventories? Does the plan contain significant changes in the workforce? How flexible is the plan? 5.10 - Organizing for and Implementing S&OP Cash Flow Analysis The Finance Department is responsible for making sure that the business has the cash it needs to carry out the sales and operations plan and that any excess cash is put to good use. Net cash flow – The net flow of dollars into or out of a business over some time period. Net cash flow = cash inflows − cash outflows So what do we do? Services cannot be built ahead of time and stored in inventory. Two strategies: 1. Influence Sales to match available Capacity 2. Changing Capacity to match Sales 5.11 - Service Considerations for S&OP Influencing Sales to Match Available Capacity Yield management – Variable pricing strategy To maximize revenue and profits from a fixed, time-limited resource ▪ Airline seats ▪ Hotel room reservations ▪ Parking prices close to a major concert venue or sporting event ▪ Prices are regularly adjusted to maximize total profit. 5.11 - Service Considerations Changing Capacity to Match Sales Tiered workforce – A strategy used to vary workforce levels ▪ Small permanent staff PLUS ▪ Hire/layoff FT, PT and seasonal workers Offloading – Shift work to the customer ▪ Examples? 5.11 - Service Considerations Making Capacity Match Sales Tiered workforce – A strategy used to vary workforce levels, in which additional full-time or part-time employees are hired during peak demand periods, while a smaller permanent staff is maintained year-round. Offloading – A strategy for reducing and smoothing out workforce requirements that involves having customers perform part of the work themselves. 5.11 - Service Considerations Making Capacity Match Sales Tiered workforce – A strategy used to vary workforce levels ▪ Small permanent staff ▪ Hire/layoff FT, PT and seasonal workers Offloading – Shift work to the customer Review What role does S&OP play in the overall planning activities of an organization? In general, under what conditions might a firm favor a level production plan over a chase plan? A chase production plan over a level plan? Services, in general, cannot put 'products' in inventory to be consume at some later time. How does this limit service firms' S&OP alternatives? What are the advantages to a firm of coordinating its S&OP process with key suppy chain partners? What are the potntial drawbacks?