Sales and Operations Planning (Aggregate Planning) Chapter 10 Chapter Objectives Be able to: Distinguish among strategic planning, tactical planning, and detailed planning and control Describe why sales and operations planning (S&OP) is important to an organization and its supply chain partners Generate multiple alternative sales and operations plans for a firm Describe the differences between top-down and bottom-up S&OP and discuss the strengths and weaknesses of level, chase, and mixed production strategies Discuss the organizational issues that arise when firms decide to incorporate S&OP into their efforts Examine how S&OP can be used to coordinate activities up and down the supply chain Apply optimization modeling techniques to the S&OP process Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - Sales and Operations Planning 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 Brings together all the plans for the business into © 2010 APICS Dictionary one integrated set of plans Also called Aggregate planning Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - S&OP Planning Levels Strategic planning Tactical planning Detailed planning and control Figure 10.1 Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - Goals of S&OP To indicate how the organization will use its tactical capacity resources to meet expected customer demand To strike a balance between the various needs and constraints of the supply chain partners To serve as a coordinating mechanism for the various supply chain partners To express the business’s plans in terms that everyone can understand Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - Major Approaches Top-down planning – An approach to S&OP in which a single, aggregated sales forecast drives the planning process Bottom-up planning – An approach to S&OP that is used when the product/service mix is unstable and resource requirements vary greatly across the offerings Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - Choosing an Approach Figure 10.2 Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - Planning Values 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 Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - Top-Down Planning Developing a top-down plan: Develop the aggregate sales forecast and planning values Translate the sales forecast into resource requirements Generate alternative production plans Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - Top-Down Example – Pennington Cabinets 12 month sales forecast Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 10 Bottom-Up Example Table 10.9 Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 28 Bottom-Up Example The difference in labor requirements becomes important when the product mix changes Even though the aggregate forecast across both product lines is 700 units each month, the product mix changes, as can be seen in the labor hours needed each month Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 29 Bottom-Up Example Load Profile – A display of future capacity requirements based on released and/or planned orders over a given span of time © 2010 APICS Dictionary Figure 10.4 Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 30 Cash Flow Analysis 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 Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 31 Cash Flow Analysis Figure 10.5 Different sales scenarios can have a significant effect on cash flow as shown above Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 32 Choosing between Plans What impact will the plan have on key suppliers and transportation providers? What are the 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? Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 33 Fine-Tuning the Plan Figure 10.6 Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 34 Rolling Planning Horizons Rolling planning horizon – A planning approach in which an organization updates its sales and operations plan regularly, such as on a monthly or quarterly basis Figure 10.7 Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 35 Implementing S&OP Developing the foundation Build managerial support and infrastructure to make it a success Integrating and streamlining the process Update the plan and use the results for decisionmaking Gaining a competitive advantage Make S&OP a core competency Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 36 Service Considerations Making sales match capacity Making capacity (typically the workforce) match sales Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 37 Making Sales Match Capacity Yield management – An approach that services commonly use with highly perishable “products” in which prices are regularly adjusted to maximize total profit Total profit = (average profit per service unit sold) * (# of service units sold) Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 38 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 Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 39 S&OP Optimization Modeling Optimization model – A class of mathematical models used when the user seeks to optimize some objective function subject to some constraints Understand the pattern of resource decisions – labor, inventory, machine time, etc - that will result in the lowest total cost while still meeting the sales forecast Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 40 Sales and Operations Planning Case Study Covolo Diving Gear, Part Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 41 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher Printed in the United States of America Copyright © 2013 Pearson Education, Inc publishing as Prentice Hall 10 - 42 ... organization and its supply chain partners Generate multiple alternative sales and operations plans for a firm Describe the differences between top-down and bottom-up S&OP and discuss the strengths and. .. customer demand To strike a balance between the various needs and constraints of the supply chain partners To serve as a coordinating mechanism for the various supply chain partners To. .. 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 Brings together