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Sales and Operations Planning (Aggregate Planning). Sales and Operations Planning. Strategic and tactical considerations Top-down planning Bottom-up planning Optimization techniques. Back to Pennington Cabinet. Strategic Capacity Level: Five machines, nine assembly teams

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sales and operations planning
Sales and Operations Planning
  • Strategic and tactical considerations
  • Top-down planning
  • Bottom-up planning
  • Optimization techniques

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

back to pennington cabinet
Back to Pennington Cabinet
  • Strategic Capacity Level: Five machines, nine assembly teams
  • Company produces make-to-stock cabinets for sale at Lowe’s, etc.
  • Effective capacity: 5,000 jobs per year OR about 420 jobs per month

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

pennington continued
Pennington (continued)

Raw Demand for next 6 months: January 150 jobs February 250 March 350 April 450 May 600 June 650

What are our options . . . ?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

pennington again
Pennington (again) . . .

Raw Demand

Need 450

600

Monthly capacity = 420

300

April

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

sales and operations planning sop
Sales and Operations Planning (SOP)
  • Purpose: Select capacity options over the intermediate time horizon
  • Capacity options:
    • Workforces
    • Shifts
    • Overtime
    • Subcontracting
    • Inventories
    • etc.

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

time horizon view
Time Horizon View . . .

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

sop continued
SOP continued

(2 - 18 months out)

  • Outside of time frame  strategic planning
  • Inside of time frame  tactical planning

“Big Picture” approach to planning

  • Families or groups (aggregation) of:
    • Products
    • Resources
    • Technologies or skills
  • Provide “rough” estimates

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

position in the overall business planning cycle

Long-Range

Plans

SOP

Short-Range

Plans

Position in the Overall Business Planning Cycle

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

inputs to the process
Inputs to the Process
  • Demand Management
  • Forecasts of customer demand
  • Need for spares, etc.
  • Pricing
  • Strategic Capacity Levels
  • Existing buildings
  • Processes

SOPs

  • External Capacities
  • Suppliers
  • Subcontractors

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

advantages of sop
Advantages of SOP
  • Negotiated process
    • “Agreed” demand
  • Functional coordination
    • Budgets and cash flow analyses
  • Reduces operations task to “meeting the plan”

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

sop approaches
Top-Down

Similar products OR stable mix

Standards available for planning

time, cost requirements from history and/or planning documentation

Can “Average” product

Bottom-Up

Different products AND unstable mix

Requires forecasts and production data for individual products

Can be extremely data-intensive

SOP Approaches

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

top down planning
Top-Down Planning
  • Develop the aggregate sales forecast and planning values.
  • Translate the sales forecast into resource requirements.
    • Personnel, equipment, materials
  • Generate alternative production plans.
    • Chase, level, mixed
  • Select the best of the plans.
    • Lowest cost, best fit to capability

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

top down example i product data
Top-Down Example I(Product Data)

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

top down example ii average products
Top-Down Example II(“Average” Products)

10%(40) + 60%(20) + 20%(15) + 10%(10) = 20 hours

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

top down example iii conditions or constraints
Top-Down Example III(Conditions or Constraints)
  • Agreed upon demand to be met for upcoming 12 month period
  • Can vary workforce and inventory levels
  • No backordering
  • “Average” unit requires 20 worker hours
  • Each worker works 160 hours per month

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

top down example iv demand forecast for 12 months
Top-Down Example IV(Demand Forecast for 12 months)

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

top down example v other tidbits of data
Top-Down Example V(Other tidbits of data …)
  • Hiring cost = $300
  • Firing cost = $200
  • Inventory holding cost = $6 / unit / month
  • Start and end with 227 workers (goal)
  • Start and end with about 1000 units in inventory (goal)

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

detail of first six months from level strategy
Detail of First Six Months from Level Strategy

Note: We develop a level strategy by setting “Actual Employees” equal to the average required for the 12 month planning period

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

detail of first six months from chase strategy
Detail of First Six Months from Chase Strategy

Note: We develop a chase strategy by setting “Actual Employees” equal to the number needed in each period

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

another view
Another View ...

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

cost details from the spreadsheets
Cost Details from theSpreadsheets ...

Level strategy

Chase strategy

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

top down example other issues
Top-Down Example(Other Issues …)
  • Are complete costs shown?
    • Expand out for budget and cash flow analysis
  • “Input” (suppliers) and “output” (logistics and warehousing) considerations
    • Lead time, materials availability, storage space?
  • Variations in actual production
    • Scrap, rework, equipment breakdowns

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

top down example expand the options
Top-Down Example(Expand the options …)

We can now subcontract production

  • Maximum subcontract of 1400 units per month
  • Cost is $5 more per unit than internal production cost
  • Will this option:
    • 1) increase costs?
    • 2) decrease costs?
    • 3) have no effect on costs?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield

second approach bottom up sop
Second Approach:“Bottom-Up” SOP
  • Products with very different requirements
  • Requires forecasts and production data for individual products
  • Can be extremely data-intensive

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield