Objective of Sales and Operations Planning
To reach consensus on a single operating plan that allocates the critical resources of people, capacity, materials, time, and money to most effectively meet the market place in a profitable way.
Tactical Planning Sales and Operations Planning
Months out. Workforce, inventory, subcontracting, and logistics decisions. Planning numbers somewhat "aggregated" (month by month). Moderate risk.
Sales and Operations Management Timing of Plans
Updated monthly for a rolling 12 months.
External Inputs to the Production Planning System
External capacity (subtractors), competitors' behavior, raw material availability, market demand, and economic conditions. These tasks are more difficult.
Internal Inputs to the Production Planning System
Current physical capacity, current workforce, inventory levels, and activities required for production. A company can greater influence/control these tasks.
Aggregate Operations Plans
Specifies the optimal combination of production rate, workforce level, and inventory on hand.
Relevant Cost Types to S&OP
Basic production costs, costs associated with changes in the production rate, backorder costs, and inventory holding/carrying costs.
Production Planning Strategies
Plans for meeting demand.
Chase Production Planning Strategy
Match the production rate by hiring and laying off employees. Match what the forecasting is saying and producing inventory exact with the forecast. Must have a pool of easily trained applicants to draw on. Advantage: Low inventory costs.
Level Production Planning Strategy
Producing a level amount of inventory. Demand changes are absorbed by fluctuating inventory levels, order backlogs, and lost sales. Advantage: can be more stable with work hours and production.
Mixed Production Planning Strategy
Stable workforce and very the number of hours worked through flexible work schedule or overtime or subcontracting.
Peak Demand Strategy
Under-time or excess capacity. Subcontracting. Use in emergency services, easily obtainable substitutes, and when the cost of back orders are high.
Level Production Strategy
Inventory (both carrying and backlogs). Use in repetitive manufacturing, continuous processes, highly skilled professionals, and when cost of capacity changes are high.
Chase Demand Strategy
Workforce size. Overtime/undertime. Subtracting. Used in a pure service, job shops, batch manufacturing, or when the cost of inventory is high.
Hard" Benefits of S&OP
Higher customer service, lower finished goods inventories, more stable production/service rates, faster and more controlled new product introductions, reduce obsolescence, and shorter customer lead times.
Soft Benefits of S&OP
Enhanced teamwork in the executive and mid-management groups, better decisions with less effort, one set of numbers (in both units and dollars) to run the business, a tight linkage between strategic plans and day-to-day activities, and a "window into the
Yield Management
The process of allocating the right type of capacity to the right type of customer at the right price and time to maximize revenue or yield. Can be a powerful approach to making demand more predictable. Ex: happy hour discounted prices.
Yield Management Systems
Pricing structures must appeal logical to the customer and justify the different prices. Must handle variability in arrival or starting times, duration, and time between customers. Must be able to handle the service process. Must train employees to work i