sales and operations planning (aggregate planning)
TRANSCRIPT
Sales and Operations Planning
(Aggregate Planning)
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 2
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
Chapter 12, Slide 3
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
ORabout 420 jobs per month
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 4
Pennington (continued)
Raw Demand for next 6 months:January 150 jobsFebruary 250 March 350 April 450 May 600June 650
What are our options . . . ?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 5
Pennington (again) . . .
300
600
Monthly capacity = 420
Raw Demand
April
Need 450
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 6
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
Chapter 12, Slide 7
Time Horizon View . . .
Short-Range Plan(days, weeks out)
SOP(months out)
Long-Range Plan(years out)
Capacity levels
considered
“frozen” in the
short-term
Changes in
adjustable
capacity
possible
Changes in
fixed
capacity
possible
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 8
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
Chapter 12, Slide 9
Position in the Overall Business Planning Cycle
Decisions Time FrameProduct and process“Bricks and Mortar”
18+ months
Employment and overall inventory levelsWhat demand to meet?
2 to 18 months
Specific products and timesScheduling of people and equipment
Less than 2 months
Long-RangePlans
SOP
Short-RangePlans
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 10
Inputs to the Process
SOPs
Strategic Capacity Levels Existing buildings Processes
Demand Management Forecasts of customer
demand Need for spares, etc. Pricing
External Capacities Suppliers Subcontractors
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 11
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
Chapter 12, Slide 12
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 13
Top-Down Planning
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 14
Top-Down Example I(Product Data)
Product % of Total Labor/Unit
A100 10% 40 hours
B200 50% 20 hours
C300 20% 15 hours
D400 5% 10 hours
E500 10% 20 hours
F600 5% 10 hours
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 15
Top-Down Example II(“Average” Products)
Product % of Total Labor/UnitA100 10% 40 hours
B200 50% 20 hours
C300 20% 15 hours
D400 5% 10 hours
E500 10% 20 hours
F600 5% 10 hours
10%(40) + 60%(20) + 20%(15) + 10%(10) = 20 hours
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 16
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
Chapter 12, Slide 17
Top-Down Example IV(Demand Forecast for 12 months)
Month Demand Month DemandMarch 1592 September 2504
April 1400 October 2504
May 1200 November 3000
June 1000 December 3000
July 1504 January 2504
August 1992 February 1992
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 18
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
Chapter 12, Slide 19
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
Month Demand
Demand in Employee
Hours
Employees to Meet
Production Plan
Actual Employees
Actual Production Firings Hirings
Ending Inventory
March 1592 31840 199 252 2016 0 25 1424
April 1400 28000 175 252 2016 0 0 2040
May 1200 24000 150 252 2016 0 0 2856
June 1000 20000 125 252 2016 0 0 3872
July 1504 30080 188 252 2016 0 0 4384
August 1992 39840 249 252 2016 0 0 4408
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 20
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
Month Demand
Demand in Employee
Hours
Employees to Meet
Production Plan
Actual Employees
Actual Production Firings Hirings
Ending Inventory
March 1592 31840 199 199 1592 28 0 1000
April 1400 28000 175 175 1400 24 0 1000
May 1200 24000 150 150 1200 25 0 1000
June 1000 20000 125 125 1000 25 0 1000
July 1504 30080 188 188 1504 0 63 1000
August 1992 39840 249 249 1992 0 61 1000
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 21
Another View ...
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15000
20000
25000
30000
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Level SOP Chase SOP
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 22
Cost Details from theSpreadsheets ...
Cost of current plan: $205,844
Firing: Hiring: Inventory:Totals: 25 25 32224Costs: $5,000 $7,500 $193,344
Cost of current plan: $197,000
Firing: Hiring: Inventory:Totals: 250 250 12000Costs: $50,000 $75,000 $72,000
Level strategy
Chase strategy
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 12, Slide 23
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
Chapter 12, Slide 24
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
Chapter 12, Slide 25
Second Approach:“Bottom-Up” SOP
• Products with very different requirements
• Requires forecasts and production data for individual products
• Can be extremely data-intensive