Bolton - Sales and Operations Planning

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Sales and Operations Planning Purpose of Sales and Operations Planning General Design of Sales and Operations

Planning Approaches to Sales and Operations Planning Strategies for Sales and Operations Planning Balancing Resources for Sales and

Operations Planning Qualitative Issues Some Business Environment Issues

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Planning and Control System

Sales andOperations

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Sales and Operations Planning

Strategic plans for a company–determine business plans

• determine the product and service mix• determine planned market penetration • determine market approaches

–are too general to…• coordinate action plans• resource needs

–of Operations, Marketing, Sales, Finance, Information Technology, Human Resources

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Sales and Operations Planning

S&OP is sometimes called...

Aggregate planning Production planning Staffing planning (service industries)

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Sales and Operations Planning

S&OP is the preferred name...

Production planning–only one portion of S&OP

Human Resources, Information Technologies, Finance

– important–represents challenges

It effectively indicates the tradeoffs between the two functions of a firm

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3.1 Purpose of S&OP

S&OP is seldom used for the actual scheduling of production activity

Its primary purpose is…– to plan for resources

–coordinate resources• type• quantity• timing

Time horizon for S&OP is determined by how long in the future the company needs to secure these resources

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3.1 Purpose of S&OP

Manufacturing tools can take longer than a year to design and build

Certain staff members may also take quite a bit of time to…

–train these staff members–recruit suitable employees with the correct

skillsets Finance needs what funds will be required

over what time periods

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3.1 Purpose of S&OP

S&OP is the major source of planning for…

Inventory levels Cash flow Human resource needs

–number of people–skill levels– timing of need– training program

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3.1 Purpose of S&OP

S&OP is the major source of planning for…

Capital needs Production outputs Capacity planning Sales and marketing activities

–sales promotions–advertising–pricing–new product introductions, expansion of mkts

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3.1 Purpose of S&OP

In service organizations requiring only people...

the time horizon is typically shorter–especially if these employees are easy to

obtain or train some firms are so flexible they have no

formal S&OP–handled by Operations Manager or GM

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3.1 Purpose of S&OPObjectives of the S&OP... Support and measure the business plan Support the customer Ensure that plans are realistic Manage change effectively Manage finished goods inventory or backlog to

better service the customer Control costs Measure performance Build teamwork

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3.2 General Design of S&OP Products and services are often aggregated

along family lines–key determinant is grouping those products and

services that utilize similar resources• the function of the activity is to plan resources

• company manufactures several types of tables

– all use similar resources

– all require similar skillset in employees

– firms sometimes group or aggregate by labor hours or revenues

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3.2 General Design of S&OP Aggregation is important since one of the

primary source of demand estimation is the forecast

Forecast are more accurate when developed in aggregate v. specific plans

–develop these forecasts–coordinate with strategic plans

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3.2 General Design of S&OP Plans that could impact demand…

–advertising campaigns–promotions–pricing changes–strategic moves into new markets–moves against competition–development of new products–new uses for existing products

These plans need to be coordinated with the necessary resources needed

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3.2 General Design of S&OP Plans that could impact demand…

–advertising campaigns–promotions–pricing changes–strategic moves into new markets–moves against competition–development of new products–new uses for existing products

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3.2 General Design of S&OP Other issues involve the aggregation of time

–buckets of time• weeks• months• other• involve what time period is useful

–aggregate as much as possible so useful plans can be made• type of product or service• nature of customers being served• process being used to deliver the product / service

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3.3 Approaches to S&OPThe primary purpose of S&OP is to establish decisions

about… Sales volumes Customer service goals Rates of production Inventory levels Order backlogs

Sales, Marketing, Operations, Finance and Product Development must all work together, guided by strategic plan.

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3.3 Approaches to S&OPThe primary purpose of S&OP is to establish decisions

about… Sales volumes Customer service goals Rates of production Inventory levels Order backlogs

Sales, Marketing, Operations, Finance and Product Development must all work together, guided by strategic plan.

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3.3 Approaches to S&OP

The strategic planning process is used to make the business plan…

Expressed in financial terms–financial planning and S&OP need reconciled

Top Management is involved–they “own” the business plan–their involvement lends support to the process

• all employees must work to support the S&OP

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3.3 Make-to-Stock View of an S&OP

Diagram in Figure 3.1 provides a make-to-stock example…

Sales in past three months–11,000 more units sold than in the plan

Production in past three months–production was 4,000 less than in the plan

Inventory in the past three months–dropped by 15,000 units

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3.3 Make-to-Stock View of an S&OPDiagram in Figure 3.1 provides a make-to-stock

example… Look at actual v. planned sales Look at actual v. planned production Look at actual v. planned inventory Plans need reviewed at the end of each month New plans need to be developed at the end of

each month S&OP is dynamic

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3.3 Make-to-Order View of an S&OP

Diagram in Figure 3.2 provides a make-to-order example…

Typically no finished goods inventory–orders are taken, production starts

Orders taken and waiting for production are called backlog

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3.4 Strategies for S&OP

Specific plans are now needed as to how the plan will most effectively be accomplished.

Some techniques–environments are too complex

• cannot capture all variables and conditions• difficult to set up and manage

–simplifying assumptions are made• make the mathematical model manageable• simpler does not reflect the market

–many managers are not adequately trained

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3.4 Strategies for S&OP Second approach is to simulate

–use of computer• rapid

• effective

• inexpensive

• perform “what if” analysis

Third approach is spreadsheet simulation–do not offer an optimal solution

• merely rapid and simple solution

• heavily used because of rapid response and ease of use

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3.4 Strategies for S&OP Trade-off approach

–develop the best alternative–align resources to meet expected demand–maximize firm profits–other

• attempting to meet all customer demand• attempting to minimize inventory investment• attempting to minimize adverse impact due to

layoffs

–each has a negative on profitability

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3.4 Strategies for S&OP

Three general categories of approaches… Level Chase Combination

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3.4 Strategies for S&OP

Level approach… use of a level set of resources

–demand will fluctuate around those resources common for firms with resources that are

difficult or expensive to alter used in lean environments examples:

–doctors, dentists (appointments)–hotels, airlines (reservations, pricing strategy)–chemical processing

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3.4 Strategies for S&OP

Chase strategy… demand is not altered, resources are

–raised or lowered opposite of level strategy mid-tier manufacturers service industries

–banks–grocers– tax services–utilities

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3.4 Strategies for S&OP

Combination strategy… most common approach

–mix and match characteristics figure 3.3 through 3.7

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3.5 Balancing Resources in S&OP

Two methods… Supply side (internal strategy)

–attempt is made to change production Demand side (external strategy)

–attempt is made to alter demand through customers

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3.5 Balancing Resources in S&OPInternal strategy (more commonly used in chase

strategies)… Hire and fire temp workers overtime / slack time subcontracting inventory backlog do not meet demand change production rates

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3.5 Balancing Resources in S&OP

External strategy (more commonly used in level approaches)…

Pricing–lower increases demand

Promotions–incentives increase demand

Advertising Reservations Package offerings

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3.6 Discussion ExampleChase Strategy

reg. OT Hire / H/F Reg. OTmonth demand workers prod'n prod'n fire cost cost costJan. 250 16 240 10 +6 $2,400 $75,000 $600Feb. 300 20 300 0 +4 $1,600 $90,000 $0Mar. 420 28 420 0 +8 $3,200 $126,000 $0Apr. 560 37 555 5 +9 $3,600 $168,000 $300May 610 40 600 10 +3 $1,200 $183,000 $600June 580 38 570 10 -2 $2,000 $174,000 $600Total $14,000 $816,000 $2,100

Level StrategyReg. Inventory Shortage

month demand prod'n inventory shortage cost cost costJan. 250 450 200 0 $135,000 $1,200 $0Feb. 300 450 350 0 $135,000 $2,100 $0Mar. 420 450 380 0 $135,000 $2,280 $0Apr. 560 450 270 0 $135,000 $1,620 $0May 610 450 110 0 $135,000 $660 $0June 580 450 0 20 $135,000 $0 $2,400Total $810,000 $7,860 $2,400

Combination Strategyreg. OT # Reg. H/F Inventory OT

month demand prod'n Inventory prod'n workers H/F cost cost cost costJan. 250 375 125 0 25 +15 $112,500 $6,000 $750 $0Feb. 300 375 200 0 25 $112,500 $0 $1,200 $0Mar. 420 375 155 0 25 $112,500 $0 $930 $0Apr. 560 375 0 30 25 $121,500 $0 $0 $1,800May 610 510 0 100 34 +9 $183,000 $3,600 $0 $6,000June 580 495 0 85 33 -1 $174,000 $1,000 $0 $5,100Total $816,000 $10,600 $2,880 $12,900

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3.7 Qualitative Issues

Focuses mostly on the financial side... Human factor

– layoffs impact morale• recalled employees may have lost their edge• less dedication to company

–Hiring has implications• learning curve• impact efficiency of those who are training

– temporary workers• learning curve• efficiency

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3.7 Qualitative Issues

Focuses mostly on the financial side... The customer factor

–assumes customer actions are predictable• stock out affect• increased price affect

The forecast factor–should always be considered incorrect–contingency needed to deal with error

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3.7 Qualitative Issues

Focuses mostly on the financial side... External environmental factors

–labor contracts or union activities–government regulations–competitive forces

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3.8 Some Business Environment Issues

Many different issues need considered when planning...

Level of detail–should the time aggregation be in weeks, months,

quarters?• Changes in market must be considered• capital intensive market cannot look at days, rather

quarters

Level of aggregation–aggregate whatever level of products or services

as the resources

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3.8 Some Business Environment Issues

Many different issues need considered when planning...

Time horizon–plan at least as long as it takes to make a

change in the resource base• how long does it take to train new workers

–current workforce flexibility–current equipment flexibility–ease of capital expansion

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Chapter 3 Homework

Discussion question 1

Exercise 1, 8, 9

Study for test on Chapters 1,2,3