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Sales and Operations Planning: Planning Supply and Demand in a Supply ChainPresented by,Akash Deep Gyan(1404001)Chetan Patil(1404004)Pramesh Anuragi(1404008)Vaibhav Sutrave(1404014)Copyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraObjectivesManage supply to improve synchronization in a supply chain in the face of predictable variability.

Manage demand to improve synchronization in a supply chain in the face of predictable variability.

Use sales and operations planning to maximize profitability when faced with predictable variability in a supply chain.Copyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraResponding to Predictable Variability in a Supply ChainPredictable variability is change in demand that can be forecasted

Change in demand can lead to stock out or excess inventory which increases the cost and decreases the responsiveness of the supply chain

Sales manages demand and operations manages the supply

If they manages demand and supply independently, then supply chain suffers

Lack coordination hurts supply chain profits

Copyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraResponding to Predictable Variability in a Supply ChainSupply Chain partners must work together to coordinate these decisions and maximize profitability

The S&OP process facilitates such Coordination

The goals of S&OP is to combine Following options to handle predictable variabilityManage supply using Capacity, inventory, subcontracting and backlogsManage demands using short term price discounts and promotionsCopyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraManaging SupplyManaging capacityTime flexibility from workforceUse of seasonal workforceUse of subcontractingUse of dual facilities specialized and flexibleDesigning product flexibility into production processes

Managing inventoryUsing common components across multiple productsBuild inventory of high demand or predictable demand productsCopyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraInventory/Capacity Trade-offLeveling capacity forces inventory to build up in anticipation of seasonal variation in demand

Carrying low levels of inventory requires capacity to vary with seasonal variation in demand or enough capacity to cover peak demand during seasonCopyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra6Notes:Managing DemandSupply chain can influence demand by using pricing and other forms of promotionGoal is to increase the collaboration between the Pricing and aggregate planning decisions to increase the profitabilityCase study to understand the demand management is as follows-Red tomato tools- garden equipment manufacturer Green thumb Garden- large retail chain who sells products manufactured by the red tomatoIn march and April Gardeners prepare to begin planting And demand for the tool peaksBoth company wants to increase its supply chain profitability with collaborationRed tomato and green thumb are exploring how the timing of retail promotion affects the profitabilityDuring Low demand period or during high demand period?????S&OP helps to take above decision and make optimal trade-offs

Copyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraManaging DemandCosts for Red tomato and Green ThumbItemCostMaterial cost$10/unitInventory holding cost$2/unit/monthMarginal cost of stock out/backlog$5/unit/monthHiring and training costs$300/workerLayoff cost$500/workerLabor hours required4/unitRegular time cost$4/hourOvertime cost$6/hourCost of subcontracting$30/unitCopyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraManaging Demand

Aggregate plan for the Red tomato and the Green ThumbWhen price per tool is $40Copyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraManaging DemandTotal cost over planning horizon = $422,275Revenue over planning horizon = $640,000Profit over planning horizon = $217,725

Average seasonal inventory

Average flow timeCopyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraThe Timing of a Promotion4 Factors influencing the timing of promotionImpact of the promotion on demandCost of holding inventoryCost of changing the level of capacityProduct marginsWhen promotion is offered, demand tends to go up due to following three factorsMarket growthStealing shareForward buyingCopyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraWhen to PromoteIs it more effective to promote during the peak period of off-peak?Analyze the impact of a promotion on demand and the resulting optimal aggregate planImpact of offering a promotion in January is as follows

Copyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraPromotion in JanuaryTotal cost over planning horizon = $421,915 Revenue over planning horizon = $643,400 Profit over planning horizon = $221,485Lower seasonal inventoryA somewhat lower total costA higher total profitIn forecast it is given that consumption will increase by 10% due to promotionCopyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraPromotion in AprilTotal cost over planning horizon = $438,857Revenue over planning horizon = $650,140Profit over planning horizon = $211,283

Higher seasonal inventoryA somewhat higher total costA slightly smaller total profitCopyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra If Discount Leads toLarge Increase in ConsumptionPromotion in JanuaryIf consumption increase by 100%

Total cost over planning horizon = $456,750Revenue over planning horizon = $699,560Profit over planning horizon = $242,810Higher total profit than 1st case

Copyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraDiscount Leads toLarge Increase in ConsumptionPromotion in April

Total cost over planning horizon = $536,200Revenue over planning horizon = $783,520Profit over planning horizon = $247,320Much higher level of seasonal inventoryUses more stockouts and subcontractingRevenues increaseOverall profits higher Copyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraSupply Chain PerformanceRegular PricePromotion PricePromotion PeriodPercentage of Increase in DemandPercentage of Forward BuyingProfitAverage Inventory$40$40 NANANA$217,725895$40$39 January10%20%$221,485523$40$39 April10%20%$211,283938$40$39 January100%20%$242,810208$40$39 April100%20%$247,3201,492$31$31 NANANA$ 73,725895$31$30 January100%20%$ 84,410208$31$30 April100%20%$ 69,1201,492Copyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraImpact on Promotion TimingFactorImpact on Timing of Promotion/Forward BuyHigh forward buyingFavors promotion during low-demand periodsHigh ability to steal market shareFavors promotion during peak-demand periodsHigh ability to increase overall marketFavors promotion during peak-demand periodsHigh marginFavors promotion during peak-demand periodsLow marginFavors promotion during low-demand periodsHigh manufacturer holding costsFavors promotion during low-demand periodsHigh costs of changing capacityFavors promotion during low-demand periodsHigh retailer holding costsDecreases forward buying by retailerHigh promotion elasticity of consumerDecreases forward buying by retailerCopyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraConclusionsAverage inventory increases if a promotion is run during the peak period and decreases if the promotion is run during the off-peak period

Promoting during a peak-demand month may decrease overall profitability if there is a small increase in consumption and a significant fraction of the demand increase results from a forward buy

As consumption increase from discounting grows and forward buying becomes a smaller fraction of the demand increase from a promotion, it is more profitable to promote during the peak period

As the product margin declines, promoting during the peak-demand period becomes less profitable

Copyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraImplementing Sales and Operations Planning in PracticeCoordinate planning across enterprises in the supply chain

Take predictable variability into account when making strategic decisions

Design S&OP to understand and manage the drivers of demand usage

Ensure that the S&OP process modifies plans as the reality or forecasts changeCopyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. KalraThank you21Copyright 2013 Dorling Kindersley (India) Pvt. Ltd.Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra