Introduction to operations and supply chain management 3e bozarth chapter 10

Sales and Operations Planning
(Aggregate Planning)
Chapter 10


Chapter Objectives
Be able to:

Distinguish among strategic planning, tactical planning, and detailed planning
and control.
Describe why sales and operations planning (S&OP) is important to an
organization and its supply chain partners.
Generate multiple alternative sales and operations plans for a firm.
Describe the differences between top-down and bottom-up S&OP and discuss
the strengths and weaknesses of level, chase, and mixed production strategies.
Discuss the organizational issues that arise when firms decide to incorporate
S&OP into their efforts.
Examine how S&OP can be used to coordinate activities up and down the
supply chain.
Apply optimization modeling techniques to the S&OP process.

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Sales and Operations Planning
 Sales and operations planning (S&OP) – A process to
develop tactical plans by integrating marketing
plans for new and existing products with the
management of the supply chain.

 Brings together all the
plans for the business into
© 2010 APICS Dictionary
one integrated set of plans.
 Also called Aggregate planning.

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S&OP Planning Levels
 Strategic planning
 Tactical planning
 Detailed planning and control

Figure 10.1
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Goals of S&OP
 To indicate how the organization will use its tactical
capacity resources to meet expected customer
demand.
 To strike a balance between the various needs and
constraints of the supply chain partners.
 To serve as a coordinating mechanism for the
various supply chain partners.

 To express the business’s plans in terms that
everyone can understand.
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Major Approaches
 Top-down planning – An approach to S&OP in which
a single, aggregated sales forecast drives the
planning process.
 Bottom-up planning – An approach to S&OP that is
used when the product/service mix is unstable and
resource requirements vary greatly across the
offerings.

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Choosing an Approach

Figure 10.2

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Planning Values
 Planning values – Values that decision makers use to
translate a sales forecast into resource requirements
and to determine the feasibility and costs of
alternative sales and operations plans.

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Top-Down Planning
 Developing a top-down plan:
 Develop the aggregate sales forecast and
planning values.
 Translate the sales forecast into resource
requirements.
 Generate alternative production plans.

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Top-Down Example –
Pennington Cabinets
 12 month
sales forecast

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Top-Down Example –
Pennington Cabinets

Table 10.3

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Top-Down Example –
Pennington Cabinets
 Forecast
exceeds capacity
in peak months

Figure 10.3

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Top-Down Example –
Pennington Cabinets
 Translate the Sales Forecast into Resource Requirements

For example:
April
800 * 20 = 16,000 hrs
16,000/160 = 100 wkrs

Table 10.4
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Alternative Production Plans
 Level production plan – A S&OP plan in which
production is held constant and inventory is used to
absorb the differences between production and the
sales forecast.
 Chase production plan – A S&OP plan in which
production is changed in each time period to match
the sales forecast.
 Mixed production plan - A S&OP plan that varies
both production and inventory levels in an effort to
develop the most effective plan.
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Level Production Plan

Table 10.5
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Level Production Plan
 Actual Workers
 Hold workforce constant at 105 (average
workforce over 12-month planning horizon)
 Regular Production
 105 x (160 hours per month/20 hours per set) =
840 sets per month or 10,080 sets per year

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Level Production Plan
 Hiring and Layoffs
 Hire 5 workers in January to bring the workforce
up to 105 from the initial level of 100.
 Layoff 5 workers at the end to bring the
workforce back to its starting level.
• Ensures equal comparison of alternative plans under
the same beginning and ending conditions.

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Level Production Plan
 Inventory Levels

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Level Production Plan
 Cost of the Plan

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Chase Production Plan
 Actual workforce production and overtime
production vary so that total production essentially
matches sales for each month.
 Inventory never builds up because total production
“chases” sales.
 There are more hires and layoffs and overtime
production costs.

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Chase Production Plan

Table 10.6
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Chase Production Plan
 Cost of the plan

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Mixed Production Plan
 By varying the production and inventory levels, the
best plan can be developed.
 The number of potential mixed plans is essentially
limitless.
 For example, overtime may be limited to 12 cabinet
sets per month in October and November.

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Mixed Production Plan

Table 10.7
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Mixed Production Plan
 Cost of the Plan

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