Lecture Operations and supply chain management: The Core (3/e) – Chapter 8: Sales and operations planning

Sales and Operations
Planning
Chapter 08
McGraw­Hill/Irwin

        Copyright © 2013 by The McGraw­Hill Companies, Inc. All rights reserved.


Learning Objectives
1.





Understand what sales and operations
planning is and how it coordinates
manufacturing, logistics, service, and
marketing plans.
Construct aggregate plans that employ
different strategies for meeting demand.
Describe what yield management is and why
it is an important strategy for leveling
demand.
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What is Sales and Operations
Planning?






Sales and operations planning is a process that helps
firms provide better customer service, lower inventory,
shorten customer lead times, stabilize production
rates, and give top management a handle on the
business
The process consists of a series of meetings, finishing
with a high-level meeting where key intermediate-term
decisions are made
This must occur at an aggregate level and also at the
detailed individual product level


By aggregate we mean at the level of major groups of
products

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Sales and Operations Planning
Activities - Overview

8­4


Types of Planning

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Aggregate Operations Plans


Specifies the optimal combination of







Production rate (units completed per unit of time)
Workforce level (number of workers needed in a period)
Inventory on hand (inventory carried from previous period)

Product group or broad category (aggregation)
This planning is done over an intermediate-range
planning period of 3 to18 months

Excel: Aggregate Pla
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Production Planning
Environment


In general, the external environment is outside
the production planner’s direct control






In some firms, demand can be managed

Complementary products work for firms facing
cyclical demand fluctuations
With services, cycles are more often
measured in hours than months

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Production Planning Strategies




Production planning
strategies are the
plans for meeting
demand. Tradeoffs
involved include
workers employed,
work hours, inventory

and shortages.
A pure strategy uses
just one of these
approaches, a mixed
strategy uses two or
more
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Relevant Costs

8­9


Aggregate Planning Techniques

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Evaluate Alternative Plans

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Level Scheduling
A level schedule holds production
constant over a period of time
 It is something of a combination of the
strategies we have mentioned here
 For each period, it keeps the workforce

constant and inventory low, and depends
on demand to pull products through


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Level Scheduling
Advantag e s








The entire system can be
planned to minimize inventory
and work-in-process
Product modifications are upto-date because of the low
amount of work-in-process
There is a smooth flow
throughout the production
system.
Purchased items from
vendors can be delivered
when needed, often directly
to the production line

Re quire me nts













Production should be repetitive
(assembly-line format)
The system must contain excess
capacity
Output of the system must be fixed
for a period of time
There must be a smooth
relationship among purchasing,
marketing, and production
The cost of carrying inventory must
be high
Equipment costs must be low
The workforce must be multiskilled
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Yield Management


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

Has existed as long as there has been limited
capacity for serving customers
Its widespread scientific application began with
American Airlines’ computerized reservation system
(SABRE)

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Yield Management Success
Factors

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