Transcript krm8_chapter 14 Sales and Operations Planning

Sales and
Operations Planning
Chapter 14
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How Sales and Operations Planning
fits the Operations Management
Philosophy
Operations As a Competitive
Weapon
Operations Strategy
Project Management
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Process Strategy
Process Analysis
Process Performance and Quality
Constraint Management
Process Layout
Lean Systems
Supply Chain Strategy
Location
Inventory Management
Forecasting
Sales and Operations Planning
Resource Planning
Scheduling
Planning at Whirlpool
 Whirlpool begins production of room air conditioners in the fall
and holds them as inventory until they are shipped in the spring.
 Building inventory in the slack season allows the company to
even out production rates over much of the year and still satisfy
demand in the peak periods.
 However, when summers are hotter than usual, demand
increases dramatically and stockouts can occur.
 If Whirlpool increases its output and the summer is hot, it stands
to increase its sales and market share. But if the summer is
cool, the company is stuck with expensive inventories.
 Whirlpool prefers to make its production plans based on the
average year, taking into account industry forecasts for total
sales and traditional seasonalities.
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Sales and
Operations Planning
 Sales and operations planning (S&OP):
The process of planning future aggregate
resource levels so that supply is in balance
with demand.
 Staffing plan: A sales and operations plan
of a service firm, which centers on staffing
and other human resource–related factors.
 Production plan: A sales and operations
plan of a manufacturing firm, which centers
on production rates and inventory holdings.
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Aggregation
 The sales and operations plan is useful because it
focuses on a general course of action, consistent with
the company’s strategic goals and objectives, without
getting bogged down in details.
 Product family: A group of customers, services, or
products that have similar demand requirements and
common process, labor, and materials requirements.
 A company can aggregate its workforce in various
ways as well, depending on its flexibility.
 The company looks at time in the aggregate –
months, quarters, or seasons—rather than in days or
hours.
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The Relationship of
Sales and Operations Plans
to Other Plans
 A financial assessment of an organization’s
near future (1 or 2 years ahead) is called
either a business plan (in for-profit firms) or
an annual plan (in nonprofit services).
 Business plan: A projected statement of
income, costs, and profits.
 Annual plan or financial plan: A plan for
financial assessment used by a nonprofit
service organization.
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The Relationship of
Sales and Operations Plans
to Other Plans
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The Decision Context
Information inputs to Sales and
Operations plans
Business or Annual plan
Operations Strategy
Capacity Constraints
Demand Forecast
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Managerial Inputs from Functional
Areas to Sales and Operations Plans
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Plan Objectives
Six objectives usually are considered during
development of a plan:
1. Minimize Costs/Maximize Profits
2. Maximize Customer Service
3. Minimize Inventory Investment
4. Minimize Changes in Production Rates
5. Minimize Changes in Workforce Levels
6. Maximize Utilization of Plant and Equipment
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Reactive Alternatives
 Reactive alternatives are actions that can
be taken to cope with demand
requirements.
 Anticipation inventory is inventory that
can be used to absorb uneven rates of
demand or supply.
 Workforce adjustment: Hiring and laying
off to match demand.
 Workforce utilization: Use of overtime and
undertime.
 Vacation schedules: Use of plant-wide
vacation period, vacation “blackout” periods.
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Reactive Alternatives
 Subcontracting: Outsourcing to overcome
short-term capacity shortages.
 Backlogs, Backorders, and Stockouts:
 Backlog: An accumulation of customer orders
that have been promised for delivery at some
future date.
 Backorder: A customer order that cannot be filled
immediately but is filled as soon as possible.
 Stockout: An order that is lost and causes the
customer to go elsewhere.
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Aggressive Alternatives
 Aggressive alternatives are actions that
attempt to modify demand and,
consequently, resource requirements.
 Complementary products: Services or
products that have similar resource
requirements but different demand cycles.
 Creative Pricing: Promotional campaigns
designed to increase sales with creative
pricing.
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Planning Strategies
 Chase strategy: A strategy that involves
hiring and laying off employees to match the
demand forecast.
 Level strategy: A strategy that keeps the
workforce constant, but varies its utilization
and inventory to match the demand
forecast.
 Mixed strategy: A strategy that considers
and implements a fuller range of reactive
alternatives than any one “pure” strategy.
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Hallmark Strategy
 Hallmark spends considerable resources to effectively
produce and distribute more than 40,000 different products
through 43,000 retail outlets in the United States alone.
 Hallmark has never used layoffs to adjust production rates.
Employee flexibility is the key to this strategy.
 Hallmark follows a philosophy of retraining its employees
continually to make them more flexible.
 To keep workers busy, Hallmark shifts production from its
Kansas City plant to branch plants in Topeka, Leavenworth,
and Lawrence, Kansas, to keep those plants fully utilized.
 It uses the Kansas City plant as its “swing facility.” When
demand is down, Kansas City employees may take jobs in
clerical positions, all at factory pay rates. They might also be
in classrooms learning new skills.
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Constraints and Costs
The planner usually considers several types of costs
when preparing sales and operations plans.
1. Regular-Time Costs: These costs include regular-time
wages plus contributions to benefits, Social Security,
retirement funds, and pay for vacations and holidays.
2. Overtime Costs: Overtime wages typically are 150
percent of regular-time wages.
3. Hiring and Layoff Costs: Include the costs of advertising
jobs, interviews,training programs, exit interviews,
severance pay, and lost productivity.
4. Inventory Holding Costs
5. Backorder and Stockout Costs
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