Sales and Operations Planning

1. Sales and Operations Planning Chapter 14

2. How Sales and Operations Planning fits the Operations Management Philosophy Operations As a Competitive Weapon Operations Strategy Project Management 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

3. 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.

4. 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.

5. 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.

6. The Relationship of Sales and Operations Plansto 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.

7. The Relationship of Sales and Operations Plansto Other Plans

8. The Decision Context • Information inputs to Sales and Operations plans • Business or Annual plan • Operations Strategy • Capacity Constraints • Demand Forecast

9. Managerial Inputs from FunctionalAreas to Sales and Operations Plans

10. Plan Objectives Six objectives usually are considered during development of a plan: • Minimize Costs/Maximize Profits • Maximize Customer Service • Minimize Inventory Investment • Minimize Changes in Production Rates • Minimize Changes in Workforce Levels • Maximize Utilization of Plant and Equipment

11. 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.

12. Reactive Alternatives • Subcontracting:Outsourcingto 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.

13. 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.

14. 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.

15. 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.

16. Constraints and Costs The planner usually considers several types of costs when preparing sales and operations plans. • Regular-Time Costs: These costs include regular-time wages plus contributions to benefits, Social Security, retirement funds, and pay for vacations and holidays. • Overtime Costs: Overtime wages typically are 150 percent of regular-time wages. • Hiring and Layoff Costs: Include the costs of advertising jobs, interviews,training programs, exit interviews, severance pay, and lost productivity. • Inventory Holding Costs • Backorder and Stockout Costs