SALES AND OPERATIONS PLANNING,Chapter Nineteen,Copyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.,McGraw-Hill/Irwin,Learning Objectives,LO191: Understand what sales and operations planning is and how it coordinates manufacturing, logistics, service, and marketing plans. LO192: Construct and evaluate aggregate plans that employ different strategies for meeting demand. LO193: Explain yield management and why it is an important strategy.,19-2,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. Aggregate means at the level of major groups of products.,19-3,Major Sales and Operations Planning Activities,19-4,Sales and Operations Planning Activities Overview,19-5,Types of Planning,19-6,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) Planning done over an intermediate-range planning period of 3 to 18 months,19-7,Production Planning Environment,In general, the external environment is outside the production planners 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.,19-8,Inputs to the Production Planning System,19-9,Production Planning Strategies,Production planning strategies are the plans for meeting demand. Trade offs 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.,19-10,Relevant Costs,19-11,Aggregate Planning Techniques,19-12,Cut and Try JC Company,Because inventory holding cost is in $/unit, material cost is not relevant,19-13,Aggregate Planning JC Company,January ending inventory becomes February beginning inventory.,Excel: Aggregate Planning,19-14,Evaluate Alternative Plans,19-15,Plan 1: Exact Production; Vary Workforce,19-16,Production exactly matches requirements.,Workers are added or reduced as needed.,Plan 2: Constant Workforce; Vary Inventory and Stockout,19-17,Number of workers is set to meet average demand over the time horizon. This then determines production rate and inventory/backorders.,Plan 3: Constant Low Workforce; Subcontract,19-18,Workforce sized to meet minimum demand (April).,Demand over minimum is met with subcontracting.,Plan 4: Constant Workforce; Overtime,Demand in the first two months is high, so overtime is used to compensate. Then, inventory can be built for high demand in June.,19-19,Plan Comparison,19-20,Graphical Summary,19-21,Level Scheduling,A level schedule holds production constant over a period of time. It is something of a combination of the strategies mentioned here. For each period, it keeps the workforce constant and inventory low, and depends on demand to pull products through.,19-22,Level Scheduling,The entire system can be planned to minimize inventory and work-in-process. Product modifications are up-to-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.,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 multi-skilled.,Advantages,Requirements,19-23,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. Widespread scientific application began with American Airlines computerized reservation system (SABRE).,19-24,Yield Management Success Factors,19-25,Yield Management Hotels,Hotels offer one set of rates during the week and another set during the weekend. The variable costs associated with a room are low in comparison to the cost of adding rooms to the property. Available rooms cannot be transferred from night to night. Blocks of rooms can be sold to conventions or tours. Potential guests may cut short their stay or not show up at all.,19-26,Yield Management Levers,