Supply chain chapter 13
Quantifiable benefits of S&OP
- Improved forecast accuracy - Higher customer service with lower finished goods inventory levels due to better forecasts and coordination of supply and demand -more stable supply rate, resulting in higher productivity -faster and more controlled new product introduction
Relevant aggregate planning costs
-Inventory holding costs -Regular production cost -Overtime cost -Hiring cost -Firing/layoff cost - backorder/lost sales cost -Subcontracting cost
Level production strategy is used when
-costs of ramping production up and down are high and inventory costs are low - if firm required high skilled workers that are hard to find - if firm needs special resources like costly machines - requires no overtime, no changes in the workforce level and no subcontracting -can result in the highest inventory level but it requires the least overall investment in plant and equipment because average production can be maintained
Qualitative benefits
-enhanced teamwork -better decisions in less time -better alignment of operational, marketing and financial plans -greater accountability for results -better business visibility
Chase strategy is used when
-firms have high per unit inventory holding costs rates relative to their costs of changing production rates - may use part time seasonal workers -firms that require little in the way of labor skills or training, or producing goods quickly obsolete -can be executed with adjusting Labor, subcontracting or some mixture
3 options to accomplish chase plans
1) produce all units internally by hiring workers in high demand months and firing/ laying off workers in low demand months 2) produce internally the quantity required to meet demand in the lowest demand month and use overtime production to meet demand in other months 3) produce internally the quantity required to meet demand in the lowest demand month and use subcontracting to meet demand in other months
the S&OP process
1)create functional input: review prior plans and results & apply lessons learned (These reviews produce a consensus forecast that guides the initial functional plans) 2) unconstrained marketing plan 3) initial resource plan 4) balanced plan 5) financial review 6)executive meeting (aggregate production plan, aggregate demand plan) 7) implementation and follow up
Rolling planning horizons
Re plan each period (month or quarter) for a given number of periods into the future-- to update the plan as conditions change
Level production strategy
The firm produces at a constant rate over the year, building inventory in periods of low demand and depleting the inventory in periods of high demand
Chase strategy
The production rate is changed in each period to match the amount of expected demand
the output of the S&OP process is
a balance in the demand plan and the aggregate production plan
yield management
a process that adjusts prices as demand for a service occurs (or does not occur) -such as seats on a specific scheduled flight or hotel rooms for a specific night -purpose is to shape demand in a way that yields greater revenues or profits -requires extensive analysis of past demand so that typical demand patterns and trends are clear -requires continuous tracking of actual demand for the service
sales and operations planning (S&OP)
a process to develop tactical plans by integrating customer focused marketing plans for new and existing products with the operational management of the supply chain
hybrid or mixed strategy
a strategy that includes some elements of level of production and chase production strategy -these strategy keep costs lower than the other strategies
aggregate planning is typically
accomplished at the level of product line or product family rather than the individual product or SKU
S&OP process brings together
all of the plans for the business(sales, marketing, new peoducts, logistics, manufacturing, supply and financial)
solving aggregate planning problems involves
formulating alternative production strategies for meeting demand and determining the cost and feasibility of those alternatives
most firms that have incorporated an S&OP plan
hold monthly or at least quarterly review meetings
S&OP is considered to be
intermediate range planning. It focuses on a time period ranging from 3 to 8 months
overall goal of aggregate production planning
is to set targets for inventory and various sources of capacity so that supply will match demand over the intermediate time frame in the most efficient way possible
In S&OP parties involved try to resolve
potential conflicts among the objectives of three primary functional groups: sales, operations and finance
aggregate production plan
specifies the production rates, inventory, employment levels, backlogs, possible subcontracting and other resources needed to meet the plan
