DS 850 - Sales and Operations Planning

Aggregate Planning Techniques

1. Cut-and-try approach: - Involves costing out various production planning alternatives and selecting the one that is best. - Elaborate spreadsheets are developed to facilitate the decision process. 2. Linear programming. 3. Simulation.

Mixed Strategy

A more complex strategy that combines options for meeting demand.

Aggregate Operations Plan

A plan for labor and production for intermediate term with the objective to minimize the cost of resources needed to demand.

Pure Strategy

A simple strategy that uses just one option such as hiring and firing workers, for meeting demand.

Level Scheduling

Advantages - 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. Requirements - 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.

Relevant Costs

Four costs are relevant to the aggregate production plan. These relate to the production cost itself as well as the cost to hold inventory and to have unfilled orders. 1. Basic production costs: the fixed and variable costs incurred in producing a given product type in a given time period. 2. Costs associated with changes in the production rate: Hiring, training, and laying off personnel. 3. Inventory holding costs. 4. Backorder costs.

Subcontracting

In addition to production planning strategies, managers also may choose to subcontract some portion of production. Similar to the chase strategy, hiring and laying off are translated into subcontracting and not subcontracting.

Inventory on hand

Inventory carried from the previous period.

Safety Stock

Inventory held to protect against uncertain supply or demand. (buffer inventory)

Time Dimensions

Long-range planning: One year or more. Intermediate-range planning: 3 to 18 months. Short-range planning: A day to 6 months.

Level Strategy

Maintain a stable workforce working at a constant output rate. Shortages and surpluses are absorbed by fluctuating inventory levels, order back-logs, and lost sales.

Chase Strategy

Match the production rate to the order rate by hiring and laying off employees as the order rate varies. The success of this strategy depends on having a pool of easily trained applicants to draw on as order volumes increase.

Production Rate

Number of units completed per unit of time.

Workforce Level

Number of workers needed in a period.

Production Planning Strategies

Plans for meeting demand that involve trade-offs in the number of workers employed, work hours, inventory, and shortages. - A pure strategy uses just one of these approaches, a mixed strategy uses two or more. - A level schedule holds production constant over a period of time. - Strategies include: Chase Strategy, Stable workforce - variable work hours, and Level Strategy.

Sales and Operations Planning

The process that companies use to keep demand and supply in balance and to coordinate distribution, marketing, and financial plans. - The key idea is to balance forecasted demand with available supply (or capacity), hence minimizing inventory and offering better customer service. - The old term in operations was "Aggregate Planning." - Was coined by companies to refer to cross functional planning in organizations. - Aggregation on the supply side is done by product families, and on the demand side it is done by groups of customers.

Accurate Response

This entails refined measurement of historical demand patterns blended with expert judgement to determine when to begin production of particular items. The key element of the approach is clearly identifying those products for which demand is relatively predictable from those for which demand is relatively unpredictable.

Stable workforce - Variable Work Hours Strategy

Vary the output by varying the number of hours worked through flexible work schedules or overtime. By varying the number of work hours, you can match production quantities to orders.

Yield Management

ability to manage demand by using strategies like overbooking and varying prices for the same service. (Official definition: Given limited capacity, the process of allocating it to customers at the right price and time to maximize profit.) Must train employees to work in that environment because it directly impacts the customer. Most effective when: 1. Demand can be segmented by customer. 2. Fixed costs are high and variable costs are low. 3. Inventory is perishable. 4. Product can be sold in advance. 5. Demand is highly variable.

Rate Fences

pricing structures must appear logical to the customer and justify the different prices. May have either physical basis (such as a room with a view) or a nonphysical basis (like unrestricted access to the internet).