Operations Planning and Scheduling

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

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

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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 resourcerelated 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 companys 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 seasonsrather than in days or hours.
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The Relationship of Sales and Operations Plans to Other Plans

 A financial assessment of an organizations 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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Supply Options
 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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Supply Options
 Subcontracting: Outsourcing to overcome short-term capacity shortages.  Part-time workers

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Demand Options
 Attempt to modify demand and, consequently, resource requirements.  Complementary products: Services or products that have similar resource requirements but different demand cycles.  Promotional Pricing: Promotional campaigns designed to increase sales with creative pricing.

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Demand Options
 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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Planning Strategies
 Chase strategy: A strategy that involves hiring and laying off employees to match the demand forecast.  Level-utilization strategy: A strategy that keeps the workforce constant, but varies its utilization to match the demand forecast.  Level-inventory strategy: A strategy that relies on anticipation inventories, backorders, and stockouts to keep both the output rate and the workforce constant.  Mixed strategy: A strategy that considers and implements a fuller range of reactive alternatives than any one pure strategy.
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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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Sales and Operations Planning as a Process

 Sales and operations planning is a decision-making process, involving both planners and management.  The process itself, typically done on a monthly basis, consists of six basic steps.

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Decision Support Tools

 Spreadsheets can be used, including ones that you develop on your own.
 Input values  Derived values  Utilized time  Calculated values

 The Transportation method of production planning to solve production planning problems assumes that a demand forecast is available for each period, along with a possible workforce adjustment plan.
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Supplement E: The Transportation Method

a special case of linear programming
 Obtain the demand forecast for each period to be covered by the sales and operations plan and identify the initial inventory level currently available that can be used to meet future demand. Select a candidate workforce adjustment plan and specify the capacity limits of each production alternative.  Estimate the cost of holding inventory, and the cost of possible production alternatives.  Input the information gathered in steps 1-3 into a computer routine that solves the transportation problem.  Repeat the process with other plans for regular-time, overtime, and subcontracting capacities until you find the solution that best balances cost and qualitative considerations.
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The Transportation Method

Example E.7
The Tru-Rainbow Company produces a variety of paint products. Demand is highly seasonal. Current inventory is 250,000 gallons, and ending inventory should be 300,000 gallons. Regular-time cost is $1.00 per unit, overtime cost is $1.50 per unit, subcontracting cost is $1.90 per unit, and inventory holding cost is $0.30 per gallon per quarter. Determine the best production plan.
Quarter

Maximum overtime in any quarter is 20 % of regular-time capacity. The subcontractor can supply a maximum of 200,000 gallons per quarter. Production can be subcontracted in one period and the excess held in inventory for a future period to avoid a stockout. No backorders or stockouts are permitted.
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Input Data for Prospective Tru-Rainbow Company Production Plan

Transportation Tableau for Tru-Rainbow Company

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Solution for Tru-Rainbow Company Production Plan

The first row shows that 230 units of the initial inventory are used to help satisfy the demand in quarter 1. The remaining 20 units in the first row are earmarked for helping supply the demand in quarter 3. The sum of the allocations across row 1 (230 + 0 + 20 + 0) does not exceed the maximum capacity of 250, given in the right column so there is unused capacity
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Solution for Tru-Rainbow Company Production Plan

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Solution for Tru-Rainbow Company Production Plan

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