Sales & Operations Planning

2,907 views

Published on

Sales & Operations Planning

0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
2,907
On SlideShare
0
From Embeds
0
Number of Embeds
9
Actions
Shares
0
Downloads
74
Comments
0
Likes
2
Embeds 0
No embeds

No notes for slide
  • 5 5
  • 12
  • 12
  • 12
  • 8 8
  • 9 9
  • 11 11
  • 11 11
  • 11 11
  • 13 13
  • 13 13
  • 13 13
  • 16 16
  • 16 16
  • 16 16
  • 16 16
  • 16 16
  • 16 16
  • 16 16
  • 16 16
  • 16 16
  • Sales & Operations Planning

    1. 1. Sales & Operations Planning
    2. 2. Overview <ul><li>Production-Planning Hierarchy </li></ul><ul><li>Aggregate Planning </li></ul><ul><li>Master Production Scheduling </li></ul><ul><li>Types of Production-Planning and Control Systems </li></ul><ul><li>Wrap-Up: What World-Class Companies Do </li></ul>
    3. 3. Production Planning Hierarchy Master Production Scheduling Production Planning and Control Systems Pond Draining Systems Aggregate Planning Push Systems Pull Systems Focusing on Bottlenecks Long-Range Capacity Planning
    4. 4. Production Planning Horizons Master Production Scheduling Production Planning and Control Systems Pond Draining Systems Aggregate Planning Push Systems Pull Systems Focusing on Bottlenecks Long-Range Capacity Planning Long-Range (years) Medium-Range (6-18 months) Short-Range (weeks) Very-Short-Range (hours - days)
    5. 5. Production Planning: Units of Measure Master Production Scheduling Production Planning and Control Systems Pond Draining Systems Aggregate Planning Push Systems Pull Systems Focusing on Bottlenecks Long-Range Capacity Planning Entire Product Line Product Family Specific Product Model Labor, Materials, Machines
    6. 6. Capacity Planning, Aggregate Planning, Master Schedule, and Short-Term Scheduling Capacity Planning 1. Facility Size 2. Equipment Procurement Aggregate Planning 1. Facility Utilization 2. Personnel needs 3. Subcontracting Master Schedule 1. MRP 2. Disaggregation of master plan Short-term Scheduling 1. Work center loading 2. Job sequencing Long-term Intermediate-term Intermediate-term Short-term
    7. 7. Relationships Between OM Elements Marketplace and Demand Research and Technology Product Decisions Process Planning & Decisions Aggregate Plan for Production Detailed Work Schedules Master Production Schedule Priority Planning & Scheduling Demand Forecasts, orders External Capacity Plant Capacity Raw Materials Available Inventory On Hand Work Force
    8. 8. Hierarchical Production Planning Annual demand by item and by region Monthly demand for 15 months by product type Monthly demand for 5 months by item Forecasts needed Allocates production among plants Determines seasonal plan by product type Determines monthly item production schedules Decision Process Decision Level Corporate Plant manager Shop superintendent
    9. 9. Aggregate Planning
    10. 10. Why Aggregate Planning Is Necessary <ul><li>Fully load facilities and minimize overloading and underloading </li></ul><ul><li>Make sure enough capacity available to satisfy expected demand </li></ul><ul><li>Plan for the orderly and systematic change of production capacity to meet the peaks and valleys of expected customer demand </li></ul><ul><li>Get the most output for the amount of resources available </li></ul>
    11. 11. Inputs <ul><li>A forecast of aggregate demand covering the selected planning horizon (6-18 months) </li></ul><ul><li>The alternative means available to adjust short- to medium-term capacity, to what extent each alternative could impact capacity and the related costs </li></ul><ul><li>The current status of the system in terms of workforce level, inventory level and production rate </li></ul>
    12. 12. Outputs <ul><li>A production plan: aggregate decisions for each period in the planning horizon about </li></ul><ul><ul><li>workforce level </li></ul></ul><ul><ul><li>inventory level </li></ul></ul><ul><ul><li>production rate </li></ul></ul><ul><li>Projected costs if the production plan was implemented </li></ul>
    13. 13. Medium-Term Capacity Adjustments <ul><li>Workforce level </li></ul><ul><ul><li>Hire or layoff full-time workers </li></ul></ul><ul><ul><li>Hire or layoff part-time workers </li></ul></ul><ul><ul><li>Hire or layoff contract workers </li></ul></ul><ul><li>Utilization of the work force </li></ul><ul><ul><li>Overtime </li></ul></ul><ul><ul><li>Idle time (undertime) </li></ul></ul><ul><ul><li>Reduce hours worked </li></ul></ul><ul><li>. . . more </li></ul>
    14. 14. Medium-Term Capacity Adjustments <ul><li>Inventory level </li></ul><ul><ul><li>Finished goods inventory </li></ul></ul><ul><ul><li>Backorders/lost sales </li></ul></ul><ul><li>Subcontract </li></ul>
    15. 15. Approaches <ul><li>Informal or Trial-and-Error Approach </li></ul><ul><li>Mathematically Optimal Approaches </li></ul><ul><ul><li>Linear Programming </li></ul></ul><ul><ul><li>Linear Decision Rules </li></ul></ul><ul><li>Computer Search </li></ul><ul><li>Heuristics </li></ul>
    16. 16. Comparison of Aggregate Planning Methods <ul><li>Provides optimal solution </li></ul><ul><li>Popular in many industries </li></ul><ul><li>Sensitivity & dual analysis provide useful information </li></ul><ul><li>Sensitivity & dual analysis provide useful information </li></ul><ul><li>Constraints readily added </li></ul><ul><li>Simple, easy to use and understand </li></ul>Advantages <ul><li>Many solutions; solution need not be optimal </li></ul>Graphical <ul><li>Mathematical functions must be linear, and deterministic -- not necessarily a realistic assumption </li></ul>Linear Programming Limitations Method
    17. 17. Comparison of Aggregate Planning Methods <ul><li>Simple, easy to use and understand </li></ul><ul><li>Attempts to duplicate manager’s decision-making process </li></ul><ul><li>Simplest, least disruptive, easiest to implement </li></ul><ul><li>Provide optimal solution </li></ul><ul><li>Handle non-deterministic demand </li></ul>Advantages <ul><li>Solution need not be optimal </li></ul><ul><li>Assumes past decisions are good </li></ul><ul><li>Built on individual’s invalidate model </li></ul>Management Coefficients Model <ul><li>Incorporates some non-standard costs </li></ul><ul><li>Skilled personal required </li></ul><ul><li>Quadratic model not always realistic </li></ul><ul><li>Values of variables are unconstrained </li></ul><ul><li>Feasible solution is optimal if it exists - not guaranteed </li></ul>Linear Decision Rules Limitations Method
    18. 18. Comparison of Aggregate Planning Methods <ul><li>Places no restrictions on mathematical structure or cost functions </li></ul><ul><li>Can test many relationships </li></ul>Advantages <ul><li>No optimal solution guaranteed </li></ul><ul><li>Often a long, costly, process </li></ul>Simulation Limitations Method
    19. 19. Pure Strategies for the Informal Approach <ul><li>Matching Demand </li></ul><ul><li>Level Capacity </li></ul><ul><ul><li>Buffering with inventory </li></ul></ul><ul><ul><li>Buffering with backlog </li></ul></ul><ul><ul><li>Buffering with overtime or subcontracting </li></ul></ul>
    20. 20. Matching Demand Strategy <ul><li>Capacity (Production) in each time period is varied to exactly match the forecasted aggregate demand in that time period </li></ul><ul><li>Capacity is varied by changing the workforce level </li></ul><ul><li>Finished-goods inventories are minimal </li></ul><ul><li>Labor and materials costs tend to be high due to the frequent changes </li></ul>
    21. 21. Developing and Evaluating the Matching Production Plan <ul><li>Production rate is dictated by the forecasted aggregate demand </li></ul><ul><li>Convert the forecasted aggregate demand into the required workforce level using production time information </li></ul><ul><li>The primary costs of this strategy are the costs of changing workforce levels from period to period, i.e., hirings and layoffs </li></ul>
    22. 22. Level Capacity Strategy <ul><li>Capacity (production rate) is held level (constant) over the planning horizon </li></ul><ul><li>The difference between the constant production rate and the demand rate is made up (buffered) by inventory, backlog, overtime, part-time labor and/or subcontracting </li></ul>
    23. 23. Developing and Evaluating the Level Production Plan <ul><li>Assume that the amount produced each period is constant, no hirings or layoffs </li></ul><ul><li>The gap between the amount planned to be produced and the forecasted demand is filled with either inventory or backorders, i.e., no overtime, no idle time, no subcontracting </li></ul><ul><li>. . . more </li></ul>
    24. 24. Developing and Evaluating the Level Production Plan <ul><li>The primary costs of this strategy are inventory carrying and backlogging costs </li></ul><ul><li>Period-ending inventories or backlogs are determined using the inventory balance equation: </li></ul><ul><li> EI t = EI t-1 + (P t - D t ) </li></ul>
    25. 25. Aggregate Plans for Services <ul><li>For standardized services, aggregate planning may be simpler than in systems that produce products </li></ul><ul><li>For customized services, </li></ul><ul><ul><li>there may be difficulty in specifying the nature and extent of services to be performed for each customer </li></ul></ul><ul><ul><li>customer may be an integral part of the production system </li></ul></ul><ul><li>Absence of finished-goods inventories as a buffer between system capacity and customer demand </li></ul>
    26. 26. Preemptive Tactics <ul><li>There may be ways to manage the extremes of demand: </li></ul><ul><ul><li>Discount prices during the valleys.... have a sale </li></ul></ul><ul><ul><li>Peak-load pricing during the highs .... electric utilities, Nucor </li></ul></ul>
    27. 27. Aggregate Planning Example A small manufacturing company with 200 employees produces umbrellas. The company produces the following three product lines: 1) the Executive Line, 2) the Durable Line and 3) the Compact line, as shown in the below Executive Line Durable Line Compact Line
    28. 28. Aggregate Planning Example: Demand for Executive Umbrellas Number of working days: Jan: 22 Feb: 19 Mar: 21 Apr: 21 May: 22 Jun: 20
    29. 29. Aggregate Planning Example: Cost Information for Executive Umbrellas
    30. 30. Aggregate Planning Example: Determining Straight Labor Costs and Output for Executive Umbrellas January 159.5 = 22 [days/month] * 7.25 [productive hrs/worker] 1063.33 = 159.5 [hrs/worker/month] / .15 [hrs/unit] $1,408 = 8 [$/hr] * 8 [paid hrs/day] * 22 [days/month]
    31. 31. Aggregate Planning Example: Determining Straight Labor Costs and Output for Executive Umbrellas
    32. 32. Aggregate Planning Example Chase Strategy for Executive Umbrellas <ul><li>4,500 units is the demand in January (any combination of firm orders and forecast </li></ul><ul><li>250 is the starting inventory position </li></ul><ul><li>4,250 = 4,500 – 250 </li></ul><ul><li>3.997 = 4,250 / 1,063.33 </li></ul><ul><li>7 = workforce level at the beginning of January </li></ul><ul><li>3 = 7 – 4 = workers fired </li></ul><ul><li>4 = workforce level at end of January </li></ul><ul><li>0 = ending inventory level </li></ul><ul><li>Objective: Adjust workforce level so as to eliminate the need to carry inventory from period to period </li></ul>
    33. 33. Aggregate Planning Example Chase Strategy for Executive Umbrellas
    34. 34. Aggregate Planning Example Chase Strategy for Executive Umbrellas January costs: $21,250.00 = 4,250 [units] * $5 [$/unit] $ 5,627.59 = 3.997 [workers] * 1,408 [$/worker] $ 750.00 = 3 [workers fired] * 250 [$/worker fired]
    35. 35. Aggregate Planning Example Level Strategy for Executive Umbrellas <ul><li>Objective: Adjust inventory level so as to eliminate the need to hire or fire workers from period to period </li></ul><ul><li>Assume that January is started with 6 employees </li></ul><ul><li>6,380 = 6 [employees] * </li></ul><ul><ul><ul><li>1,063.33 [units/worker] </li></ul></ul></ul><ul><li>2,130 = 6,380 – 4,250 (surplus) </li></ul>
    36. 36. Aggregate Planning Example Level Strategy for Executive Umbrellas
    37. 37. Aggregate Planning Example Level Strategy for Executive Umbrellas January costs: $8,448 = 6 [workers] * $1,408 [$/worker] $ 31,900 = 6,380 [units] * $5 [$/unit] $ 2,130 = 2,130 [surplus units] * $1 [$/unit held/month]
    38. 38. Aggregate Planning Example Which Plan is Cheaper? Clearly, the level capacity plan is cheaper over the selected time horizon Note: Be cautious in using the chase strategy as many intangibles, such as employee loyalty and commitment to the organization are adversely affected $260,411.00 $249,100.00 Chase Level Capacity
    39. 39. Production Plan Example 110 400 1500 — 1250 — 1000 — 750 — 500 — 250 — 0 — | | | | 1 2 3 4 Quarter Paint (thousands of gallons) 510 300 Inventory consumption Production plan Requirements Inventory accumulation
    40. 40. Staffing Strategies in Services: Level Strategy
    41. 41. Staffing Strategies in Services: Chase Strategy
    42. 42. Aggregate Planning Example via Excel
    43. 43. Aggregate Planning Example via LP
    44. 44. Aggregate Planning Example Computer Application
    45. 45. Aggregate Planning Example Computer Application
    46. 46. Aggregate Planning Example
    47. 47. The End

    ×