CLO31(1).pptx

Wednesday, March 15, 2023
Production Planning and Control

MCE 4333 – Production Planning and Control
CLO3: Sales and
Operations Planning
Wednesday, March 15, 2023

4
Learning Objectives
• Understand sales and operations
fundamentals and the concept of supply
and demand in the market
fundamentals and balance aggregate
demand and aggregate production
capacity in a firm by using hire and fire
strategy
fundamentals, balance aggregate
demand, and aggregate production
capacity in a firm by using level strategy

5
CLO3 Delivery Plan
Week 6 Understand sales and operations fundamentals and the
concept of supply and demand in the market
Lab 3
Quiz 1
Week 7 Understand sales and operations fundamentals and balance
aggregate demand and aggregate production capacity in a
firm by using hire and fire strategy
Lab 4
Understand sales and operations fundamentals, balance
aggregate demand, and aggregate production capacity in a
firm by using level strategy
Week 8 Lab 5
At the end of CLO 3, you will be able to demonstrate the understanding of sales and
operations planning

Sales and Operation Planning
• A process to develop tactical plans by integrating marketing plans for
new and existing products with the management of the supply chain.
• The process brings together all the plans for the business into one
integrated set of plans. Also called aggregate planning.

S&OP in the planning Cycle
• Strategic planning takes place at the highest levels of the firm; it addresses needs that might not arise for
years into the future.
• Tactical planning covers a shorter period, usually 12 to 24 months out, although the planning horizon may
be longer in industries with very long lead times (e.g., engineer-to-order firms).
• Detailed planning and control covers time periods ranging from weeks down to just a few hours out.

Purpose of Sales and Operation Planning
The S&OP tends to be a major source for the planning of:
1. Inventory levels
2. Cash flow
3. Human Resource needs
a. Number of people
b. Skill levels
c. Timing of need
d. Training programs
4. Capital needs
5. Production outputs
6. Capacity planning (e.g., equipment)
7. Sales and marketing activities
a. Sales promotions b. Advertising c. Pricing
d. New product introductions e. Expansion of markets

9
S&OP Fundamentals
• Balance between demand and supply
• D>S customer service suffers because the customer will not be
able to receive the products. Costs increase because of overtime
and fast freight
• S>D Inventories increase because of the imbalance. Layoffs
results from production rate cuts. Profit margin is reduced because
of price cuts and discounting.
• S&OP should provide a strategy for how demand will be met over
the business cycle.

10
S&OP Fundamentals
• Volume and mix:
• Volume: big picture decision about how much to
make and product families.
• Mix: concerns which individual products to make.

Sales and Operations Planning
• Determines the resource capacity needed
to meet demand over an intermediate time
horizon
• Aggregate refers to sales and operations planning
for product lines or families
• Sales and Operations planning (S&OP) matches
supply and demand
• Objectives
• Establish a company wide game plan for allocating
resources
• Develop an economic strategy for meeting demand

Sales and Operations Planning Process
12

The Monthly S&OP Planning Process
13

Aggregate Planning
• Goal: Specify the optimal combination of the
following variables to minimize cost
• production rate (units completed per unit of time)
• workforce level (number of workers)
• inventory on hand (inventory carried from previous
period)

Meeting Demand Strategies
• Adjusting capacity
• Resources necessary to meet demand
are acquired and maintained over the
time horizon of the plan
• Minor variations in demand are handled
with overtime or under-time
• Managing demand
• Proactive demand management

Strategies for Adjusting Capacity
• Level production
• Producing at a constant rate
and using inventory to absorb
fluctuations in demand
• Chase demand
• Hiring and firing workers to
match demand
• Peak demand
• Maintaining resources for
high-demand levels
• Overtime and under-time
• Increasing or decreasing
working hours
• Subcontracting
• Let outside companies
complete the work
• Part-time workers
• Hiring part time workers to
complete the work
• Backordering
• Providing the service or
product at a later time period

Level Production
Demand
Units
Time
Production

Chase Demand
Demand
Units
Time
Production

Strategies for Managing Demand
• Shifting demand into other time
periods
• Incentives
• Sales promotions
• Advertising campaigns
• Offering products or services with
counter-cyclical demand patterns

The Aggregate Operations Plan
• Main purpose: Specify the optimal
combination of
• production rate (units completed
per unit of time)
• workforce level (number of
workers)
• inventory on hand (inventory
carried from previous period)
• Product group or broad category
(Aggregation)
• This planning is done over an
intermediate-range planning period
of 6 to18 months
16-20

Sales and Operations Planning Activities
• Long-range planning
• Greater than one year planning horizon
(3-5 years)
• Usually performed in annual increments
• Medium-range planning
• Six to eighteen months
• Usually with weekly, monthly or quarterly
increments
• Short-range planning
• One day to one week (6 months period)
• Usually with weekly or daily increments
16-21

Balancing Aggregate Demand
and Aggregate Production Capacity
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
4500
5500
7000
10000
8000
6000
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
4500 4000
9000
8000
4000
6000
Suppose the figure to
the right represents
forecast demand in
units
Now suppose this
lower figure represents
the aggregate capacity
of the company to
meet demand
What we want to do is
balance out the
production rate,
workforce levels, and
inventory to make
these figures match up
16-22

Required Inputs to the Production Planning System (External and
Internal)
Planning for
production
External
capacity
Competitors’
behavior
Raw material
availability
Market
demand
Economic
conditions
Current
physical
capacity
Current
workforce
Inventory
levels
Activities
required for
production
External to
firm
Internal
to firm
16-23

Aggregate Planning Examples: Unit Demand and Cost Data
Materials $5/unit
Holding costs $1/unit per mo.
Marginal cost of stock-out $1.25/unit per mo.
Hiring and training cost $200/worker
Layoff costs $250/worker
Labor hours required .15 hrs/unit
Straight time labor cost $8/hour
Beginning inventory 250 units
Productive hours/worker/day 7.25
Paid straight hrs/day 8
Suppose we have the following unit demand and cost information:
Demand/mo Jan Feb Mar Apr May Jun
 4500 5500 7000 10000 8000 6000

Holding, shortage and Marginal cost of stock-out
• Holding costs: is money spent to keep and maintain a stock of goods in
storage. It includes rent for the required space; equipment, materials, and
labor to operate the space; insurance; security; interest on money
invested in the inventory and space.
• Marginal cost of stock-out: Economic consequences of not
being able to meet an internal or external demand from the
current inventory. Such costs consist of internal costs (delays,
labor time wastage, lost production, etc.) and external costs (loss
of profit from lost sales, and loss of future profit due to loss of
goodwill). Also called shortages costs.
• Shortages costs: Situation where the quantity available or
supplied in a market falls short of the quantity demanded or
required at a given time or price.

Cut-and-Try Example: Determining Straight
Labor Costs and Output
Jan Feb Mar Apr May Jun
Days/mo 22 19 21 21 22 20
Hrs/worker/mo
Units/worker
$/worker
 4500 5500 7000 10000 8000 6000
Given the demand and cost information below, what are the
aggregate hours/worker/month, units/worker, and dollars/worker?

Cut-and-Try Example: Determining Straight
Labor Costs and Output
Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5
Units/worker 1063.33
$/worker $1,408
 4500 5500 7000 10000 8000 6000
Given the demand and cost information below, what are the
aggregate hours/worker/month, units/worker, and dollars/worker?
7.25x22
7.25/0.15=48.33 &
48.33x22=1063.33
22x8hrsx$8=$1408

Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145
Units/worker 1063.33 918.33 1015 1015 1063.33 966.67
$/worker $1,408 1,216 1,344 1,344 1,408 1,280
16-28

Chase Strategy
(Hiring & Firing to meet demand)
Jan
Days/mo 22
Hrs/worker/mo 159.5
Units/worker 1,063.33
$/worker $1,408
Jan
Demand 4,500
Beg. inv. 250
Net req.
Req. workers
Hired
Fired
Workforce
Ending inventory 0
Lets assume our current workforce is 7 workers.
First, calculate net requirements for
production, or Demand-Begin Inv.
Then, calculate number of workers
needed to produce the net
requirements, or Net req/Units per
worker or # workers
Finally, determine the number of
workers to hire/fire. Current Workers-
Required = (-) hire or (+) fire

Chase Strategy
(Hiring & Firing to meet demand)
Jan
Days/mo 22
Hrs/worker/mo 159.5
Units/worker 1,063.33
$/worker $1,408
Jan
Demand 4,500
Beg. inv. 250
Net req. 4,250
Req. workers 3.997
Hired
Fired 3
Workforce 4
Ending inventory 0
Lets assume our current workforce is 7 workers.
First, calculate net requirements for
production, or 4500-250=4250 units
Then, calculate number of workers
needed to produce the net
requirements, or 4250/1063.33=3.997
or 4 workers **Round-up
Finally, determine the number of
workers to hire/fire. In this case we
only need 4 workers, we have 7, so 3
can be fired.

Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5
Units/worker 1,063
$/worker $1,408
Jan
Demand 4,500
Beg. inv. 250
Net req. 4,250
Req. workers 3.997
Hired
Fired 3
Workforce 4
Ending inventory 0
Complete the calculations for the next two months of the
planning horizon.

Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145
Units/worker 1,063 918 1,015 1,015 1,063 967
$/worker $1,408 1,216 1,344 1,344 1,408 1,280
Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
Workforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0
Below are the complete calculations for the remaining months
in the six month planning horizon.

Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250
Req. workers 3.997
Hired
Fired 3
Workforce 4
Ending inventory 0
Jan
Material $21,250.00
Labor 5,627.59
Hiring cost
Firing cost 750.00
Complete calculations for the next two months planning horizon
with the other costs included.

Calculations for the previous table
• Material=5x4250=21250
• Labor=3.997x8x8x22=5617.92
• Firing cost=250x3=750
• Second column:
• Material=5x5500=27500
• Labor=5.989x8x8x19=7282.76
• Hiring cost=200x2=400

Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
Workforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0
Jan Feb Mar Apr May Jun Costs
Material $21,250.00 $27,500.00 $35,000.00 $50,000.00 $40,000.00 $30,000.00 203,750.00
Labor 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 53,958.62
Hiring cost 400.00 200.00 600.00 1,200.00
Firing cost 750.00 500.00 250.00 1,500.00
$260,408.62
Below are the complete calculations for the remaining months in
the six month planning horizon with the other costs included.

Level Workforce Strategy (Surplus and
Shortage Allowed)
Jan
Demand 4,500
Beg. inv. 250
Net req. 4,250
Workers 6
Production 6,380
Ending inventory 2,130
Surplus 2,130
Shortage
Lets take the same problem as
before but this time use the
Level Workforce strategy.
This time we will seek to use a
workforce level of 6 workers.
6workerx1063.33unit/worker
6380-4250

Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250
Workers 6
Production 6,380
Ending inventory 2,130
Surplus 2,130
Shortage
Complete the calculations for next two months in the six
month planning horizon.

Note, if we recalculate this sheet with 7 workers
we would have a surplus.
Below are the complete calculations for the remaining
months in the six month planning horizon.
Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250 2,130 2,140 1,230 -2,680 -4,309
Net req. 4,250 3,370 4,860 8,770 10,680 10,309
Workers 6 6 6 6 6 6
Production 6,380 5,510 6,090 6,090 6,380 5,800
Ending
inventory 2,130 2,140 1,230 -2,680 -4,309 -4,507
Surplus 2,130 2,140 1,230
Shortage 2,680 4,309 4,507

4,500 5,500 7,000 10,000 8,000 6,000
250
4,250
6
6,380
2,130
2,130
Jan
$8,448
31,900
2,130
Complete calculations for the next two months in the six
month planning horizon with the other costs included.
Labor
Material
Storage
Stock-
out

4,500 5,500 7,000 10,000 8,000 6,000
250 2,130 10 -910 -3,910 -1,620
4,250 3,370 4,860 8,770 10,680 7,300
6 6 6 6 6 6
6,380 5,510 6,090 6,090 6,380 5,800
2,130 2,140 1,230 -2,680 -1,300 -1,500
2,130 2,140 1,230
2,680 1,300 1,500
$8,448 $7,296 $8,064 $8,064 $8,448 $7,680 $48,000.00
31,900 27,550 30,450 30,450 31,900 29,000 181,250.00
2,130 2,140 1,230 5,500.00
3,350 1,625 1,875 6,850.00
$241,600.00
Below are the complete calculations for the remaining months
in the six month planning horizon with the other costs included.
Labor
Material
Storage
Stock-
out
Note, the total costs under this strategy are less than under Chase.

Collaborative Planning
https://www.youtube.com/watch?v=EaqEJJf5ptQ&ab_channel=JohnGalt

Collaborative Planning
• Sharing information and
synchronizing production across
supply chain
• Part of CPFR (collaborative planning,
forecasting, and replenishment)
• involves selecting products to be jointly
managed, creating a single forecast of
customer demand, and synchronizing
production across supply chain

800 MyHCT (800 69428) www.hct.ac.ae
Thank You

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