OPERATIONS MANAGEMENT:
Creating Value Along the Supply Chain,
Canadian Edition
Robert S. Russell, Bernard W. Taylor III, Ignacio Castillo, Navneet Vidyarthi
CHAPTER 14
Sales and Capacity Planning
1
Learning Objectives
 The Sales and Operations Planning Process
 Strategies for Adjusting Capacity
 Strategies for Managing Demand
 Quantitative Techniques for Aggregate Planning
 Hierarchical Nature of Planning
 Aggregate Planning for Services
14-2
Sales and Operations Planning
 Determines resource capacity 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 plan for allocating
resources
 Develop an economic strategy for meeting
demand
14-3
Sales and Operations Planning
Process
14-4
Monthly S&OP Planning Process
14-5
Disaggregation
 Breaking an aggregate plan into more detailed
plans
 Create Master Production Schedule for Material
Requirements Planning
14-6
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
14-7
Available-to-Promise (ATP)
 Quantity of items that can be promised to customer
 Difference between planned production and
customer orders already received
 Capable-to-promise
 quantity of items that can be produced and mad available
at a later date
14-8
ATP
14-9
ATP
14-10
ATP
14-11
Rule Based ATP
14-12
Meeting Demand Strategies
 Adjusting capacity
 Resources 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
14-13
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
14-14
Strategies for Adjusting Capacity
 Overtime and under-time
 Increase or decrease working hours
 Subcontracting
 Let outside companies complete the work
 Part-time workers
 Hire part-time workers to complete the work
 Backordering
 Provide the service or product at a later time period
14-15
Level Production
Units
Demand
Production
Time
14-16
Chase Demand
Demand
Units
Production
Time
14-17
Strategies for Managing Demand
 Shifting demand into other time periods
 Incentives
 Sales promotions
 Advertising campaigns
 Offering products or services with counter-cyclical
demand patterns
 Partnering with suppliers to reduce information
distortion along the supply chain
14-18
Quantitative Techniques For AP
 Pure Strategies
 Mixed Strategies
 Linear Programming
 Transportation Method
 Other Quantitative Techniques
14-19
Pure Strategies
14-20
Level Production Strategy
Level production
(50,000 + 120,000 + 150,000 + 80,000)
= 100,000 pounds
4
QUARTER
Spring
Summer
Fall
Winter
SALES
FORECAST
80,000
50,000
120,000
150,000
PRODUCTION
PLAN
INVENTORY
100,000
100,000
100,000
100,000
400,000
20,000
70,000
50,000
0
140,000
Cost of Level Production Strategy
(400,000 X $2.00) + (140,00 X $.50) = $870,000
14-21
Chase Demand Strategy
14-22
Level Production with Excel
14-23
Chase Demand with Excel
14-24
Mixed Strategy
 Combination of Level Production and Chase
Demand strategies
 Example policies
 no more than x% of workforce can be laid off in one
quarter
 inventory levels cannot exceed x dollars
 Some industries may shut down manufacturing
during the low demand season and schedule
employee vacations during that time
14-25
General Linear Programming
(LP) Model
 LP gives an optimal solution, but demand and
costs must be linear
 Let
 Wt = workforce size for period t
 Pt =units produced in period t
 It =units in inventory at the end of period t
 Ft =number of workers fired for period t
 Ht = number of workers hired for period t
14-26
LP MODEL
14-27
Setting up the Spreadsheet
14-28
Setting up the Spreadsheet
14-29
The LP Solution
14-30
Level Production for Quantum
14-31
Chase Demand for Quantum
14-32
LP Solution for Quantum
14-33
Transportation Method
14-34
Transportation Tableau
14-35
Transportation Tableau
14-36
Burruss’ Production Plan
14-37
Excel and Transportation Method
14-38
Other Quantitative Techniques
 Linear decision rule (LDR)
 Search decision rule (SDR)
 Management coefficients model
14-39
Aggregate Planning for Services
 Most services cannot be inventoried
 Demand for services is difficult to predict
 Capacity is also difficult to predict
 Service capacity must be provided at the
appropriate place and time
 Labor is usually the most constraining resource
for services
14-40
Yield Management
14-41
Yield Management
14-42
Yield Management
14-43
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