CHAPTER 13
Sales and
Operations
Planning
McGraw-Hill/Irwin
Copyright © 2014 McGraw-Hill Higher Education. All rights reserved.
Learning Objectives
LO13-1 Describe sales and operations planning
LO13-2 Define contents of an aggregate plan
LO13-3 Explain relevant aggregate plan costs
LO13-4 Contrast aggregate planning strategies
LO13-5 Develop alternative aggregate plan
LO13-6 Explain differences in service and
manufacturing aggregate planning
13–2
Sales and Operations Planning
• Sales and Operations Planning (S&OP):
process for integrating marketing and
operations plan to develop a tactical plan
• Attempt to balance supply and demand
Supply
Demand
S&OP
LO13-1
13–3
Balancing Objectives
Finance
Marketing/Sales
• High ROI
• Maximize return
• Minimize risk
• High contribution
customers
• Aggregate planning
• Many product variations
• Fast response, high service
• Maximize revenue
Operations
• Detail planning
• Fewer products
• Long, stable production runs
• Maximize output, minimize cost
• Reduce variance, maintain ‘up-time’
• Efficient grouping of supply & demand
LO13-1
13–4
Benefits of Sales & Operations
Planning
Quantitative benefits:
• Improved forecast accuracy
• Higher customer service
• More stable supply
• Better new product introduction
LO13-1
13–5
Benefits of Sales & Operations
Planning
Qualitative benefits:
• Better organizational teamwork
• Faster and better aligned decision making
• Greater accountability for performance
• Better business visibility
LO13-1
13–6
Aggregate Production Planning Costs
Aggregate Production Planning: balances
production, inventory, resources and demand
• Holding Inventory: having inventory on hand
• Regular Production: average labor and benefits
• Overtime: working more hours than standard
• Hiring: finding, acquiring and training new
employees
• Fire/Layoff: separation packages
• Backorder/lost sales: expediting supply, lost
good-will
• Subcontracting: unit cost and loss of control
LO13-3
13–7
Aggregate Planning Strategies
Level: produce at a constant rate, use changing
inventory levels to buffer supply and demand
Demand
200
Production
Inventory
Quantity
150
100
50
0
1
LO13-5
2
3
4
5
6
7
8
Time Period
9
10
11
12
13–8
Creating a Level Aggregate Plan
Level: produce at a constant rate, use changing
inventory levels to buffer supply and demand
( Di  E I  B I )
P
N
P = level production rate
Di = demand in period i
EI = desired ending inventory level
BI = beginning inventory
N = Number of planning periods
LO13-5
13–9
Aggregate Planning Strategies
Chase: change production to match demand,
inventory remains relatively stable and low
Demand
200
Production
Inventory
Quantity
150
100
50
0
1
LO13-5
2
3
4
5
6
7
Time Period
8
9
10
11
12
13–10
Creating a Chase Aggregate Plan
• Chase: change
production to
match demand,
inventory remains
relatively stable
and low
1
2
• Three options to
consider:
3
LO13-5
Produce everything in house, vary
the workforce level
Produce everything in house,
workforce level to meet lowest
demand period, use overtime
for higher demand
Produce everything in house,
workforce level to meet lowest
demand period, use subcontractor
to produce higher demand
13–11
Aggregate Planning Strategies
Hybrid: combination of level and chase strategies
Demand
Production
Inventory
200
Quantity
150
100
50
0
1
2
3
4
5
6
7
8
9
10
11
12
Time Period
LO13-5
13–12
Aggregate Planning for Service
• Yield Management: adjusting prices in
response to demand levels
• Services can not create inventory to buffer
demand
• Modify prices to encourage customers to
purchase for service at supplier desired times
• Goal is to maximize revenue and profit
LO13-6
13–13
Sales and Operations Management
Summary
1. Balancing supply and demand is difficult
2. S&OP is a cross-functional process
3. A sales and operations plan will either influence
demand to match supply, or match supply to
demand
4. S&OP must be a dynamic, responsive process
5. There are multiple costs to consider
6. The three basic strategies for S&OP are Level,
Chase and Hybrid
7. Services use Yield Management
13–14