sales and operations planning Flashcards
strategic business plan
- long term focus
- provides company’s direction and objectives for the next 2-10 years
- starting point for sales and operations planning
- states the company;s objectives for profitability, growth rate and return on investment
sales and operations planning
- brings all the functional business plans (marketing, operations, engineering and finance) into one integrated plan
- begins with the marketing plan
aggregate/production plan
- identifies the resources needed:
- aggregate productions rate, size of work force, budgeted levels of finished products, inventory, backlogs
- to support the marketing plan
- updated and reevaluated monthly
how to deal with demand fluctuations?
- demand based
Reactive:
using finished goods -> produce average demand levels throughout the year instead of changing every period. Extra units go into inventory
back orders -> promises to deliver the product to customer at a later date. Dangerus because it leads to lost sale or customer loyalty -> works if your product is unique/ brand name/ lower price than competitor
Proactive:
shifting demand -> change consumer buying patterns through incentives (museum, off/on season, early bird)
works for company with high ixed cost and low variable cost
Ex: yield management (dynamically adapt prices knowing customers will pay more for resource thats limited)
- capacity based
Overtime -> works only for short time, reduces productivity and quality of work
Undertime -> result of reduced demand, no desire to build inventory
Subcontracting -> letting another company do some of the work for you, help increase output in periods of high demand (medium - long term option)
Hiring/ firing -> long-term option, high costs
types of aggregate plans
- Level
- maintains a constant workforce
- capacity of labor and equipment based on average demand
- Pro: produces the same amount each period
- Con: inventory and backorders used to absorb demand fluctuations
- often used for make-to-stock products ( stereos, kitchen appliance) - Chase
- produce exactly what is needed to satisfy demand during each period
- production rate changes in response to demand fluctuations
- Pro: minimizes finished goods holding cost
- Cons: constantly changing capacity needs and the need for enough equipment to meet peak demand
- make to order products (custom cabinets, highly perishable) - Hybrid
- any combination of options based on the company’s current situations
- Ex: maintain stable workforce supplemented by inventory buildup and some overtime production to meet demand
developing the aggregate plan
- choose the type of plan that matches the company’s objectives: level, chase or hybrid
- determine the aggregate production rate: average demand over all periods vs actual demand per period
- determine size of the workforce
- test aggregate plan: calculate inventory levels, shortages, employees hired and fired
- Evaluate the plan’s performance in terms of
Cost: total cost, unit cost. inventory levels Customer service: number of backorders
Human resources: effect on workforce, employment stability
Operations: stability of schedule, labor use
aggregate planning in services
inventory is not an option for non-tangible products
- back orders are still possible but not desirable
- chase strategy: no impact
- level strategy: capacity of labor and equipment must allow meeting peak demand to avoid lost sales
labor cost in aggregate planning in services
labor cost is often very critical and can be controlled by:
accurately scheduling laboring hours to respond to demand (appointments)
having an on-call labor pool to meet unexpected demand
having multi-skilled workers who can perform different tasks
having flexible work hours to meet changing demand