5 MPC-Aggregate Planning

7/29/2019 5 MPC-Aggregate Planning

1/16

AggregateOperations Planning

P421

F. Robert Jacobs


2/16

Aggregate Planning

Key element of the Sales andOperations Planning Process

Feeds the capital budget Game plan for production/operations

to meet expected demand


3/16

Key Linkages in Sales & Operations Planning

StrategicPlanning

Volume

Sales & OperationsPlanning

MarketingPlanning

FinancialPlanning

ResourcePlanning

SalesPlan

OperationsPlan

DemandManagement

Mix

MasterProduction

Scheduling

Rough-CutCapacityPlanning

FrontEnd

Manufacturing PlanningAnd Control Boundary


4/16

The Monthly Sales & Operations Planning Process

STEP 5

EXECS&OP

MEETING

STEP 4

PRE-S&OPMEETING

STEP 3

SUPPLYPLANNING

PHASE

STEP 2

DEMAND

PLANNINGPHASE

STEP 1

RUNSALES

FORECASTREPORTS

end of month

statistical forecasts

field sales worksheets

management forecast

1st

-pass spreadsheets

capacity constraints

2nd-pass spreadsheets

recommendations and agenda

for Executive S&OP

decisions

authorized game plan


5/16

Monday Tuesday Wednesday Thursday Friday

1 2

12:00 PM-Sales Closing

Compete

12:00 PM-Scheduled Trials Due

to Master Scheduler

12:00 PM-Inventory Reports

Due to Demand Mgr from Plants

12:00 PM-Send On Time

Shipments Reports (Email)

5 6 7 8 9

12:00 PM-Production Plan to

Ops

2:00 PM-On Time Shipments 2:00 PM-Supply Planning

Meeting

9:00 AM-Final Forecast Due to

Ops Analysis



12 13 14 15 16

2:00 PM-On Time Shipments 2:00 PM-Capacity Call 12:00 PM-Send SOP Agenda /

Spreadsheets (Email)



19 20 21 22 23

1:00 PM-Op & Eng Meeting

2:00 PM-On Time Shipments5:00 PM-Forecast Feedback to

Sales

8:00 AM-Op & Eng Meeting

1:00 PM-SOP Meeting


Shipments Reports (Email)4:00 PM-Send SOP Meeting

Notes (Email)

26 27 28 29 30

9:00 AM-Sales Forecast Due to

Demand Mgr.

5:00 PM-Sales Forecast Due to

BUDs

2:00 PM-On Time Shipments 1:00 PM-Final Forecast Due to

Demand Mgr from BUDs

2:00 PM-Capacity Call

8:30 AM-Production Planning

1:00 PM-Forecast Due to

Master Scheduler



Sales & Operations Planning Calendar

Demand ManagementProduction PlanningInventory ManagementSOP Meetings


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XYZ Company AA Product FamilyMonthly Sales Forecast

Total sales for the year = $130 million

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

January

February

March

April

May

June

July

August

September

October

November

December

7.6 8.4 10.2 9.0 11.8 7.0 8.6 12.6 14.4 12.8 15.8 11.8

Forecastedmonth

ly

sales($millions)


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Sales/Demand Planning

Sales History Plan

Oct Nov Dec Jan Feb Mar Apr

Forecast in Millions $10.0 $13.1 $6.9 $7.6 $8.4 $10.2 $9.0

in 000

units 333 437 230 253 280 340 300

Actualin 000

units 300 400 200

Diff: Month -33 -37 -30

Cumulative -70 -100


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Sales/Demand Planning

This is not just an exercise in running statisticalforecasting models.

The firm needs a single realistic estimate of what

demand we are going to meet in the future. All effort will be made to meet this expectation

Sales/marketing incentives to sales staff Special pricing/deals to customers Management of future certain demand

backlogging/pulling forward orders, for example.


9/16

Production Planning

Given agreement on what we expect demand to be,we need a plan for meeting that demand.

Many options available a strategy needs to be

developed Chase change production levels to meet demand Vary workforce, overtime, subcontract, etc.

Level production Constant workforce andproduction rate

Build and draw from inventory during low and high demandperiods

Mixed strategies combinations of the abovestrategies


10/16

Inventory Planning

Often a company will have maximumand minimum target levels

Max target limits the investmentgreat risk of obsolescence if we carrytoo much inventory.

Min target relates to risk of stocking

out.


11/16

XYZ Company Cumulative Chart

10

20

30

40

50

60

70

80

90

100

110

120

130

J F M A M J J A S O N D

Cumulativesales(millions

of$)

Months

Cumulative production

at a level

production rate

Cumulative

sales and

cumulative

production with

a chase

strategy


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The Aggregate PlanningModel

A fundamental relationship exists between demand,production and inventory

Ending Inventory = Beginning Inventory + Supply

Demand Supply represents all sources (i.e. regular production,

overtime production, subcontracting, etc.)

The model needs to have enough detail to allow the

economic evaluation of the plan (i.e. cost of hiring andfiring employees, overtime cost, subcontracting cost,cost of lost sales, etc.)


13/16

Aggregate Planning In ClassExercise

See handout and spreadsheet.

Develop a level, chase and mixed

plan.


14/16

Optimizing Aggregate PlansUsing Excel Solver

Be sure to review material on pp. 433-436in the book.

Key things to remember:

To guarantee that solver can find an optimalsolution there can be no functions in thespreadsheet. @if and integer functionscannot be used, for example.

Also, consider that there may be many verysimilar solutions from a cost view. It isimportant to experiment a little with differentsolutions.


15/16

Aggregate Operations Planning- Summary

A plan that coordinates the sales and operationsfunctions in the firm.

Major strategic implications for the firm. How responsive do we need operations to be?

Major asset implications

How well can we manage demand?

Whether we are outsourcing or producing productourselves S&OP is a fundamental process that

needs to be done well to be successful.


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Globe Refrigeration

Use the teams we formed last week.Answer the questions at the end of the case.

Format management report discussing the

alternatives, showing results. 2-3 pages plusexhibits.

Make a specific recommendation tomanagement.

Due on Sept 25th.

Be prepared to make a short 5 minutepresentation of your results.

5 MPC-Aggregate Planning

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