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Transcript of Sales & Operations Planning
Sales & Operations Planning
Dr. Ashutosh SarkarAssistant Professor
Vinod Gupta School of ManagementIndian Institute of Technology Kharagpur
Master Production Schedule (Mix)
Strategic Planning
Marketing Plan
Resource Planning
Financial Planning
Demand Management
Sales Plan Operations Plan
Sales & Operations Planning(Volume)
Rough-cut Capacity Planning
• SOP links manufacturing to strategic objectives
• Four fundamentals: demand, supply, volume and mix
• Balance between demand and supply
• Volume concerns big-picture decisions– How much to make– Production rates for product families
• Mix concerns detailed decisions– Which individual products to make– In what sequence– For which customer
Materials Planning & ControlHistory Plan
Oct Nov Dec Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec
SalesForecast (in 1,000 units)ActualDifferenceOperationsPlanActualDifferenceInventoryPlanActual
333 437 230
300 400 200-33 -37 -30
333 437 230360 455 300 27 18 70
100 100 100 60 115 215
253 280 340 300 393 233 287 420 480 427 527 393
348 366 401 348 383 383 174 401 348 383 348 348
310 396 457 506 496 646 534 514 383 339 161 116
Sample Sales & Operations Plan
8-5
Aggregate Planning
• SOP or Aggregate plan is thus a statement of – levels of capacity– Levels of production– Levels of subcontracting– Levels of inventory, stockouts, and pricing over a specified
time horizon– Goal is to maximize profit– decisions made at a product family (not SKU) level– time frame of 3 to 18 months– how can a firm best use the facilities it has?
8-6
Aggregate Planning
• Specify operational parameters over the time horizon:– production rate– workforce– overtime– machine capacity level– subcontracting– backlog– inventory on hand
8-7
The Aggregate Planning Problem
• Given the demand forecast for each period in the planning horizon, determine the production level, inventory level, and the capacity level for each period that maximizes the firm’s (supply chain’s) profit over the planning horizon
8-8
Information Needed foran Aggregate Plan
• Demand forecast in each period• Production costs
– labor costs, regular time (mu/hr) and overtime (mu/hr)– subcontracting costs (mu/hr or mu/unit)– cost of changing capacity: hiring or layoff (mu/worker) and cost of
adding or reducing machine capacity (mu/machine)• Labor/machine hours required per unit• Inventory holding cost (mu/unit/period)• Stockout or backlog cost (mu/unit/period)• Constraints: limits on overtime, layoffs, capital available, stockouts
and backlogs
8-9
Outputs of Aggregate Plan• Production quantity from regular time, overtime, and subcontracted time:
used to determine number of workers and supplier purchase levels
• Inventory held: used to determine how much warehouse space and working capital is needed
• Backlog/stockout quantity: used to determine what customer service levels will be
• Machine capacity increase/decrease: used to determine if new production equipment needs to be purchased
• A poor aggregate plan can result in lost sales, lost profits, excess inventory, or excess capacity
8-10
Aggregate Planning Strategies
• Trade-off between capacity, inventory, backlog/lost sales
• Chase strategy – using capacity as the lever
• Time flexibility from workforce or capacity strategy – using utilization as the lever
• Level strategy – using inventory as the lever
• Mixed strategy – a combination of one or more of the first three strategies
8-11
Chase Strategy• Production rate is synchronized with demand by varying machine capacity
or hiring and laying off workers as the demand rate varies
• However, in practice, it is often difficult to vary capacity and workforce on short notice
• Expensive if cost of varying capacity is high
• Negative effect on workforce morale
• Results in low levels of inventory
• Should be used when inventory holding costs are high and costs of changing capacity are low
8-12
Time Flexibility Strategy• Can be used if there is excess machine capacity
• Workforce is kept stable, but the number of hours worked is varied over time to synchronize production and demand
• Can use overtime or a flexible work schedule
• Requires flexible workforce, but avoids morale problems of the chase strategy
• Low levels of inventory, lower utilization
• Should be used when inventory holding costs are high and capacity is relatively inexpensive
8-13
Level Strategy• Maintain stable machine capacity and workforce levels with a constant
output rate
• Shortages and surpluses result in fluctuations in inventory levels over time
• Inventories that are built up in anticipation of future demand or backlogs are carried over from high to low demand periods
• Better for worker morale
• Large inventories and backlogs may accumulate
• Should be used when inventory holding and backlog costs are relatively low
8-14
Aggregate Planning at Red Tomato Tools
Month Demand ForecastJanuary 1,600February 3,000
March 3,200April 3,800May 2,200June 2,200
8-15
Fundamental Tradeoffs in Aggregate Planning
• Capacity (regular time, overtime, subcontract)
• Inventory
• Backlog / lost sales
Basic Strategies
• Chase strategy
• Time flexibility from workforce or capacity
• Level strategy
8-16
Aggregate Planning
Item CostMaterials $10/unitInventory holding cost $2/unit/monthMarginal cost of a stockout $5/unit/monthHiring and training costs $300/workerLayoff cost $500/workerLabor hours required 4/unitRegular time cost $4/hourOver time cost $6/hourCost of subcontracting $30/unit
8-17
Aggregate Planning (Define Decision Variables)
Wt = Workforce size for month t, t = 1, ..., 6
Ht = Number of employees hired at the beginning of month t, t = 1, ..., 6
Lt = Number of employees laid off at the beginning of month t, t = 1, ..., 6
Pt = Production in month t, t = 1, ..., 6
It = Inventory at the end of month t, t = 1, ..., 6
St = Number of units stocked out at the end of month t, t = 1, ..., 6
Ct = Number of units subcontracted for month t, t = 1, ..., 6
Ot = Number of overtime hours worked in month t, t = 1, ..., 6
8-18
Aggregate Planning(Define Objective Function)
6
1
6
1
6
1
6
1
6
1
6
1
6
1
6
1
30105
26500
300640
tt
tt
tt
tt
tt
tt
tt
tt
CPS
IOL
HWMin
8-19
Aggregate Planning (Define Constraints Linking Variables)
• Workforce size for each month is based on hiring and layoffs
.80,6,...,1
0
,
0
1
1
WwheretforLHWW
orLHWW
tttt
tttt
8-20
Aggregate Planning (Constraints)
• Production for each month cannot exceed capacity
.6,...,1
,0440
,440
tforPOW
OWP
ttt
ttt
8-21
Aggregate Planning (Constraints)
• Inventory balance for each month
.500,0
,000,1,6,...,1
,0
,
60
0
11
11
IandS
IwheretforSISDCPI
SISDCPI
ttttttt
ttttttt
8-22
Aggregate Planning (Constraints)
• Over time for each month
.6,...,1
,010
,10
tforOW
WO
tt
tt
8-23
Scenarios
• Increase in holding cost (from $2 to $6)• Overtime cost drops to $4.1 per hour• Increased demand fluctuation
8-24
Increased Demand Fluctuation
Month Demand ForecastJanuary 1,000February 3,000
March 3,800April 4,800May 2,000June 1,400
8-25
Aggregate Planning in Practice
• Think beyond the enterprise to the entire supply chain
• Make plans flexible because forecasts are always wrong
• Rerun the aggregate plan as new information emerges
• Use aggregate planning as capacity utilization increases
Week Number
1 2 3 4 5 6 7 8 9 10 11 12
ForecastAvailableMPSOn hand
5 5 5 5 5 5 15 15 15 15 15 1525 30 35 40 45 50 45 40 35 30 25 2010 10 10 10 10 10 10 10 10 10 10 1020
Materials Planning & Control
Sample Master Production Schedule: Level Strategy
Week Number
1 2 3 4 5 6 7 8 9 10 11 12
ForecastAvailableMPSOn hand
5 5 5 5 5 5 15 15 15 15 15 1520 20 20 20 20 20 20 20 20 20 20 205 5 5 5 5 5 15 15 15 15 15 1520
Materials Planning & Control
Sample Master Production Schedule: Chase Strategy
Materials Planning & Control
Week Number
1 2 3 4 5 6 7 8 9 10 11 12
ForecastAvailableMPSOn hand
5 5 5 5 5 5 15 15 15 15 15 1515 10 5 30 25 20 5 20 5 20 5 20 30 30 30 3020
Sample Master Production Schedule: Lot Sizing
Materials Planning & Control
Week Number
2 3 4 5 6 7 8 9 10 11 12 13
ForecastAvailableMPSOn hand
10 10 10 10 10 10 15 15 15 15 15 150 -10 10 0 -10 -25 -10 -25 -10 -25 -10 -25 30 30 30 30 10
Rolling Through Time
Materials Planning & Control
Week Number
2 3 4 5 6 7 8 9 10 11 12 13
ForecastAvailableMPSOn hand
10 10 10 10 10 10 15 15 15 15 15 1530 20 10 30 20 5 20 5 20 5 20 530 30 30 30 30 10
Rolling Through Time
Materials Planning & Control
Week Number
1 2 3 4 5 6 7 8 9 10 11 12
ForecastOrdersAvailableATPMPSOn hand
5 5 5 5 5 5 15 15 15 15 15 155 3 215 10 5 30 25 20 5 20 5 20 5 2010 30 30 30 30 30 30 30 3020
Order Promising with a Master Production Schedule
Available to promise = MPS – all orders of that period and subsequent periods until the next MPS
Materials Planning & Control
• Material Requirement Planning (MRP) is the detailed plans for part needs
• For batch manufacturing processes MRP is central to the development of detailed material requirements plan
• MRP is characterized with time-phased requirement records
• MPS is the input to the development of the MRP
Materials Planning & Control
Period
1 2 3 4 5 6 7 8 9 10
Gross Requirement 10 40 10
Scheduled Receipts 50
Projected Available Balance
54 44 44 4 44
Planned Order Releases
50
Lead time = one periodLot size = 50
4
Sample Material Requirement Plan
Product Structure Diagram1605
Shovel Complete
13122 31414127(4 required)
062(4 required)
118048
11495457 082(2 required)
14127(6 required)
0192142
1118129
Detailed information on the configuration of the product for the manufacture of Shovel
Bill of Materials1605 Snow Shovel
13122 Top Handle Assembly (1 required)457 Top Handle (1 required)
082 Nail (2 required)11495 Bracket Assembly (1 required)
129 Top Handle Bracket (1 required)1118 Top Handle Coupling (1 required)
048 Scoop-shaft Connector (1 required)118 Shaft (1 required)062 Nail (1 required)14127 Rivet (4 required)314 Scoop Assembly
2142 Scoop (1 required)019 Blade (1 required)14127 Rivet (6 required)
Material Requirement Planning
13122 Top Handle Assembly Lead Time = 2
Week
1 2 3 4 5 6 7 8 9 10
Gross requirements
20 10 20 5 35 10
Scheduled Receipts
Projected available balance
25 5 5 0 0 0 0 0 0 0
Planned order releases
5 20 5 35 10
25
Material Requirement Planning
457 Top Handle Lead Time = 2
Week
1 2 3 4 5 6 7 8 9 10
Gross requirements
5 20 5 35 10
Scheduled Receipts
25
Projected available balance
22 17 42 22 17 17 0 0 0 0
Planned order releases
18 10
22
Material Requirement Planning
082Nail(2 required) Lead Time = 1Lot size=50
Week
1 2 3 4 5 6 7 8 9 10
Gross requirements
10 40 10 70 20
Scheduled Receipts
50
Projected available balance
54 44 44 4 44 44 24 4 4 4
Planned order releases
50 50
4
Material Requirement Planning
11495Bracket Assembly Lead Time = 2
Week
1 2 3 4 5 6 7 8 9 10
Gross requirements
5 20 5 35 10
Scheduled Receipts
Projected available balance
27 22 22 2 0 0 0 0 0 0
Planned order releases
3 35 10
27
Material Requirement Planning
129 Top Handle BracketLead Time = 1
Week
1 2 3 4 5 6 7 8 9 10
Gross requirements
3 35 10
Scheduled Receipts
Projected available balance
15 15 12 12 0 0 0 0 0 0
Planned order releases
23 10
15
Material Requirement Planning
1118 Top Handle CouplingLead Time = 3Safety stock=20
Week
1 2 3 4 5 6 7 8 9 10
Gross requirements
3 35 10
Scheduled Receipts
15
Projected available balance
39 54 51 51 20 20 20 20 20 20
Planned order releases
4 10
39