Name: Gaylord J.

Garcia Subject: Operations Management

st
1 Reporter
Course/Year: BSBA 3 – FM Instructor: Eleodoro E. Bautista Jr., MBA

AGGREGATE SALES AND OPERATIONS PLANNING

OVERVIEW OF SALES AND OPERATIONS PLANNING ACTIVTIES

Sales and Operations planning (SOP)

is a process for better matching a manufacturer's supply with demand by having the
sales department collaborate with operations to create a single production plan. The broader
goal is to align daily operations with corporate strategy.

Long-range Planning
can be defined as the processes used to implement an organization’s strategic plan. It’s
about aligning the business’ long-term goals and developing action plans in line with the
strategic plan.

Intermediate Planning
involves planning for the short-term future, usually a period between six months and

two years in advance. Middle managers take care of intermediate planning. They assess the

business's available financial, human and material resources and determine how to use them.

They also assess the executive team's strategic plans and break them down into smaller, more

specific plans.
Short-Range Planning

short-range planning covers time periods of one year or less. These plans focus on

day-to-day activities and provide a concrete base for evaluating progress toward the

achievement of intermediate and long-range plans.

Master Production Schedule (MPS)

is a plan for individual commodities to be produced in each time period such as

production, staffing, inventory, etc.[1] It is usually linked to manufacturing where the plan

indicates when and how much of each product will be demanded.[2] This plan quantifies

significant processes, parts, and other resources in order to optimize production, to identify

bottlenecks, and to anticipate needs and completed goods. Since a MPS drives much factory

activity, its accuracy and viability dramatically affect profitability. Typical MPSs are created by

software with user tweaking.

Rough Cut Capacity Planning (RCCP)

is a long-term plan capacity planning tool that marketing and production use to

balance required and available capacity, and to negotiate changes to the master schedule and/or

available capacity. You can change your master schedules by changing master schedule dates

and increasing or decreasing master schedule quantities. You can change your available

capacity by adding or removing shifts, using overtime or subcontracted labor, and adding or

removing machines.
Questions and Answers:

1. What planning process involves collaborating between sales and operations to

synchronize production plans with demand?
Answer: Sales and Operations Planning (S&OP)

2. Which type of planning focuses on implementing an organization’s strategic

plan and aligning long-term goals with action plans?

Answer: Long-range planning

3. Who typically oversees intermediate planning within an organization?

Answer: Middle managers

4. Which planning phase concentrates on day-to-day activities and serves as a

basis for evaluating progress towards larger objectives?

Answer: Short-range planning

5. What is the purpose of a Master Production Schedule (MPS) in

manufacturing?

Answer: The purpose of Master Production Schedule (MPS) is to optimize production,

identify bottlenecks, and anticipate resource needs in manufacturing.
6. How does Rough Cut Capacity Planning (RCCP) aid in balancing capacity and
demand in manufacturing?

Answer: Rough Cut Capacity Planning (RCCP) aids in balancing capacity and demand in
manufacturing by adjusting master schedules and available capacity.

7. What system is used to manage manufacturing processes by ensuring sufficient

stock levels for production?

Answer: Material Requirements Planning (MRP)

8. What process evaluates whether a company’s production capacity can meet its
production goals?

Answer: Capacity requirements planning (CRP) evaluates whether a company’s production

capacity can meet its production goals.

9. How does capacity requirements planning (CRP) differ from master

production scheduling (MPS)?

Answer: Capacity requirements planning (CRP) assesses production capabilities, while

master production scheduling (MPS) focuses on production quantities and schedules.

10. What document specifies the software, maintenance, and/or services to be

provided by a vendor to a customer in a contractual agreement?

Answer: An Order Schedule specifies the software, maintenance, or services to be provided

by a vendor to a customer in a contractual agreement.

Name: Almira A. Ramoso Subject: Operations Management
nd
2 Reporter
Course/Year: BSBA 3 – FM Instructor: Eleodoro E. Bautista Jr., MBA

AGGREGATE SALES AND OPERATIONS PLANNING

THE AGGREGATE OPERATIONS PLAN

is concerned with setting production rates by product group or other broad categories for the
intermediate term (6 to 18 months). The main purpose of the aggregate plan is to specify the
optimal combination of production rate, work force level, and inventory on hand.

 Production rate - refers to the number of units completed per

unit of time (such as per hour or per day) .

 Workforce level - is the number of workers needed for production

= production rate x workforce level).

 Inventory on hand statement - is unused inventory carried out

from the previous period.

Production Planning Strategies

There are essentially three production planning strategies. These strategies involve
trade-offs among the workforce size, work hours, inventory, and backlogs.

1. Chase strategy. Match the production rate to the order rate

by hiring and laying off employees as the order rate varies.
The success of this strategy depends on having a pool of
easily trained applicants to draw on as order volumes
increase.

2. Stable workforce-variable work hours. Vary the output

by varying the number of hours worked through flexible
 work schedules or overtime. By varying the number of work
hours, you can match production quantities to orders.

3. Level strategy. Maintain a stable workforce working at a

constant output rate. Shortages and surpluses are absorbed
by fluctuating inventory levels, order backlogs, and lost
sales. Employees benefit from stable work hours at the cost
of potentially decreased customer service levels and
increased inventory costs.

Four Relevant Costs to Aggregate Production Planning:

1. Basic production costs.

These are the fixed and variable costs incurred in producing a given product
type in a given time period. Included are direct and indirect labor costs and regular as well as
overtime compensation.

2. Costs associated with changes in the production rate.

Typical costs in this category are those involved in hiring, training, and laying
off personnel. Hiring temporary help is a way of avoiding these costs. See the box titled
"Paying the Price" that details the impact on labor productivity of high labor turnover rates.

3. Inventory holding costs.

A major component is the cost of capital tied up in inventory. Other components

are storage, insurance, taxes, spoilage, and obsolescence.

4. Backordering costs.

Usually these are very hard to measure and include costs of expediting, loss of
customer goodwill, and loss of sales revenues resulting from backordering.
Questions with Answers:

1. What is the main focus of Aggregate Operations Plan?

Answer: The main focus of Aggregate Operations Plan is to set production rates by product
group or other broad categories for the intermediate term and to specify the optimal
combination of production rate, work force level, and inventory on hand.

2. What is production rate?

Answer: Production rate refers to the number of units completed per unit of time such as per
hour or per day.

3. How to determine workforce level?

Answer: Workforce level is determined by multiplying the production rate by the number of
workers needed for production.

4. What is the meaning of the Inventory on Hand statement?

Answer: Inventory on Hand statement is the unused inventory carried out from the previous
period.

5. What are the three production planning strategies?

Answer: The three production planning strategies are the chase strategy, stable workforce-
variable work hours, and level strategy.
6. Describe the chase strategy.

Answer: The chase strategy is a production planning strategy that matches the production
rate to the order rate by hiring and laying off employees as the order rate varies.

7. Explain the stable workforce-variable work hours strategy.

Answer: The stable workforce-variable work hours strategy is a production planning strategy
that varies the output by varying the number of hours worked through flexible work
schedules or overtime.

8. What is the level strategy?

Answer: The level strategy is a production planning strategy that maintains a stable
workforce working at a constant output rate. Shortages and surpluses are absorbed by
fluctuating inventory levels, order backlogs, and lost sales.

9. What are Basic Production Costs?

Answer: Basic production costs are the fixed and variable costs incurred in producing a
given product type in a given time period. It includes direct and indirect labor costs and
regular as well as overtime compensation.

10. What are the costs associated with changes in production rates?

Answer: The costs associated with changes in production rates include those involved in
hiring, training, and laying off personnel. Hiring temporary help is a way of avoiding these
costs.
Name: Regin R. Durano Subject: Operations Management
rd
3 Reporter
Course/Year: BSBA 3 – FM Instructor: Eleodoro E. Bautista Jr., MBA

AGGREGATE SALES AND OPERATIONS PLANNING

The Goal Of Aggregate Planning

is to achieve a production plan that will effectively utilize the organization’s resources
to match expected demand. Organizations make capacity decisions on three levels: long
term, intermediate term, and short term.

Long-term decisions - relate to product and service selection facility size and
location, equipment decisions, and layout of facilities. These long-term decisions
essentially establish the capacity constraints within which intermediate planning must
function. Intermediate decisions, as noted above, relate to general levels of
employment, output, and inventories, which in turn establish boundaries within which
short-range capacity decisions must be made.
Short-term decisions - essentially consist of deciding the best way to achieve desired
results within the constraints resulting from long-term and intermediate-term
decisions. Short-term decisions involve scheduling jobs, workers and equipment.

AGGREGATE PLANNING TECHNIQUES

Aggregate planning techniques can be described as proactive, reactive, or mixed.
 Proactive strategies involve demand options: They attempt to alter demand so that it
matches capacity.
 Reactive strategies involve capacity options: They attempt to alter capacity so that it
matches demand.
 Mixed strategies involve an element of each of these approaches.
 PROACTIVE – DEMAND OPTIONS: Alter demand to match capacity.
1. Pricing
2. Promotion
3. Back orders
4. New demand
1. PRICING: Pricing differentials are commonly used to shift demand from peak
periods to off-peak periods.
• Some hotels, offer lower rates for weekend stays.
• Some airlines offer lower fares for night travel.
• Movie theaters may offer reduced rates for matinees.
2. PROMOTION: Advertising and other forms of promotion, such as displays
and direct marketing, can sometimes be very effective in shifting demand.
3. BACK ORDERS: An organization can shift demand fulfillment to other
periods by allowing back orders. That is, orders are taken in one period and
deliveries promised for a later period.
4. NEW DEMAND: Develop new demand when capacity is under used. For
instance, demand for bus transportation tends to be more intense during the
morning and late afternoon rush hours but much lighter at other times. Creating
new demand for buses at other times (e.g., trips by schools, clubs, and senior
citizen groups) would make use of the excess capacity during those slack times.
Similarly, many fast-food restaurants are open for breakfast to use their
capacities more fully.

 REACTIVE – CAPACITY OPTIONS: Alter capacity to match demand.

1. Hire and lay off workers
2. Overtime
3. Part-time workers
4. Inventories
5. Subcontracting
1. HIRE AND LAYOFF WORKERS: When demand exceeds hire workers and
during off season lay off workers. Hiring costs include recruitment, and training
to bring new workers “up to speed.” Quality may suffer. An increasing number
of organizations view workers as assets rather than as variable costs and would
not consider this approach.
2. OVERTIME: The use of overtime can be attractive in dealing with seasonal
demand peaks by reducing the need to hire and train people who will have to be
laid off during the off-season. Overtime also permits the company to maintain a
skilled workforce and employees to increase earnings.
 3. PART-TIME WORKERS: Seasonal work requiring low-to-moderate job
skills lends itself to part-time workers, who generally cost less than regular
workers. Department stores, restaurants, and supermarkets make use of part-
time workers.
4. INVENTORIES: Goods produced in one period is sold or shipped them in
another period. Its storage costs cost of insurance, deterioration, spoilage,
breakage, and so on.
5. SUBCONTRACTING: Subcontracting enables planners to acquire temporary
capacity, although it affords less control over the output and may lead to higher
costs and quality problems. Conversely, in periods of excess capacity, an
organization may subcontract in, that is, conduct work for another organization.

BASIC STRATEGIES
1. Level Capacity Strategy: Maintaining a steady workforce which gives steady rate of
output while meeting variations in demand by using a combination of inventories,
overtime, subcontracting and back orders.
2. Chase Demand Strategy: Matching capacity to demand i.e, operations would be
planned to meet expected demand for that period.
3. Level Capacity Strategy: Many organizations regard a level workforce as very
appealing as changes in workforce size can be very costly, which involve hiring and
laying-off costs, and there is always the risk that there will not be a sufficient pool of
workers with the appropriate skills when needed. Such organization must resort to
some combination of subcontracting, backlogging, and use of inventories to absorb
fluctuations in demand.
 Subcontracting will result in increased costs, less control
over output, and perhaps quality considerations.
 Backlogs can lead to lost sales, increased record keeping,
and lower levels of customer service. Allowing inventories
to absorb fluctuations can lead to storage facilities cost, and
other costs related to inventories.

CHASE DEMAND STRATEGY:

A chase demand strategy presupposes a great deal of ability and
willingness on the part of managers to be flexible in adjusting to demand.
 A major advantage of this approach is that inventories can be kept
relatively low, which can yield substantial savings for an organization.
 A major disadvantage is the lack of stability in operations—the
atmosphere is one of dancing to demand’s tune. Also, when forecast and
reality differ, morale can suffer, since it quickly becomes obvious to
workers and managers that efforts have been wasted.
Questions and Answers:

1-3.) What are the three planning techniques?

Answer: Proactive Strategies, Reactive Strategies, Mixed Strategies

4.) This Approach is that inventories can be kept relatively low, which can yield
substantial savings for an organization.

Answer: A major Advantage

5.) The lack of stability in operations the atmosphere is one of dancing to

demands tune.

Answer: A major Disadvantage

6-7.) _ Can lead to lost sales, increased record keeping, and lower levels of
customer service. Allowing inventories to absorb fluctuations can lead to storage
facilities cost, and other ___.

Answer: Backlogs and Costs related to inventories

8-10.) Give me 3 Reactive capacity options.

Answer: Inventories, Overtime, Subcontracting

Name: Trisha Anne G. Mausisa Subject: Operations Management
4th Reporter
Course/Year: BSBA 3 – FM Instructor: Eleodoro E. Bautista Jr., MBA

AGGREGATE SALES AND OPERATIONS PLANNING

YIELD MANAGEMENT

can be defined as the process of allocating the right type of

capacity to the right type of customer at the right price and time to maximize revenue or
yield. Yield management can be a powerful approach to making demand more predictable,
which is important to aggregate planning. Yield management has existed as long as there has
been limited capacity for serving customers. Yield management has existed as long as there
has been limited capacity for serving customers.

Why was a sitting next to you on the plane paid half the price you paid for your ticket? Why
has a hotel room you booked more expensive when you booked it six months in advance than
when you checked in without a reservation (or vice versa)? The answers lie in the practice
known as yield management.

From an operational perspective, yield management is most effective when:

1. Demand can be segmented by customer.

2. Fixed costs are high and variable costs are low,

3. Inventory is perishable.

4. Product can be sold in advance.

5. Demand is highly variable.

OPERATING YIELD MANAGEMENT SYSTEMS

Four Kinds Of Interesting Issues Arise In Managing Yield:

1. Pricing structures must appear logical to the customer and justify the
different prices.

Such justification, commonly called rate fences, may have

either a physical basis (such as a room with a view) or a non- physical basis (like unrestricted
access to the Internet). Pricing should also relate to addressing specific capacity problems. If
capacity is sufficient for peak demand, price reductions stimulating off-peak demand should
be the focus. If capacity is insufficient, offering deals to customers who arrive during
nonpeak periods (or creating alternative service locations) may enhance revenue generation.

2. Handling variability in arrival or starting times, duration, and time

between customers.

This entails employing maximally accurate forecasting

methods (the greater the accuracy in forecasting demand, the more likely yield management
will succeed), coordinated policies on overbooking, deposits, and no-show or cancellation
penalties; and well-designed service processes that are reliable and consistent.

3. Managing the service process.

Some strategies include scheduling additional personnel to

meet peak demand; increased customer coproduction; creating adjustable capacity; utilizing
idle capacity for complementary services; and cross-training employees to create reserves for
peak periods.

4. Most critical issue is training workers and managers to work in an

environment where overbooking and price changes are standard
occurrences that directly impact the customer.

Companies have developed creative ways for mollifying overbooked customers. Such as A golf course
company offers $100 putters to players who have been overbooked at a popular tee time. Airlines, of
course, frequently give overbooked passengers free tickets for other flights.
Questions and Answers:

1. What is Yield Management?

Answer: Yield Management is the process of allocating the right type of capacity to the right
type of customer at the right price and time to maximize revenue or yield.

2. What is the importance of Yield Management in aggregate planning?

Answer: Yield Management helps to make demand more predictable, which is important to
aggregate planning.

3. What are the conditions required for Yield Management to be most effective
from an operational perspective?

Answer: The conditions required for Yield Management to be most effective are demand can
be segmented by customer, fixed costs are high and variable costs are low, inventory is
perishable, product can be sold in advance, and demand is highly variable.

4. What is the meaning of rate fences in Yield Management?

Answer: Rate fences in Yield Management refer to the justification for different prices
through either physical basis (such as a room with a view) or non-physical basis (like
unrestricted access to the Internet) to appear logical to the customer.

5. What are the strategies employed to handle variability in Yield Management?

Answer: To handle variability, it involves employing maximally accurate forecasting

methods, coordinated policies on overbooking, deposits, and no-show or cancellation
penalties, and well-designed service processes that are reliable and consistent.
6. What are the strategies to manage the service process in Yield Management?

Answer: The strategies to manage the service process are scheduling additional personnel to
meet peak demand, increased customer co-production, creating adjustable capacity, utilizing
idle capacity for complementary services, and cross-training employees to create reserves for
peak periods.

7. What is the most critical issue in Yield Management?

Answer: The most critical issue in Yield Management is training workers and managers to
work in an environment where overbooking and price changes are standard occurrences that
directly impact the customer.

8. What is the significance of forecasting in Yield Management?

Answer: The greater the accuracy in forecasting demand, the more likely Yield Management
will succeed.

9. What are the pricing structures that appear logical to the customer in Yield
Management?

Answer: In Yield Management, pricing structures must appear logical to the customer and
justify the different prices such as physical basis or non-physical basis.

10. What are some of the strategies employed by companies to mollify overbooked
customers?

Answer: Strategies include A golf course company offers $100 putters to players who have
been overbooked at a popular tee time and airlines frequently give overbooked passengers
free tickets for other flights