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Sales and Operations Planning

Sales and operations planning is a process that involves planning future aggregate resource levels to balance supply and demand over a planning horizon, generally months or a year. It aims to minimize costs and maximize customer service by determining production, inventory, staffing and other resource levels while considering various costs, constraints, and reactive or aggressive alternatives. The outcome is a finalized monthly plan showing sales, production, inventory and other key metrics to guide more detailed production, staffing and sales planning.

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Sahil Tawde
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49 views

Sales and Operations Planning

Sales and operations planning is a process that involves planning future aggregate resource levels to balance supply and demand over a planning horizon, generally months or a year. It aims to minimize costs and maximize customer service by determining production, inventory, staffing and other resource levels while considering various costs, constraints, and reactive or aggressive alternatives. The outcome is a finalized monthly plan showing sales, production, inventory and other key metrics to guide more detailed production, staffing and sales planning.

Uploaded by

Sahil Tawde
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Sales and

Operations Planning
Sales and Operations Planning

 Broad Level Plan


 Planning Horizon, generally a year or more
 Planning Period – Generally a month
 Outcome – Finalised Monthly plan showing
Sales, Production and Inventory
 Used as input for detailed Production, Stock and
Sales Planning
Sales and
Operations Planning

 Sales and operations planning (S&OP): The


process of planning future aggregate resource
levels so that supply is in balance with demand.
 Staffing plan: A sales and operations plan of a
service firm, which centers on staffing and other
human resource–related factors.
 Production plan: A sales and operations plan of
a manufacturing firm, which centers on
production rates and inventory holdings.
Aggregation

 The sales and operations plan is useful because it


focuses on a general course of action, consistent with
the company’s strategic goals and objectives, without
getting bogged down in details.
 Product family: A group of customers, services, or
products that have similar demand requirements and
common process, labor, and materials requirements.
 A company can aggregate its workforce in various
ways as well, depending on its flexibility.
 The company looks at time in the aggregate – months,
quarters, or seasons—rather than in days or hours.
Sales and Operations Planning as
a Process
 Sales and operations planning is a decision-making
process, involving both planners and management.
 The process itself, typically done on a monthly basis,
consists of six basic steps.
Managerial Inputs from Functional
Areas to Sales and Operations Plans

Operations
Distribution and Marketing
•Current Machine Capacities
•Customer Needs
•Plans for Future Capacities
•Demand Forecasts
•Workforce Capacities
•Competitive Behavior
•Current Staffing Level

Materials Accounting and Finance


Sales and
•Supplier Capabilities •Cost Data
Operations •Financial Condition of
•Storage Capacity
•Materials Availability Plan firm

Engineering Human Resources


•New Products •Labour Market Conditions
•Product Design Changes •Training Capacity
•Machine Standards
The Relationship of
Sales and Operations Plans
to Other Plans
The Relationship of
Sales and Operations Plans
to Other Plans
  Q1 Q2 Q3 Q4 Total Costs
             
Demand 24 30 48 42 144  
Capacity            
Regular 30 35 25 30 120 30
OT 10 12   10 32 45
Subcontract 36 36 36 36 144 55

Interest Cost Rs/pc/Qtr   3


Aggregate Planning Decisions
 Decisions
 Regular time / OT / Extra Shift
 Hire and Fire workers
 Own Production / Purchase
 Produce as per demand / Use inventory
 Change demand pattern by Price change / Campaign /
Credit period
 Constraints
 Manpower – Availability / Legal / Skill / Training time
 Capacity – Own / Outsourced
 Material – Availability
 Space for storage
 Working Capital
Plan Objectives
Six objectives usually are considered during
development of a plan:

1. Minimize Costs/Maximize Profits


2. Maximize Customer Service
3. Minimize Inventory Investment
4. Minimize Changes in Production Rates
5. Minimize Changes in Workforce Levels
6. Maximize Utilization of Plant and Equipment
Constraints and Costs

The planner usually considers several types of costs when


preparing sales and operations plans.
1. Regular-Time Costs: These costs include regular-time wages
plus contributions to benefits, Social Security, retirement funds,
and pay for vacations and holidays.
2. Overtime Costs: Overtime wages typically are 150 percent of
regular-time wages.
3. Hiring and Layoff Costs: Include the costs of advertising jobs,
interviews,training programs, exit interviews, severance pay,
and lost productivity.
4. Inventory Holding Costs
5. Backorder and Stockout Costs
Reactive Alternatives

 Reactive alternatives are actions that can be


taken to cope with demand requirements.
 Anticipation inventory is inventory that can be
used to absorb uneven rates of demand or
supply.
 Workforce adjustment: Hiring and laying off to
match demand.
 Workforce utilization: Use of overtime and
undertime.
 Vacation schedules: Use of plant-wide vacation
period, vacation “blackout” periods.
Reactive Alternatives

 Subcontracting: Outsourcing to overcome


short-term capacity shortages.
 Backlogs, Backorders, and Stockouts:
 Backlog: An accumulation of customer orders
that have been promised for delivery at some
future date.
 Backorder: A customer order that cannot be
filled immediately but is filled as soon as
possible.
 Stockout: An order that is lost and causes the
customer to go elsewhere.
Aggressive Alternatives

 Aggressive alternatives are actions that


attempt to modify demand and, consequently,
resource requirements.
 Complementary products: Services or products
that have similar resource requirements but
different demand cycles.
 Creative Pricing: Promotional campaigns
designed to increase sales with creative pricing.
Planning Strategies

 Chase strategy: A strategy that involves hiring and laying


off employees to match the demand forecast.
 Level-utilization strategy: A strategy that keeps the
workforce constant, but varies its utilization to match the
demand forecast.
 Level-inventory strategy: A strategy that relies on
anticipation inventories, backorders, and stockouts to
keep both the output rate and the workforce constant.
 Mixed strategy: A strategy that considers and
implements a fuller range of reactive alternatives than any
one “pure” strategy.
Decision Support Tools
 Spreadsheets can be used, including ones
that you develop on your own.
 Input values
 Derived values
 Utilized time
 Calculated values
 The Transportation method of production
planning to solve production planning
problems assumes that a demand forecast
is available for each period, along with a
possible workforce adjustment plan.

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