Topic 4: Sales and operations planning

Sales and operations planning (S&OP) is a process that helps firms provide better customer
service, lower inventory, shorter customer lead times, stabilize production rates & give top
mgmt a hand on the business

Process designed to:

- coordinate activities in the field with the manufacturing & service functions that are
required to meet demand over time
- help a company get D&S in balance + keep the balance over time

(at both aggregate (major groups of products) & detailed, individual product level)

S&OP is the result of planning activities and it is composed of 5 main steps: data gathering,
demand planning, supply planning, pre-meeting and executive meeting

3. Types of planning

• Long-rage planning: horizon >1 year. Done annually

• Intermediate-range: 3-18 months. Weekly, monthly, or quarterly time increments

• Short-range: period from 1 day – 6 months. Daily or weekly time increments

4. Overview of sales & operations planning activities

• Aggregate operations plan

o Concerned with: setting production rates by product group / other broad categories for the
intermediate term (3-18 months)

o Main purpose: specify the optimal combination of production rate, workforce level, and
inventory on hand

o Aggregation on supply side – done by product families, demand – groups of customers

• External environment

o Outside the production planner’s direct control (some firms can manage D tho)

o For firms w/ cyclical demand fluctuationsàcomplementary products

o With services: cycles are often measured in hours > months

5. Production planning strategies

• Chase strategy

- “produce to exact monthly production requirements by varying workforce size”

- Match production rate by hiring/firing & laying off employees

- Low inventory levels

• Stable workforce (variable work h)

- “produce to meet expected avg D by keeping workforce cte”

- Vary the no of h worked through flexible work schedules / overtime

• Level strategy

- “produce to meet expected D for all but the 1st 2 months using a cte workforce & use
overtime to meet additional output requirements”

- D changes are absorbed by fluctuating inventory levels, order backlogs, lost sales

- Production rate is cteàinventory levels change depending on D

• Subcontracting

- “produce to meet the minimum expected D using a cte workforce & subcontract to meet
additional requirements”

• Pure strategy
o When just 1 approach is used to absorb D fluctuations
• Mixed strategy
o When 2/+ approaches are used. Managers may also subcontract

5.1 Relevant costs

• Basic production costs

- FC & VC incurred in production in a given time period

• Costs associated with changes in the production rate o Hiring, training, and laying off
personnel

• Inventory holding costs

• Backorder costs

Plan frequency and planning horizon depend on the specifics of the context. Short product
life cycles and high demand volatility require a tighter S&OP than steadily consumed
products. Done well, the S&OP process also enables effective supply chain management.
The Sales and Operations planning process has a twofold scope. The first scope is the
horizontal alignment to balance the supply and demand through integration between the
company departments and with suppliers and customers. The second aim is the vertical
alignment amid strategic plan and the operational plan of a company

The inputs could be: demand plans, sales/demand forecasts, demand impacts, marketing
actions and sales actions, procurement and supply plan, supplier lead time, constraints from
the supplier and other information, supply capacity, production and capacity plan, Inventory,
work-force level, operational constraints, production lead time, flexibility, contingencies,
distribution plan and distribution capacity, lead time for the delivery, transportation status,
service level targets, constraints, budgets. The main output from S&OP is the integration of
the plans of Marketing, Sales, Operations and Finance.

The goals of S&OP could be classified in these categories: alignment and integration,
operational improvement (improvement of the operational performance, improve forecast
accuracy), results focused on a single perspective (for instance, improve supply chain
performance, improve customer service), results based on trade off (for example, optimize
customer service versus inventory), end results (such as gross profit, contribution margins).

Topic 5: short term programming/scheduling

Scheduling assigns resources over time to accomplish an organization’s tasks. The process of
scheduling starts with capacity planning, which involves facility and equipment acquisition.

In the aggregate planning stage, decisions regarding use of facilities,inventories, people and
subcontractionh are made. Them MPS develops an schedule for outputs. Short term schedule
then translates capacity decisions, planning and master schedules into job sequences, specific
asignments of personnel, materials and machinery. Therefore the goal is to schedule goods
and services in the short run (weekly,daily,hourly basis.)

Scheduling involves assigning due dates to specific jobs but many jobs compete
simoultaneously for the same resources. To adress these difficulties in scheduling we can
categorize scheduling techniques as forward and backward scheduling:

- Forward scheduling starts the schedule as soon as requirements are known. Its usualy
used in facilities where jobs are performed to customer order and delivery is requested
as soon as possible (hospital or restaurants). Its usually designed to produce a
schedule that can be accomplished even if it means not meeting the due date. Can
cause build up of WIP.
- Backward scheduling begins with the due date, scheduling the final operation first.
Steps in the job are then schedule one at a time in reverse order. By subcontracting the
lead time for each item, we can obtain the start time. The resources required to
complete the schedule might not exist.

In practice, usually a combination of the 2 is used to find a reasonable trade off.

The correct scheduling technique depends on the volume of orders, nature of operations
and overall complexity of jobs. The four scheduling criterias are:
 1. Minimizing completion time
2. Maximize utilization (% time the facility is used)
3. Minimize work in progress inventory (evaluated by determining the average number
of jobs in the system)
4. Minimize customer waiting time

Many firms have difficulty scheduling because they ooverload the production process.
Input output control is a technique that allows operations personnel to manage facility
workflows. If work is arriving faster that its processed we can develop backlog.
Conversely, if the work is arriving slower , the work center may run our of work. To
manage this, operations personnel can: correct performance, increase facility size or
increase/reduce input to the work center.

Lastly, Gantt charts are visual aids that are useful in loading and scheduling, they help
describe the use of resources and display the relative workloasa in the system so the
manager can adjust it appropiately.

Topic 6: JIT Techniques

Just in time models keep the minimum inventory necessary to create a perfect system
running. The exact ammount of good items arrive at the moment they are needed.

Some techniques used in JIT and lean are:

Kanban: One way to achieve small lot sizes is to move inventory through the shops only
when it is needed, rather than “pushing” it to the next workstation, whether the workstation
personnel are ready to receive it or not. As mentioned earlier, when inventory is moved only
when it is needed, it is said to be a pull system, and the ideal lot size is one unit. The Japanese
call this system kanban. Kanbans allow arrivals at a work center to equal (or nearly equal) the
process time.

Kanban is a Japanese word meaning card. In their effort to reduce inventory, the Japanese use
systems that pull inventory through work centers. Many times they use a “card” to signal the
need for another container of material (hence the name kanban). The card is the authorization
for the next container of material to be produced. Normally, there is a kanban signal for each
container of items to be produced. For each kanban, an order is then initiated for the
corresponding container and is “pulled” from (produced in) the production department or
from the supplier. A sequence of kanbans “pulls” the material through the plant.

In many installations the system has been modified so that, although it is still called a kanban,
there are no cards. In some cases, a hole in the workshop floor is sufficient indication that the
next container is needed. In other cases, any sign, such as a flag or a rag, signals that it is time
for the next container.

Since the early days of the 20th century, managers have focused on “housekeeping,” and all
that goes with having a neat, clean and efficient workplace. In recent years, operations
managers have embellished “housekeeping” by including a checklist known as the 5 S6s. The
Japanese developed the initial 5 Ss. The 5 S's are not only a good checklist for lean
operations, but also provide a simple means to assist in the cultural change that is often
necessary to achieve lean operations. The 5 S's are explained below:

- Sort/set aside: keep what is needed and set everything else aside from the work area; when
in doubt, take it out. Identify items that have no value and remove them. Getting rid of these
items saves space and usually improves workflow.

- Simplify/sort: Sort and use method analysis tools (see Chapters 7 and 10 of the Strategic
Decisions volume) to improve workflow and reduce wasteful movements. Analyze short- and
long-term ergonomic issues.

- Sweep: clean daily; remove all dirt, contamination and clutter from the work area.

- Standardize: eliminate process variations by developing standard operating procedures and

checklists; good standards make the abnormal obvious. Standardize equipment and tools so
that the time and cost of multidisciplinary training is reduced. Train and retrain the team so
that when deviations occur they are quickly noticed by all.

- Maintain/self-discipline: review periodically to recognize efforts and to motivate so that

progress is maintained. Use visuals whenever possible to communicate and maintain
progress.

U.S. managers often add two additional S's that contribute to establishing and maintaining a
lean workplace:

- Safety: develop good safety practices in the five activities above.

- Support/maintenance: reduce variability, unplanned downtime and costs. Integrate daily

cleaning activities with preventive maintenance.