Chapter 19: Sales and Operations Planning

What is sales and operations planning:

a process that helps a company match what customers want (demand) to what the company can produce (supply)

aggregate operations plan

a big picture plan that decides:

- how much to produce

-how many workers needed

-how much inventory to keep for 3-18 months

factors that affect production planning:

external and internal

chase strategy:

-hire and fire when needed

level strategy:

-keeps constant production and a stable production

-same amount produced regardless of demand

-no hiring/layoffs

pros and cons of chase strategy:

Pros

Low inventory

Less holding cost

Matches customer demand closely

Cons

Hiring & layoffs

Overtime and idle time

Workforce instability

Lower morale

pros and cons of level strategy:

Pros

Stable workforce

Predictable scheduling

Easier planning

Better employee morale

Cons

High inventory costs

Risk of backorders

Storage space needed

pros and cons of mixed strategy:

Pros

More flexible than pure level

Less hiring/firing than chase

Lower inventory than level

Balances cost and stability

Cons

More complex planning

Not as simple or predictable

Requires careful coordination

4 types of relevant costs:

1) basic production costs

2) costs of changing production rate (hiring, firing, training)

3) inventory holding costs

4) backordering costs

all of this planning is important because

companies avoid running out of products, avoid wasting $ on too much inventory or labor, and they choose the cheapest way to meet customer demand

yield management

when a company changes prices/controls availability to make the most money from limited resources

helps them predict demand better, fill unused capacity, and maximize revenue

selling the right product to the right customer at the right price at the right time to maximize revenue.

when does yield management work best

-when fixed costs are high

-inventory is perishable

-customers have different demand levels

-products can be sold ahead of time

companies use yield management to

1) set logical prices

2) handle variability

3) improve the service systems

4) manage overbooking

long range, intermediate, and short range planning

-long range planning: greater than a year, annually

-intermediate-range planning: 3-18 months (weekly, monthly, quarterly)

-short range planning: 1 day to 6 months (daily/weekly)

How does sales and operations planning integrate with other functions of a business?

Sales & Marketing 👉 Tell how much customers will buy and when

Operations / Production 👉 Say how much the company can make and when

Supply Chain / Purchasing 👉 Make sure materials and suppliers are ready

Finance 👉 Make sure the plan makes financial sense

Management 👉 Approves the plan and sets priorities