OM 16 AggSales&OpsPlanning

8/3/2019 OM 16 AggSales&OpsPlanning

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Aggregate Sales and Operations

PlanningSelected Slides from Jacobs et al, 9th Edition

Operations and Supply Management

Chapter 16Edited, Annotated and Supplemented by

Peter Jurkat


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Sales and Operations Planning Activities

Long-range planning Greater than one year planning horizon

Usually performed in annual increments

Medium-range planning Six to eighteen months

Usually with weekly, monthly or quarterlyincrements

Short-range planning One day to less than six months

Usually with weekly or daily increments

16-2


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Process planning

Strategic capacity

planning

Sales and operations

(aggregate) planning

Sales plan Aggregateoperations

plan

Supply network

planning

Forecasting and

demand management

Master scheduling

Material requirements

planning

Order scheduling

Vehicle capacity

planning

Vehicle loading

Vehicle dispatching

Warehouse receipt

planning

Weekly workforce

(regular/overtime,

subcontracting, etc.)scheduling

Daily workforce

scheduling

Manufacturing Logistics

Services

Long

range

Medium

range

Short

range

16-3


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The Aggregate Operations Plan

Main purpose: Specify the optimalcombination of production rate (units completed per

unit of time)

workforce level (number of workers) inventory on hand (inventory carried

from previous period) Product group or broad category

(Aggregation)

This planning is done over anintermediate-range planning period of 3to 18 months

16-4


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Balancing Aggregate Demand

and Aggregate Production Capacity

0

2000

4000

6000

8000

10000

Jan Feb Mar Apr May Jun

45005500

7000

10000

8000

6000

0

2000

4000

6000

8000

10000

Jan Feb Mar Apr May Jun

4500 4000

90008000

4000

6000

Suppose the figure to the

right represents forecast

demand in units

Now suppose this lowerfigure represents the

aggregate capacity of the

company to meet demand

What we want to do isbalance out the

production rate, workforce

levels, and inventory to

make these figures match

up

16-5


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Required Inputs to the Production Planning System

Planningfor

production

External

capacity

Competitors'behavior

Raw materialavailability

Marketdemand

Economic

conditions

Current

physical

capacity

Current

workforce

Inventory

levels

Activities

required

for

production

External

to firm

Internal

to firm

16-6


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Key Strategies for Meeting Demand

Chase adjust production to just meet

demand for every period Level - produce at constant level (often that

required to meet demand in period ofminimum demand, adjust with overtime,subcontractors, etc)

Stable workforce find some workforce leveland stick to it, adjust with overtime, etc.)

Find workforce level, overtime,subcontracting by hiring/firing to minimizeoverall cost of production for entire timehorizon

16-7


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Aggregate Planning Examples: Unit Demand and Cost Data

Materials $5/unit

Holding costs $1/unit per mo.

Marginal cost of stockout $1.25/unit per mo.

Hiring and training cost $200/workerLayoff costs $250/worker

Labor hours required .15 hrs/unit

Straight time labor cost $8/hour

Beginning inventory 250 unitsProductive hours/worker/day 7.25

Paid straight hrs/day 8

Suppose we have the following unit demand and cost information:

Demand/mo Jan Feb Mar Apr May Jun

4500 5500 7000 10000 8000 6000

16-8

SeeAggregatePlanning.xls - Assignment: expand to include

overtime and subcontractors

find minimum cost plan


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Yield Management

Allocating resources to customers at variousprices that will maximize yield or revenue if

1. Service or product can be sold in advance of

consumption2. Demand fluctuates

3. Capacity is relatively fixed

4. Demand can be segmented

5. Variable costs are low and fixed costs arehigh


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DemandCurve

Yield Management Example

Passed-upcontribution

Money lefton the table

Potential customers exist who arewilling to pay more than the $15variable cost of the room

Some customers who paid $150were actually willing to paymore for the roomTotal

$ contribution= (Price) x (50

rooms)= ($150 - $15)

x (50)= $6,750

Price

Room sales

100

50

$150

Price chargedfor room

$15

Variable costof room

All rooms at same price


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Total $ contribution =(1st price) x 30 rooms + (2nd price) x 30 rooms =

($100 - $15) x 30 + ($200 - $15) x 30 =$2,550 + $5,550 = $8,100

DemandCurve

Yield Management Example

Price

Room sales

100

60

30

$100

Price 1for room

$200

Price 2for room

$15

Variable costof room

Different rooms at different prices


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Yield Management Matrix

D

uration

ofuse

Unpredicta

ble

Predictable

Price

Tend to be fixed Tend to be variable

Quadrant 1: Quadrant 2:

Movies Hotels

Stadiums/arenas AirlinesConvention centers Rental cars

Hotel meeting space Cruise lines

Quadrant 3: Quadrant 4:

RestaurantsGolf courses Hospitals

Internet serviceproviders


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Making Yield Management Work

1. Multiple pricing structures must befeasible and appear logical to thecustomer

2. Forecasts of the use and duration ofuse

3. Changes in demand

Documents

OM 16 AggSales&OpsPlanning