sales and operations planning

Question 1

strategic business plan

Answer 1

• long term focus
• provides company’s direction and objectives for the next 2-10 years
• starting point for sales and operations planning
• states the company;s objectives for profitability, growth rate and return on investment

Question 2

sales and operations planning

Answer 2

• brings all the functional business plans (marketing, operations, engineering and finance) into one integrated plan
• begins with the marketing plan

Question 3

aggregate/production plan

Answer 3

• identifies the resources needed:
• aggregate productions rate, size of work force, budgeted levels of finished products, inventory, backlogs
• to support the marketing plan
• updated and reevaluated monthly

Question 4

how to deal with demand fluctuations?

Answer 4

1. demand based
   Reactive:
   using finished goods -> produce average demand levels throughout the year instead of changing every period. Extra units go into inventory
   back orders -> promises to deliver the product to customer at a later date. Dangerus because it leads to lost sale or customer loyalty -> works if your product is unique/ brand name/ lower price than competitor

Proactive:
shifting demand -> change consumer buying patterns through incentives (museum, off/on season, early bird)
works for company with high ixed cost and low variable cost
Ex: yield management (dynamically adapt prices knowing customers will pay more for resource thats limited)

2. capacity based
   Overtime -> works only for short time, reduces productivity and quality of work
   Undertime -> result of reduced demand, no desire to build inventory
   Subcontracting -> letting another company do some of the work for you, help increase output in periods of high demand (medium - long term option)
   Hiring/ firing -> long-term option, high costs

Question 5

types of aggregate plans

Answer 5

1. Level
   - maintains a constant workforce
   - capacity of labor and equipment based on average demand
   - Pro: produces the same amount each period
   - Con: inventory and backorders used to absorb demand fluctuations
   - often used for make-to-stock products ( stereos, kitchen appliance)
2. Chase
   - produce exactly what is needed to satisfy demand during each period
   - production rate changes in response to demand fluctuations
   - Pro: minimizes finished goods holding cost
   - Cons: constantly changing capacity needs and the need for enough equipment to meet peak demand
   - make to order products (custom cabinets, highly perishable)
3. Hybrid
   - any combination of options based on the company’s current situations
   - Ex: maintain stable workforce supplemented by inventory buildup and some overtime production to meet demand

Question 6

developing the aggregate plan

Answer 6

1. choose the type of plan that matches the company’s objectives: level, chase or hybrid
2. determine the aggregate production rate: average demand over all periods vs actual demand per period
3. determine size of the workforce
4. test aggregate plan: calculate inventory levels, shortages, employees hired and fired
5. Evaluate the plan’s performance in terms of
   Cost: total cost, unit cost. inventory levels Customer service: number of backorders
   Human resources: effect on workforce, employment stability
   Operations: stability of schedule, labor use

Question 7

aggregate planning in services

Answer 7

inventory is not an option for non-tangible products

• back orders are still possible but not desirable
• chase strategy: no impact
• level strategy: capacity of labor and equipment must allow meeting peak demand to avoid lost sales

Question 8

labor cost in aggregate planning in services

Answer 8

labor cost is often very critical and can be controlled by:
accurately scheduling laboring hours to respond to demand (appointments)
having an on-call labor pool to meet unexpected demand
having multi-skilled workers who can perform different tasks
having flexible work hours to meet changing demand