CHAPTER 7 – SALES AND OPERATIONS PLANNING
Dung H. Nguyen
Faculty of International Economic Relations
University of Economics and Law
‹#› Het begint met een idee
CONTENTS
Predictable variability
Managing supply
Managing demand
Sales and Operations Planning
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PREDICTABLE VARIABILITY
Predictable variability is a change in demand that can be forecast
Problems of demand change:
o High stock-outs in peak season
o Excess inventory in low season stock more in low season, the holding cost increases.
Two broad options:
o Manage supply using capacity, inventory, subcontracting, and backlogs
o Manage demand using short-term price discounts and promotions
Supply and demand management to solve problems of demand change
SALES AND OPERATIONS PLANNING (S&OP)
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MANAGING SUPPLY
Managing capacity:
o Time flexibility from workforce
o Use of seasonal workforce using tempo- staff.
o Use of subcontracting reduce the demand variation ==> the way to manage the capacity in the peak season
o Use of dual facilities – specialized and flexible
dual facilities => paralel (dual) facilities =>using in peak season
o Designing product flexibility into production processes
Managing inventory:
stock base component only => standard one can be useful in many situation rather than the final/ customised one.
o Using common components across multiple products
o Build inventory of high demand or predictable demand products
- for the peak season, the company ables to predict the damand in advance, they can stock more base on the forecast, because its error term is
small. This is because when it closer to the season, the initial cost increase, so they stock in advance to reduce the original cost, but trade-off with
inventory cost (holding cost)
- in peak season, cost, salary (wage) of labour, infredient increase
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MANAGING DEMAND
promotion -> reduce the inventory cost => increase inventory turn over.
With promotion, three factors lead to increased demand:
o Market growth
o Stealing share with the promotion, firms can steal the share from their competitors.
o Forward buying
Factors influencing timing of a promotion:
o Impact of promotion on demand
o Cost of holding inventory
o Cost of changing the level of capacity
o Product margins
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SALES AND OPERATIONS PLANNING
S&OP is a strategic planning process that reconciles conflicting business
objectives and plans future supply chain actions (CSCMP)
Aims:
o Use company’s tactical capacity resources to meet expected customer
demand
o Strike a balance between the various needs and constraints of the supply
chain partners
o Serve as a coordinating mechanism for the various supply chain partners
o Express the business’s plans in terms that everyone can understand
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SALES AND OPERATIONS PLANNING
Benefits:
o Improved forecast accuracy
o Higher customer service with lower finished goods inventory levels
o More stable supply rates, resulting in higher productivity
o Faster and more controlled new product introduction
o Enhanced teamwork at both the executive and operating levels
o Better decisions with less effort and time
o Better alignment of operational, marketing, and financial plans
o Greater accountability for results
o A window into the future to see potential problems soon enough
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SALES AND OPERATIONS PLANNING
Process:
Step 1: Generate quantitative sales forecast
Step 2: Marketing adjusts the forecast
Step 3: Operations checks forecast against existing capability
Step 4: Marketing, operations, and finance jointly review forecast and
resource issues
Step 5: Executives meet to finalize forecast and capacity decisions
this is belong to planning/ Tactical phase -> it takes long time to finish.
This could be external (means could me planning externally, outsourcing), not compusive to be internal only.
Strategic - Tactical - Operation
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SALES AND OPERATIONS PLANNING
Source: Sanders (2012)
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SALES AND OPERATIONS PLANNING (IMPLEMENTATION)
Coordinate planning across enterprises in the supply chain
Take predictable variability into account when making strategic decisions
Ensure that senior leadership owns the S&OP process
Ensure that the S&OP process modifies plans as the reality or forecasts
change
Every department have to connected, reduce the SILO effect.
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CHAPTER 7 – SALES AND OPERATIONS PLANNING
THANK YOU!
‹#› Het begint met een idee