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Sales and Operations Planning (2. S&OP techniques (4) Production plan…

- - - - Tactical planning: the process of developing a set of tactical plans. (e.g., production plan, sales plan, marketing plan.)
    - - Steps:
        
        Identify all the aggregate sources of demand that could/will impact their operations;
        
        Select the type and amount of data available based on the selected manufacturing environments;
        ETO: engineering labour hours
        ATO: machine and labour hours
        MTO: order backlog
        MTS: material supply capacity
        
        Respond to mid- and long-term changes and developments.
    - - Production planning methods
        
        Level production strategy
        
        set production at a fixed rate and use inventory to absorb the variance in demand.
        Ad: stable labour costs, special customer requests, improved quality control, better cash flow, minimizes smoothing costs, reduced cost of hiring, stable workforce.
        Risk: cost of carrying excess inventory, subcontracting or overtime costs, backorder costs, cost of expedited shipping, loss of customer goodwill, using forecast data.
        
        Chase production strategy
        
        maintain a stable inventory level while varying production to meet demand.
        Ad: changes output capacity to meet demand, low inventory cost, high smoothing cost.
        Risk: insecure and unhappy employees, availability of an appropriately skilled workforce, constantly changing short-term capacity, erratic utilization of plant and equipment.
        
        Hybrid (mixed-model) production method
        
        Ad: balances large fluctuations in demand, takes into consideration volatile demand, smooth out seasonal demand.
        Risk: availability of an appropriately skilled workforce, level of coordination.
      - Differences in internal priorities
      - Impact of new product introductions
        since new product must be included in demand planning, forecasting, supply management, and production scheduling.
      - Other options
        e.g., low-cost operations plan, optimized plan, undertime, overtime, outside contracting, etc.
      - Inventory or backlog and resulting customer service tradeoffs
      - Common planning mistakes
    - - Steps:
        
        Assess the impact of production planning choices or changes on customer service and inventory investment;
        
        Compare projected revenue, cost, and profit scenarios;
        
        Analyse the impact of S&OP choices on financial statements and cash flow;
        
        Reach an agreement on one set of numbers for forecasting and sales, production, and financial planning.
- - - - Align performance goals and metrics
      - Enforce changes
      - Resolve tradeoffs btw departments before approval
    - - Hit the target
      - Maintain communication and transparency
  - - - Input: monthly information
      - Key activities:
        
        Update data from the prior month’s results (finished goods levels, forecast accuracy, on-time performance, etc.)
        
        Generate data needed for the current planning cycle and distribute those data.
        
        Update data on actual sales, inventories, production, and backlog for the month just ended.
        
        Generate new data for sales and marketing analysts to use in the new demand forecast.
      - Participants: information system analyst, forecast analyst.
      - Output: sales analysis report, sales forecasts.
    - - Input: updated sales analysis, sales forecasts
      - Key activities:
        
        Review data from step1 on the past sales performance.
        
        Create statistical forecasts for MTS products.
        
        Modify the statistical forecast to create the management forecast.
        
        Create the first-pass spreadsheet or gird for the new month’s cycle.
        
        Convert the unit sales forecast data into monetary units (dollars, euros) for use by finance and accounting.
        
        Submit the management forecast to operations.
      - Participants: demand manager, forecast analyst, sales manager, product manager, field sales staff, new products coordinator, business intelligence analyst, customer service manager, accounting manager, sales administration manager, supply chain manager, S&OP process manager.
      - Output: management forecast, first-pass spreadsheet for the new month’s cycle.
    - - Input: updated S&OP spreadsheets.
      - Key activities:
        
        Review the management forecasts in the first-pass spreadsheets from Step2.
        
        Modify existing production plans to account for changes in the forecast from Step2 and necessary adjustments in inventory or customer order backlog.
        
        Test new production plans for sufficiency of aligned and non-aligned production resources and logistics resources.
        
        Develop a list of issues that require resolution at the pre-S&OP or executive meeting.
        
        Prepare a financial analysis of the sales and operations plans.
      - Participants: accounting manager, distribution manager, logistics manager, master scheduler, material manager, new product coordinator, plant manager, production control manager, purchasing manager, quality assurance or quality control manager, supply chain manager, S&OP process manager.
      - Output: production plans, resource plans, a list of issues needing resolution.
    - - Input: any capacity constraints or out-of-tolerance conditions, a list of issues that require resolution, financial analysis of the sales and operation plans.
      - Key activities:
        Financial review meeting:
        
        Analyse the demand plan in dollars and any alternative production plans for the financial impact and feasibility.
        
        Finalize projections on the revenues, profits, cash flow, or need for capital for investments for each alternative.
        
        Provide a recommendation on the plan that best meets the organization’s financial goals and financial constraints.
        Pre-S&OP meeting:
        
        Reach an agreement and making decisions regarding balancing supply and demand and out-of-tolerance conditions.
        
        Develop alternatives for decisions referred to the executive meeting.
        
        Develop specific recommendations for each product family in third-pass spreadsheets.
        
        Develop recommendations for resources additions or reductions as in labour, shifts, equipment, and outsourcing.
        
        Set demand priorities when resources are constrained.
        
        Approve an updated financial view of the plans.
        Executive meeting:
        
        Review, accept, and modify the pre-S&OP team decisions.
        
        Make decisions on product family issues on which the pre-S&OP team did not reach consensus.
        
        Authorize significant changes in procurement and production rate.
        
        Relate the dollarized version of the S&OPs to the business plan and modify each as necessary.
        
        Review customer service performance and new product issues.
        
        Review changes to existing policies relating to supply chain and demand balancing.
        
        Create the fourth-pass spreadsheets to reflect the final decisions.
      - Participants: all functional department managers/ heads, president, S&OP process owner.
      - Output: agenda
  - - - Period (recommend: 15 to 18 months)
      - Rows
        
        Sales plan
        
        Production plan
        
        Inventory plan
      - Planning time fence
      - History
    - - Calculating level production
        
        Step1: calculating the number of employees needed
        inventoryT = expected demandT+1/ working daysT+1
        total product required = total forecast demand – beginning inventory + ending inventoryT
        planned production each period = total production required/ number of periods
        employees required each period = planned production each period/ employee productivities (days)
        
        Step2: calculate ending inventory levels and days of supply
        inventoryt = inventoryT-1 + planned productionT – forecast demandT
        days of supplyT = inventoryT /( expected demandT+1/ working daysT+!)
      - Calculating chase production
        
        Step1: calculate end-of-month inventory target values
        inventoryT = target days * (expected demandT+1/ working daysT+1)
        
        Step2: calculate the operations plan in units
        planned productionT = forecast salesT – inventoryT-1 + inventoryT
        
        Step3: calculate the number of employees required
        employeesT = planned productionT/ employee productivity
        
        Step4: calculate hires and fires (layoffs) each period
        if employeesT >= employeesT-1,
        then hiresT = employeesT – employeesT-1
        else firesT = employeesT-1 - employeesT
      - Calculating mixed production
        
        Method: trial-and-error
    - - Cost of workforce changes
        
        Cost of hiring
        
        Cost of laying off
  - - - Step1: determine bill of key resources for each product family in the production plan
      - Step2: determine the UOM for each key resource
      - Step3: determine key resource capacity availability for each resource by period
      - Step4: calculate the load on each key resource by time period
      - Step5: compare load to available capacity in each time period for each resource
      - Step6: revise the production plan or adjust capacity as necessary
      - Resource planning: to evaluate the availability of key resources and the feasibility of the production plan generated by the S&OP.
    - - Acquisitions
      - Facility start-up and shutdown
      - Hiring, layoffs, and shift changes
      - Adding and removing tooling and equipment
      - Outsourcing and subcontracting
      - Educating and training