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Chapter 14
How Sales and Operations Planning fits the Operations Management Philosophy
Process Strategy Process Analysis Process Performance and Quality Constraint Management Process Layout Lean Systems
Supply Chain Strategy Location Inventory Management Forecasting Sales and Operations Planning Resource Planning Scheduling
Planning at Whirlpool
Whirlpool begins production of room air conditioners in the fall and holds them as inventory until they are shipped in the spring. Building inventory in the slack season allows the company to even out production rates over much of the year and still satisfy demand in the peak periods. However, when summers are hotter than usual, demand increases dramatically and stockouts can occur. If Whirlpool increases its output and the summer is hot, it stands to increase its sales and market share. But if the summer is cool, the company is stuck with expensive inventories. Whirlpool prefers to make its production plans based on the average year, taking into account industry forecasts for total sales and traditional seasonalities.
2007 Pearson Education
Aggregation
The sales and operations plan is useful because it focuses on a general course of action, consistent with the companys strategic goals and objectives, without getting bogged down in details. Product family: A group of customers, services, or products that have similar demand requirements and common process, labor, and materials requirements. A company can aggregate its workforce in various ways as well, depending on its flexibility. The company looks at time in the aggregate months, quarters, or seasonsrather than in days or hours.
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Plan Objectives
Six objectives usually are considered during development of a plan:
1. Minimize Costs/Maximize Profits
Reactive Alternatives
Reactive alternatives are actions that can be taken to cope with demand requirements. Anticipation inventory is inventory that can be used to absorb uneven rates of demand or supply. Workforce adjustment: Hiring and laying off to match demand. Workforce utilization: Use of overtime and undertime. Vacation schedules: Use of plant-wide vacation period, vacation blackout periods.
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Reactive Alternatives
Subcontracting: Outsourcing to overcome short-term capacity shortages. Backlogs, Backorders, and Stockouts:
Backlog: An accumulation of customer orders that have been promised for delivery at some future date. Backorder: A customer order that cannot be filled immediately but is filled as soon as possible. Stockout: An order that is lost and causes the customer to go elsewhere.
Aggressive Alternatives
Aggressive alternatives are actions that attempt to modify demand and, consequently, resource requirements. Complementary products: Services or products that have similar resource requirements but different demand cycles. Creative Pricing: Promotional campaigns designed to increase sales with creative pricing.
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Planning Strategies
Chase strategy: A strategy that involves hiring and laying off employees to match the demand forecast. Level-utilization strategy: A strategy that keeps the workforce constant, but varies its utilization to match the demand forecast. Level-inventory strategy: A strategy that relies on anticipation inventories, backorders, and stockouts to keep both the output rate and the workforce constant. Mixed strategy: A strategy that considers and implements a fuller range of reactive alternatives than any one pure strategy.
2007 Pearson Education
Hallmark Strategy
Hallmark spends considerable resources to effectively produce and distribute more than 40,000 different products through 43,000 retail outlets in the United States alone. Hallmark has never used layoffs to adjust production rates. Employee flexibility is the key to this strategy. Hallmark follows a philosophy of retraining its employees continually to make them more flexible. To keep workers busy, Hallmark shifts production from its Kansas City plant to branch plants in Topeka, Leavenworth, and Lawrence, Kansas, to keep those plants fully utilized. It uses the Kansas City plant as its swing facility. When demand is down, Kansas City employees may take jobs in clerical positions, all at factory pay rates. They might also be in classrooms learning new skills.
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Chase Strategy
Application 14.1
Level-Utilization Strategy
Application 14.2
Mixed Strategy
Application 14.3
Key Ideas: Hire only 7 in quarter 3, making maximum use of overtime to compensate. Reduce the amount of undertime in quarter 3. Reduce the layoffs required in quarter 4.
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The Transportation method of production planning to solve production planning problems assumes that a demand forecast is available for each period, along with a possible workforce adjustment plan.
2007 Pearson Education
Spreadsheet
4-period Worksheet
Spreadsheet
6-period Worksheet
Maximum overtime in any quarter is 20 % of regular-time capacity. The subcontractor can supply a maximum of 200,000 gallons per quarter. Production can be subcontracted in one period and the excess held in inventory for a future period to avoid a stockout. No backorders or stockouts are permitted.
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The first row shows that 230 units of the initial inventory are used to help satisfy the demand in quarter 1. The remaining 20 units in the first row are earmarked for helping supply the demand in quarter 3. The sum of the allocations across row 1 (230 + 0 + 20 + 0) does not exceed the maximum capacity of 250, given in the right column so there is unused capacity
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Application 14.4
The Bull Grin Company makes an animal-feed supplement. Sales are seasonal, but Bull Grin's customers refuse to stockpile the supplement during slack sales periods; they insist on shipments according to their schedules to stockpile the supplement during slack sales periods and wont accept backorders. The reactive alternatives that they use, in addition to work-force variation, are regular time, overtime, subcontracting, and anticipation inventory. Backorders are not allowed. Bull Grin employs workers who produce 1,000 pounds of supplement for $830 on regular time and $910 on over-time. Holding 1000 pounds of feed supplement in inventory per quarter costs $100. There is no cost for unused regular-time, overtime or subcontracting capacity.
2007 Pearson Education
Transportation Method
Application 14.4
Transportation Method
Application 14.4
Solved Problem 1
The Cranston Telephone Company employs workers who lay telephone cables and perform various other construction tasks. Each worker puts in 600 hours of regular time per planning period and up to 100 hours overtime. Above is the estimate of the workforce requirements over the next four planning periods: Regular-time wages are $6,000 per employee per period for any time worked up to 600 hours, and $15 per hour over 600 hours. Hiring a new employee costs $8,000. Layoff costs are $2,000 per employee. Currently, 40 employees work for Cranston in this capacity. No delays in service, or backorders, are allowed. Using the spreadsheet approach, prepare a chase strategy using only hiring and layoffs. What are the total numbers of employees hired and laid off? Develop a workforce plan that uses the level-utilization strategy. Maximize the use of overtime during the peak period so as to minimize the workforce level and amount of undertime. Propose an effective mixed-strategy plan. Compare the total costs of the three plans.
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Chase Strategy
The chase strategy workforce is calculated by dividing the demand for each period by 600 hours. This strategy calls for a total of 20 workers to be hired and 40 to be laid off during the four-period plan.
Level-Utilization Strategy
The level-utilization strategy calls for three employees to be hired in the first quarter and for none to be laid off.
Mixed Strategy
The mixed-strategy plan uses a combination of hires, layoffs, and overtime to reduce total costs. The workforce is reduced by 5 at the beginning of the first period, increased by 8 in the third period, and reduced by 13 in the fourth period. The plan was developed by trial and error. Additional improvements to the mixed strategy are possible.