Aggregate

Operations Planning
P421
F. Robert Jacobs
Aggregate Planning

Key element of the Sales and

Operations Planning Process
Feeds the capital budget
Game plan for production/operations
to meet expected demand
 Key Linkages in Sales & Operations Planning

Strategic
Planning

Marketing Volume Financial

Planning Planning
Sales & Operations
Planning
Demand Sales Operations Resource
Management Plan Plan Planning

Manufacturing Planning
And Control Boundary
Mix Rough-Cut
Capacity
Master Planning
Production

Scheduling Front
End
The Monthly Sales & Operations Planning Process

STEP 5
EXEC decisions
S&OP authorized game plan
MEETING

STEP 4
recommendations and agenda
PRE-S&OP
MEETING for Executive S&OP

STEP 3
capacity constraints
SUPPLY
PLANNING 2nd-pass spreadsheets
PHASE

STEP 2
management forecast
DEMAND 1st-pass spreadsheets
PLANNING
PHASE

STEP 1
RUN statistical forecasts
SALES field sales worksheets
FORECAST
REPORTS

end of month
 Sales & Operations Planning Calendar

Monday Tuesday Wednesday Thursday Friday

1 2
Demand Management 12:00 PM-Sales Closing 12:00 PM-Send On Time
Compete Shipments Reports (Email)
Production Planning 12:00 PM-Scheduled Trials Due
Inventory Management to Master Scheduler
12:00 PM-Inventory Reports
SOP Meetings Due to Demand Mgr from Plants
5 6 7 8 9
12:00 PM-Production Plan to 2:00 PM-On Time Shipments 2:00 PM-Supply Planning 9:00 AM-Final Forecast Due to 12:00 PM-Send On Time
Ops Meeting Ops Analysis Shipments Reports (Email)

12 13 14 15 16
2:00 PM-On Time Shipments 2:00 PM-Capacity Call 12:00 PM-Send SOP Agenda / 12:00 PM-Send On Time
Spreadsheets (Email) Shipments Reports (Email)

19 20 21 22 23
1:00 PM-Op & Eng Meeting 8:00 AM-Op & Eng Meeting 12:00 PM-Send On Time
2:00 PM-On Time Shipments 1:00 PM-SOP Meeting Shipments Reports (Email)
5:00 PM-Forecast Feedback to 4:00 PM-Send SOP Meeting
Sales Notes (Email)

26 27 28 29 30
9:00 AM-Sales Forecast Due to 2:00 PM-On Time Shipments 1:00 PM-Final Forecast Due to 8:30 AM-Production Planning 12:00 PM-Send On Time
Demand Mgr. Demand Mgr from BUDs 1:00 PM-Forecast Due to Shipments Reports (Email)
5:00 PM-Sales Forecast Due to 2:00 PM-Capacity Call Master Scheduler
BUDs
 XYZ Company AA Product Family
Monthly Sales Forecast
16
15
14
13
12
11
10
Forecasted monthly
sales ($ millions)

9
8
7
6
7.6 8.4 10.2 9.0 11.8 7.0 8.6 12.6 14.4 12.8 15.8 11.8
5
4
3
2
1
June
April
March

July
February

November

December
May

October
August
January

September

Total sales for the year = $130 million

 Sales/Demand Planning
Sales History Plan
Oct Nov Dec Jan Feb Mar Apr
Forecast in Millions $10.0 $13.1 $6.9 $7.6 $8.4 $10.2 $9.0
in 000
units 333 437 230 253 280 340 300

in 000
Actual units 300 400 200

Diff: Month -33 -37 -30

Cumulative -70 -100

 Sales/Demand Planning

This is not just an exercise in running statistical

forecasting models.
The firm needs a single realistic estimate of what
demand we are going to meet in the future.
All effort will be made to meet this expectation
Sales/marketing incentives to sales staff
Special pricing/deals to customers
Management of future certain demand
backlogging/pulling forward orders, for example.
 Production Planning

Given agreement on what we expect demand to be,

we need a plan for meeting that demand.
Many options available a strategy needs to be
developed
Chase change production levels to meet demand
Vary workforce, overtime, subcontract, etc.
Level production Constant workforce and
production rate
Build and draw from inventory during low and high demand
periods
Mixed strategies combinations of the above
strategies
Inventory Planning

Often a company will have maximum

and minimum target levels
Max target limits the investment
great risk of obsolescence if we carry
too much inventory.
Min target relates to risk of stocking
out.
 XYZ Company Cumulative Chart

130

120

110
Cumulative production
100 at a level
production rate
90
Cumulative sales (millions of $)

80
Cumulative
70 sales and
cumulative
production with
60 a chase
strategy
50

40

30

20

10

J F M A M J J A S O N D

Months
 The Aggregate Planning
Model
A fundamental relationship exists between demand,
production and inventory
Ending Inventory = Beginning Inventory + Supply
Demand
Supply represents all sources (i.e. regular production,
overtime production, subcontracting, etc.)
The model needs to have enough detail to allow the
economic evaluation of the plan (i.e. cost of hiring and
firing employees, overtime cost, subcontracting cost,
cost of lost sales, etc.)
Aggregate Planning In Class
Exercise
See handout and spreadsheet.
Develop a level, chase and mixed
plan.
Optimizing Aggregate Plans
Using Excel Solver
Be sure to review material on pp. 433-436
in the book.
Key things to remember:
To guarantee that solver can find an optimal
solution there can be no functions in the
spreadsheet. @if and integer functions
cannot be used, for example.
Also, consider that there may be many very
similar solutions from a cost view. It is
important to experiment a little with different
solutions.
 Aggregate Operations Planning
- Summary
A plan that coordinates the sales and operations
functions in the firm.
Major strategic implications for the firm.
How responsive do we need operations to be?
Major asset implications
How well can we manage demand?
Whether we are outsourcing or producing product
ourselves S&OP is a fundamental process that
needs to be done well to be successful.
 Globe Refrigeration
Use the teams we formed last week.
Answer the questions at the end of the case.
Format management report discussing the
alternatives, showing results. 2-3 pages plus
exhibits.
Make a specific recommendation to
management.
Due on Sept 25th.
Be prepared to make a short 5 minute
presentation of your results.