Sales and Operations Planning

Spring, 2014

Supply Chain Management:Strategy, Planning, and Operation

Chapter 9

Byung-Hyun Ha

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Contents

Introduction

Managing supply

Managing demand

Further discussion

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Introduction

Predictable variability Change in demand that can be forecasted Results of sales planning (a kind of demand planning or

shaping)

Maximizing profitability in aggregate planning Managing supply

• Production capacity, inventory

Managing demand• e.g., by sales planning

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Managing Supply

Managing capacity Time flexibility from workforce Use of seasonal workforce Use of subcontracting Use of dual facilities – dedicated and flexible Designing product flexibility into production processes

Managing inventory Using common components across multiple products Building inventory of high demand or predictable demand

products

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Managing Demand

Demand increases by promotion Market growth

• Increased sales, increased market size

Stealing share• Increased sales, same market size

Forward buying• Same sales, same market size

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Managing Demand

Example: Red Tomato Tools (1) Promotion effect in a specific period

• Unit price: $40

• Period demand increase by 10% for $1 discount

• Forward-moving of 20% of two following months’ demand

Change in demand by promotion• Original

• Discounting price in January

• Discounting price in April

Jan Feb Mar Apr May Jun

1,600 3,000 3,200 3,800 2,200 2,200

Jan Feb Mar Apr May Jun

3,000 2,400 2,560 3,800 2,200 2,200

Jan Feb Mar Apr May Jun

1,600 3,000 3,200 5,060 1,760 1,760

Profit:$217, 725

Profit:$221, 485

Profit:$211,283

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Managing Demand

Example: Red Tomato Tools (2) Large increase demand from promotion

• Unit price: $40

• Period demand increase by 100% for $1 discount

• Forward-moving of 20% of two following months’ demand

Change in demand by promotion and its results• Original

• Discounting price in January

• Discounting price in April

Jan Feb Mar Apr May Jun

1,600 3,000 3,200 3,800 2,200 2,200

Jan Feb Mar Apr May Jun

4,400 2,400 2,560 3,800 2,200 2,200

Jan Feb Mar Apr May Jun

1,600 3,000 3,200 8,480 1,760 1,760

Profit:$217, 725

Profit:$242, 801

Profit:$247, 320

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Managing Demand

Example: Red Tomato Tools (3) Large increase demand from promotion

• Unit price: $31

• Period demand increase by 100% for $1 discount

• Forward-moving of 20% of two following months’ demand

Change in demand by promotion and its results• Original

• Discounting price in January

• Discounting price in April

Jan Feb Mar Apr May Jun

1,600 3,000 3,200 3,800 2,200 2,200

Jan Feb Mar Apr May Jun

4,400 2,400 2,560 3,800 2,200 2,200

Jan Feb Mar Apr May Jun

1,600 3,000 3,200 8,480 1,760 1,760

Profit:$73,725

Profit:$84,410

Profit:$69,120

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Managing Demand

Impact on promotion timing

Factor Impact

High forward buying

High ability to steal market share

High ability to increase overall market

High margin

Low margin

High manufacturer holding costs

High costs of changing capacity

High retailer holding cost

High promotion elasticity of consumer

Favor promotion during low-demand periods

Favor promotion during peak-demand periods

Favor promotion during peak-demand periods

Favor promotion during peak-demand periods

Favor promotion during low-demand periods

Favor promotion during low-demand periods

Favor promotion during low-demand periods

Decreases forward buying by retailer

Decreases forward buying by retailer

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Further Discussion

S&OP as an optimization problem?

Implementing in Practice Coordinate planning across enterprises in the supply chain Take predictable variability into account when making strategic

decisions Design S&OP to understand and manage the drivers of demand

usage Ensure that the S&OP process modifies plan as the reality or

forecasts change