Operations and Supply Chain Management The Core

SALES AND OPERATIONS PLANNING chapter 8 243
line need to be produced over the next 12 months to meet the sales forecast. The planner
takes this information and attempts to determine how best to meet these requirements with
available resources. Alternatively, some organizations combine output requirements into
equivalent units and use this as the basis for the aggregate plan. For example, a division of
General Motors may be asked to produce a certain number of cars of all types at a particular
facility. The production planner would then take the average labor hours required for
all models as a basis for the overall aggregate plan. Refinements to this plan, specifically
model types to be produced, would be reflected in shorter-term production plans.
Another approach is to develop the aggregate plan by simulating various master production
schedules and calculating corresponding capacity requirements to see if adequate
labor and equipment exist at each workcenter. If capacity is inadequate, additional requirements
for overtime, subcontracting, extra workers, and so forth are specified for each product
line and combined into a rough-cut plan. This plan is then modified by cut-and-try or
mathematical methods to derive a final and (one hopes) lower-cost plan.
Production Planning Environment
Exhibit 8.2 illustrates the internal and external factors that constitute the production planning
environment. In general, the external environment is outside the production planner’s
direct control, but in some firms, demand for the product can be managed. Through close
cooperation between marketing and operations, promotional activities and price cutting
can be used to build demand during slow periods. Conversely, when demand is strong,
promotional activities can be curtailed and prices raised to maximize the revenues from
those products or services that the firm has the capacity to provide. The current practices
in managing demand will be discussed later in the section titled “Yield Management.”
Complementary products may work for firms facing cyclical demand fluctuations. For
instance, lawnmower manufacturers will have strong demand for spring and summer, but
weak demand during fall and winter. Demands on the production system can be smoothed
out by producing a complementary product with high demand during fall and winter,
and low demand during spring and summer (for instance, snowmobiles, snowblowers,
Required Inputs to the Production Planning System
exhibit 8.2
Competitors’
behavior
Raw material
availability
Market
demand
External
to firm
External
capacity (such as
subcontractors)
Planning for
production
Economic
conditions
Current
physical
capacity
Current
workforce
Inventory
levels
Activities
required for
production
Internal to
firm