Operations and Supply Chain Management The Core

SALES AND OPERATIONS PLANNING chapter 8 253
greater the accuracy in forecasting demand, the more likely yield management will succeed);
coordinated policies on overbooking, deposits, and no-show or cancellation penalties;
and well-designed service processes that are reliable and consistent.
A third issue relates to managing the service process. Some strategies include scheduling
additional personnel to meet peak demand; increasing customer self-service; creating
adjustable capacity; utilizing idle capacity for complementary services; and cross-training
employees to create reserves for peak periods.
The fourth and perhaps most critical issue is training workers and managers to work
in an environment where overbooking and price changes are standard occurrences that
directly impact the customer. Companies have developed creative ways of mollifying overbooked
customers. A golf course company offers $100 putters to players who have been
overbooked at a popular tee time. Airlines, of course, frequently give overbooked passengers
free tickets for other flights.
CONCEPT CONNECTIONS
LO8–1 Understand what sales and operations planning is and how it coordinates
manufacturing, logistics, service, and marketing plans.
∙ The output of the sales and operation planning process is the aggregate plan.
∙ The aggregate plan is a high-level operational plan that can be executed by the operations
and supply chain functions.
∙ The process brings together marketing and sales, distribution and logistics, operations,
finance, and product development to agree on the best plan to match supply with demand.
∙ The input into the process is the sales plan developed by marketing.
∙ Typically, aggregation is done by product families and by groups of customers, and the plan
is completed using these aggregate supply and demand quantities.
∙ Outputs of the plan are planned production rates, aggregate labor requirements, and expected
finished good levels.
∙ Cost minimization is typically a major driver when finding a plan.
Aggregate operations plan A plan for labor and production for the intermediate term with the
objective to minimize the cost of resources needed to meet the demand.
Sales and operations planning (S&OP) The process that companies use to keep demand and
supply in balance by coordinating manufacturing, distribution, marketing, and financial plans.
Long-range planning One year or more.
Intermediate-range planning 3 to 18 months.
Short-range planning A day to six months.
Production rate Number of units completed per unit of time.
Workforce level Number of workers needed in a period.
Inventory on-hand Inventory carried from the previous period.
Production planning strategies Plans for meeting demand that involve trade-offs in the
number of workers employed, work hours, inventory, and shortages.
Pure strategy A simple strategy that uses just one option, such as hiring and firing workers, for
meeting demand.
Mixed strategy A more complex strategy that combines options for meeting demand.