You are on page 1of 31

Aggregates Sales and

Operations Planning

Definition:
Aggregates Sales
The Collective Amount of sum of the price, good and
services.
Whole amount.
Operation Planning
Define as a plan prepared by a component of an
organization that clearly defines action it will take to
support the strategic, objectives and plan of upper
management.

Overview of Sales and Operation


Sales and Operations planning
-it is a decision-making process, to balance demand and
supply, to align volume and mix and to integrate financial
and operating plans.
-The S&OP includes an updated forecast that leads to a
sales plan,production plan, inventory plan, customer
lead time (backlog) plan, new product development plan,
strategic initiative plan and resulting financial plan.
-Generally, the sales and operations planning is done
once in a month. It associates the business and the

Long Range Planning


is done for company's long term actions i.e. more than
one year

Medium-range planning
is done for the coming 3 to 18 months, with weekly,
monthly or quarterly time increments.

Short-range planning
is for periods ranging from one day to six months, with
daily or weekly time increments.

Process Planning
is done for accessing the new technologies and
improved processes for developing products or services.

Strategic Planning
is done to determine the long-term needs for the
production like incre asing the number of factories.

Sales & Operational Plan


is done to determine the long-term needs for the
production like incre asing the number of factories.

MPS Master Production Schedule


AMaster Production Scheduleor MPS is the plan that a company has
developed forproduction, inventory, staffing, etc. It sets the quantity of
each end item to be completed in each week of a short-range planning
horizon. AMaster Production Scheduleis themasterof allschedules.
The MPS consists of the dates and the amounts of specific items required
for each order. Rough capacity planning checks the production and
warehouse units. It also monitors the equipment, labour and material
availability. MRP uses the end product requirements from the MPS and
finds out the component parts and subassemblies requirement for creating
the material plan. The plan tells when the production and purchase orders
are placed so that the products are made as per schedule. The Capacity
requirement for the production is also done during the MRP. Order
scheduling specifies the daily and weekly action plan for production lines
and work place.

Rough Cut Capacity


RCCP verifies that you have
sufficientcapacityavailable to meet
thecapacityrequirements for your master schedules.
RCCP is a long-termplan capacity planningtool that
marketing and production use to balance required and
availablecapacity, and to negotiate changes to the
master schedule and/or availablecapacity.
-Rough-cut capacity planning(RCCP) RCCP is the
process of converting the master production schedule
into requirements for key resources, typically labor,
machinery, warehouse space, supplier capabilities, and
sometimes money.

Material Requirement Planning

MRP
MRP is a planning tool geared specifically to assembly operations. The aim is to
allow each manufacturing unit to tell its supplier what parts it requires and
when it requires them. The supplier may be the upstream process within the
plant or an outside supplier.
-The first MRP systems of inventory management evolved in the 1940s and
1950s. They used mainframe computers to explode information from a bill of
materials for a certain finished product into a production and purchasing plan
for components. Before long, MRP was expanded to include information
feedback loops so that production personnel could change and update the
inputs into the system as needed. The next generation of MRP, known as
manufacturing resources planning or MRP II, also incorporated marketing,
finance, accounting, engineering, and human resources aspects into the
planning process. A related concept that expands on MRP is enterprise
resources planning (ERP), which uses computer technology to link the various
functional areas across an entire business enterprise.

MPS
Exploding-Explosion uses the Bill of Materials (BOM). This lists
how many, of what components, are needed for each item (part,
sub assembly, final assembly, finished product) of manufacture.
Thus a car requires five wheels including the spare.
Netting-in which any stock on hand is subtracted from the gross
requirement determined through explosion, giving the quantity of
each item needed to manufacture the required finished products.
offsetting.-This determines when manufacturing should start so
that the finished items are available when required. To do so a
'lead time' has to be assumed for the operation. This is the
anticipated time for manufacturing.

Capacity Requirements Planning


Capacity requirements planningis the process by
which a company figures out how much it needs to
produce, and determines if it is capable of meeting
those production goals. Small businesses must
conductcapacity requirements planningregularly to
keep up with changes in supply and demand.

Order Scheduling
Scheduling is a communications tool that helps balance
customer demands with your ability to fulfill that
demand

The aggregate operational plan


The aggregate operational plan is almost the same for the services and
manufacturing industries. The only difference lies in the inventory
control and production procedures. However, the manufacturing and
service active
The aggregate plans needs to be updated timely depending on the
specific industry needs.ities are different from each other.
The data for the planning is derived from the corporate annual plan. So
depending on the number of units required in the future or the amount
of sales to be achieved, the aggregate plan is made. The other
approach to make the aggregate plan is by simulating the production
schedule and evaluating the requirements of labour and equipments.
The plan is further modified by cut-and-try or mathematical methods to
come to a final low-cost plan.

Aggregate Operational Plan


The main motive of the aggregate plan is to strike a
balance among production rate, workforce level and
inventory on hand.
Production rate refers to the number of units produced during
a period of time(per hour or per day)
Workforce level is the manpower required for the production
(Production = production rate X workforce level)
Inventory on hand is the un-used stock lying in the reserves
previously.

The Aggregate Operations Plan


A. Production rate refers to the number of units produced during
a period of time(per hour or per day)
B. Workforce level is the manpower required for the production
(Production = production rate X workforce level)
C. Inventory on hand is the un-used stock lying in the reserves
previously.

D. Production Planning Environment


Production Planning Strategies Defined
Pure Strategy Defined
Mixed Strategy Defined

@Production Planning Strategies


Chase Strategy: Hiring and laying off of employees takes place to
match the order rate to the production rate. There should be a number
of trained people available who can be hired. Also some employees
may slow down their work due to the fear of being expelled after the
work gets over.
Stable workforce- variable work hours : The number of employees are
kept constant and the working hours are increased or decreased as
and when required. This strategy avoids the hassles of hiring and
firing the employees.
Level Strategy : A constant workforce works with a constant
production rate. The effects of shortage or excess products are borne
by the company. The disadvantage of this strategy is the inventory
items may become obsolete after sometime.

@Pure Strategy
When only one strategy is used by the company to
meet the demand, it is known as Pure Strategy.

@Mixed Strategy
A Mixed Strategy is one in which a combination of two
or more strategies is used.

E. Relevant Cost
There are four costs to be dealt with by the aggregate plan
Basic production costs : These are the costs incurred in
producing the product in a given time. This includes both fixed
and variable costs, direct and indirect labour costs. etc
Costs associated with the changes in the production rate : The
costs involved in hiring, training and laying off people.
Inventory holding costs : This cost includes the capital invested
in the inventory. It also includes insurance, taxes, storing costs.
Backordering costs : These are hard to evaluate and include
cost of expediting, loss of goodwill, and loss resulting due to
backordering.

Aggregate Planning Techniques


Companies use cut-and-try charting and graphic methods to
develop aggregate plans.
Cut-and-try involves calculating the costs in various production
planning alternatives and choosing the one which is the best.
Spreadsheets, simulation and linear programming are often
incorporated in such spreadsheets.
The mathematical techniques are used when the cost and
variable relationships are linear and demand can be assumed
to be deterministic.

Yield Management
The matrix helps a firm to identify the position and the
necessary action to manage yield.
Duration
Predictable

Aggregate operations planning involves translating


annual and quarterly business plans into broad
labor and output plans for the intermediate term
of 6 to 18 months. Its objective is to minimize the
cost of resources required to meet demand over
that period. The aggregate operations plan is
necessary to translate long-term strategy plans
down to the operational level. It takes a broad
view of the organization and attempts to match
the demand for the firm's products with its ability
to supply these products at a minimum cost.

Long-range planning is done once a year, focusing


on a multi-year horizon while medium-range
planning covers 6 to 18 months into the future.
Short-range plans cover one day to six months in
weekly increments. The master production
schedule generates the amounts and dates for the
production of end products and is fixed in the short
run. Rough-cut capacity planning verifies that the
scheduled production is possible given capacity
constraints of facilities, equipment, and labor.
Materials requirements planning take the end
product requirements from the MPS and break
them down into their component parts and
subassemblies to create a material plan.

The final assembly schedule provides the


operations required to put the product in its final
form. Production activity control focuses on
scheduling and shop floor control activities.
Aggregate production planning varies from
company to company. Strategies of production
planning include maintaining a stable work force
working at a constant rate, using a stable work
force with variable work hours, or using a chase
strategy where workers are hired or laid off as the
demand varies. In addition, managers may choose
to subcontract some portion of production.

Costs relevant to aggregate production planning


include basic production costs to costs associated
with changes in the production rate, inventory
holding costs, and backordering costs. To receive
funding, operations managers are generally
required to submit annual and sometimes
quarterly budget requests.

Aggregate operations planning link the corporate


strategic plan and the capacity plans into broad
categories of work-force size, inventory quantity,
and production levels. It does not do detailed
planning. Once decision rules for production
planning have been selected, it is important for
management to maintain them. Historical data and
simulations should be used prior to
implementation of aggregate planning to select an
optimal decision rule. Yield management allocates
the right type of capacity to the right type of
customer at the right price and time to maximize
revenue or yield and it can make demand more
predictable which is important to aggregate
planning.