Supply Chain Management chapter 13

What are the aspects of SCM?
Plan, source, make, deliver, and return.
SCM Planning Matrix
A grid of strategic, tactical, and operational planning, and supply, production, and fulfillment. Also Demand planning feeds into it
Strategic planning
Long term planning.
Involves supply chain design
Tactical planning
Intermediate term planning.
Supply – Materials planning
Production – production planning
Fulfillment – distribution planning
Also involves Sales and Operations planning (S&OP) stretching across all aspects and demand planning
Operational planning
Short term planning.
Supply – purchasing, receiving
Production – Production control
Fulfillment – Sales, shipping
Inventory management stretches across all three.
Sales and Operations Planning (S&OP)
Process for integrating marketing plan and operations plan to develop a single plan.
Attempt to balance supply and demand.
Balances the marketing plan and the operations plan.
Goal is to be efficient and competitive.
What does S&OP balance?
Finance, marketing/sales, and operations.
Each group typically does what is best for itself and not the company as a whole.
Finance objectives
High return on investment (ROI)
Maximize return
Minimize risk
Marketing/Sales objectives
Aggregate planning
Many product variations
Fast response, high service
Maximize revenue
Operations objectives
Detail planning
Fewer products
Long, stable production runs
Maximize output, minimize cost
Reduce variance, maintain ‘up-time’
Efficient grouping of supply and demand
Steps in the S&OP process
0) Create functional input
1) unconstrained marketing plan
2) initial resource plan
3) balanced plan
4) financial review
5) executive meeting
turns into one plan with aggregate demand and production plans
6) Implementation and follow-up
REPEAT
Directors do steps 1-4, VP’s come in during step 5
Long-term S&OP process
2-5 years.
Capacity sizing
Mid-term S&OP process
<1 year Developing the "single plan"
Short-term S&OP process
Daily-weekly
Adjusting the “single plan”
natural disasters, try to work with group and meet objectives
Qualitative Benefits of S&OP
Better organizational teamwork
Faster and better aligned decision making
Greater accountability for performance
Better business visibility (people will know about other sectors of the company and understand it)
Quantitative Benefits of S&OP
Improved forecast accuracy
Higher customer service
Lower finished goods inventory
Better new product introduction
Where is S&OP more effective?
S&OP is more effective internally for an organization. Reasons for this:
You all serve the same boss internally,
You share the same objectives, where you may not with your suppliers

However, it is also good externally because it helps eliminate the bullwhip effect

Supply Planning
Done after the “one plan” is approved.
Assess alternative aggregate planning strategies (how to meet the production plan(the one plan))
Detailed requirements planning (manufacturing, purchasing, and distribution plans)
Ways to meet demand
Holding inventory (having inventory on hand)
Regular Production (average labor and benefits)
Overtime (working more hours than standard)
Hiring (finding, acquiring, and training new employees)
Fire/Layoff (separation packages, ethics issues)
Subcontracting (unit cost and loss of control)
Backordering (expediting supply, lost good-will)
Level Aggregate Planning Strategy
produce at a constant rate, use changing inventory levels to buffer supply and demand
When is the level planning strategy used?
When cost of ramping production up and down is high and inventory costs are relatively low.
Highly skilled labor
Equipment/process not flexible
Inventory cost is low relative to labor and equipment
Chase Aggregate Planning Strategy
change production to match demand, inventory remains relatively stable and low
When is the chase planning strategy used?
When there is a high per-unit inventory holding cost rate relative to the cost of changing production rate
Low skilled levels
Equipment/Processes are flexible
Inventory cost is high relative to labor and equipment changes
Used for all services

You just keep chasing the demand to have inventory. You only have a little bit of safety stock