“Education in Pursuit of
Supply Chain Leadership”
dp&c Chapter 6
Chapter 6
Demand Management
6-1
dp&c Chapter 6
Learning Objectives
•
•
•
•
•
•
•
•
Define demand management
Detail the components of demand management
Formulate demand management strategies
Determine the process of demand planning
Perform demand planning
Perform marketing planning
Perform sales planning
Develop the demand forecast
6-2
dp&c Chapter 6
Learning Objectives (cont.)
• Perform production and resource planning
• Perform inventory and distribution planning
• Understand balancing the demand and supply plans
• Detail the foundations of S&OP
• Work with S&OP planning grids
• Perform the monthly S&OP process
6-3
dp&c Chapter 6
Chapter 6
Demand Management
Inventory
Defining Demand
Management
Basics
Management
6-4
dp&c Chapter 6
Demand Management Definitions
APICS Dictionary:
1) The function of recognizing all demands for goods and services to support
the marketplace. It involves prioritizing demand when supply is lacking. Proper
demand management facilitates the planning and use of resources for
profitable business results.
2) In marketing, the process of planning, executing, controlling, and monitoring
the design, pricing, promotion, and distribution of products and services to bring
about transactions that meet organizational and individual needs
CSCMP:
The proactive compilation of requirements information regarding demand (i.e.,
customers, sales, marketing, finance) and the firm's capabilities from the supply
side (i.e., supply, operations and logistics management); the development of a
consensus regarding the ability to match the requirements and capabilities; and
the agreement upon a synthesized plan that can most effectively meet the
customer requirements within the constraints imposed by supply chain
capabilities
6-5
dp&c Chapter 6
Components of Demand Management
Marketing
Strategy
Demand
Strategy
Demand
Forecast
Demand
Demand
Management
Management
CRM/CSM
and Sales
Plan
Supply
Plan
Demand
Plan
6-6
dp&c Chapter 6
Demand Management Strategic Alternatives
Growth
strategies
Focused on determining how companies can gain
market share by developing internal competencies
or leveraging synergies gained through merger or
acquisition
Portfolio
strategies
Concerned with the type, scope, nature, and life
cycles of the range of products and services
offerings constituting the firm's value proposition
Positioning
strategies
Seek to continuously renew supply chain structures
that effectively place the right combination of
products and services within the supply channel
network based on demand and supply economics
Investment
strategies
Concerned with the creation of a flexible portfolio of
assets that provide strategic planners with the
capability to expand and channel capital, physical
resources, and research investment to realize the
best marketplace opportunities
6-7
dp&c Chapter 6
Chapter 6
Demand Management
Inventory
Creating the
Management
Basics
Demand Plan
6-8
dp&c Chapter 6
Demand Planning - Definition
A process that weighs both customer demand and a
firm’s output capabilities, and tries to balance the two
Demand management consists
of planning demand,
communicating demand,
influencing demand, and
prioritizing demand
Planning
demand
Communicating
demand
Prioritizing
demand
Influencing
demand
6-9
dp&c Chapter 6
Planning Demand Processes
Marketing
Plan
Business Plan
Sales Plan
Demand
Plan
Forecast
6-10
Historical
Data
S&OP
Process
dp&c Chapter 6
Product Planning Process
Product Portfolio
Product
Classifications
Product Life
Cycle
Services
Strategy
Product OK?
Life Cycles OK?
Services OK?
Strategy OK? Brand Strategy
Marketing Strategy
6-11
dp&c Chapter 6
Product Definition
Definition
A product is a physical good offered to the market for acquisition,
use, or consumption that satisfies a want or need
Categories
Durable goods: products that are designed to last for an
extended period of time without rapid deterioration or
obsolescence
Nondurable goods: products that are consumed or must be
consumed quickly or that deteriorate rapidly
Services: products that are intangible, produced and
consumed simultaneously, often delivered with varying content,
and cannot be stored
6-12
dp&c Chapter 6
Product Hierarchy
Product Family
Product Class
Product Line
Product Type
Product
Levels
Product SKU
6-13
dp&c Chapter 6
Categories – Industrial Goods
Raw materials
and components
Farm and natural products, such as
foodstuffs, lumber, petroleum and iron ore,
and fabricated or manufactured components
used by manufacturers who convert them into
finished products
Capital goods
Equipment such as generators, computers,
automobiles, material handling equipment,
and office furniture. Products in this category
are considered finished goods
MRO
Consumer-type goods such as paint, nails,
office supplies, small tools, lubricants, and
fuels
6-14
dp&c Chapter 6
Categories – Consumer Goods
Convenience
goods
Products usually purchased frequently,
immediately, and with the minimum of effort in
comparison or buying. Examples include
staples (bread and milk) impulse goods (candy),
and emergency goods (medical supplies)
Shopping goods
Products customers normally will shop for in
many locations and compare price, quality,
performance, and suitability before a decision to
purchase is made. Examples include fashion
apparel and appliances
Specialty goods
Products possessing unique characteristics or
brand recognition for which customers are
willing to expend a significant effort to acquire
them. Examples include automobiles and
women's fashions.
6-15
dp&c Chapter 6
Additional Product Characteristics
Form. Refers to the size, shape, color, or physical
structure of a product
Replacement rate. Refers to the frequency with which
a product is purchased or manufactured
Level of service. Some products require specific levels
of service such as training, warranty, repair, or other
activities
Conformance to quality. Describes the degree to which
products are identical to and meet the promised
specifications
Durability. Refers to the duration of a product's
functional life under normal operating conditions
6-16
dp&c Chapter 6
Additional Product Characteristics (cont.)
Reliability. Refers to the probability that a product will
not fail within a specified time span
Degree of customization. Nonstandardized products
often require special assistance for installation,
training, or other forms of servicing that must be
performed by the producer
6-17
dp&c Chapter 6
Product Life Cycle Dynamics
High
NEW
GROWTH
Invest
&
Grow
Grow
&
Profit
Market
Growth
Low
Re-invest
&
Divest
Profit
&
Protect
DECLINE
MATURE
Market Share
6-18
High
dp&c Chapter 6
Product Life Cycle Characteristics
Characteristic
Product availability
Product volume
Sales volume
Complexity of
supply channel
structure
Investment
Competitive
attribute
Introduction
Low
Low
Low
Growth
Increase
Increase
Increase
Mature
Level
Level
Level
Decline
Low
Low
Low
Minimum
Increased
complexity
Complex
Minimum
High
Quality and
availability
Level
Price and
dependability
Low
Very high
Product features
6-19
Availability
dp&c Chapter 6
Services Characteristics
Intangible
Immediate
consumption
Unique
Lack of
precise
definition
Service is usually an intangible exchange of value, in
contrast to the tangible value found in a physical
product such as bread, butter, and jam
Services are often produced and consumed
simultaneously
The services received by a customer are often unique
to that customer
While products are rigorously defined as to fit, form,
and function, services normally consist of a core
value around which a variety of different outcomes
can occur
6-20
dp&c Chapter 6
Services Dimensions
Intrinsic Services
• Described as being almost “commodity” in nature because they
directly accompany the product
• Examples include warranties, packaging, rebates, and training allow
customers to receive additional value with the receipt of the tangible
product
Extrinsic Services
• Described as not directly accompany the product
• Examples include discounting, improved supply channel efficiency,
credit, and product assortment add value to products by reducing
customer internal costs, facilitating the flow of business information,
and improving productivity
6-21
dp&c Chapter 6
Services Life Cycle
Development
Marketers will experiment with new forms of services
they anticipate will provide a point of differentiation
separating their firms from the competition
Growth
Planners are still investing in services development,
but customers are beginning to see that the new
service is providing sufficient value to persuade them
to purchase the product
Maturity
Investment declines as the service becomes
standardized, while increasing customer market
demand for the product and accompanying services
allow cost recovery and profit
Saturation
Customers feel the service is part of the product
offering, often requiring that it be offered with little or
no charge attached
6-22
dp&c Chapter 6
Product Brand Definition
A name, term, sign, symbol, or design, or a
combination of them, intended to identify
the goods or services of one seller or group
of sellers and to differentiate them from
those of competitors
Brand can be tangible and functional when related to
the performance of a physical product; it can also be
intangible and emotional when the brand acts as a
symbol
6-23
dp&c Chapter 6
Importance of Product Brand
Brand enables the marketplace to easily identify the product or
service producer or distributor. Customers learn about brands
through past experiences and through the firm's marketing
programs
Brands provide important information for the firm such as
organizing their products and accounting records
Branding enables companies to legally protect unique
attributes and designs through registered trademarks and
copyrights
Brands leave an indelible impression on customers regarding
certain levels of quality, functional predictability, and purchase
peace-of-mind possessed above the physical product or
service (often termed brand equity) that cannot be duplicated
by even the best replicas created by competitors
6-24
dp&c Chapter 6
Definition of Marketing
The activity, set of institutions, and
processes for creating, communicating,
delivering, and exchanging offerings that
have value for customers, clients,
partners, and society at large
American Marketing Association
6-25
dp&c Chapter 6
Marketing Planning Process
Corporate Strategies
Marketplace
Definition
Products and
Services
Pricing and
Promotions
Customers OK?
Products OK?
Prices OK?
Distribution OK?
Supply
Channel
Marketing Plan
6-26
dp&c Chapter 6
Developing Markets
Mass Market Strategy
A strategy whereby the seller engages in the mass production, mass
distribution, and mass promotion of a single product or narrow product
line targeted at all potential customers.
Segmented or Niche Market Strategy
•
Segment the customer base into groups sharing common wants and
needs, resources, geographical locations, buying attitudes, and practices
•
Target those market segments that manifest the proper size and growth,
are attractive in regard to a lack of competitors, match existing products
and services, and leverage the business's internal and external strengths
and resources
•
Position the company's image, products, services, and brands so that
customers within selected market segments understand the firm's
competitive value
6-27
dp&c Chapter 6
Marketing Strategy of One
Marketing in the Internet Age
This strategy requires marketers to have a firm grasp
of the product, service, service, brand, and delivery
strengths that give them a competitive advantage.
Once this is done, they must advance to a position that
views each customer as if they were each a separate
market. A key element is using technology to enable
the customer to determine exactly how, what, and at
what price they want to buy
6-28
dp&c Chapter 6
Sales Planning Process
Corporate Strategies
Sales
Objectives
Sales Strategy
Sales
Structure and
Capacities
Goals OK?
Targets OK?
Organization OK?
Sales OK?
Sales
Performance
Marketing Plan
6-29
dp&c Chapter 6
Demand Forecast
The demand forecast enables the business to make
assumptions (what demand will happen in the future) and
view occurrences (what demand has actually happened in the
past and how it impacted performance and forecast accuracy)
about marketplace demand that is used as a roadmap to
guide the performance requirements of the sales and
operations teams. Forecast assumptions are concerned with
internal actions that will shape future customer demand.
Assumptions are also concerned with how the anticipated
affect of events occurring in the external environment will
affect marketplace demand
6-30
dp&c Chapter 6
Forecast Hierarchy
Forecast Data Type
Enterprise Levels
Aggregate Financial
Company
Business Unit Financial
Business Unit
Aggregate Sales Value
Market Segment
Product Family
Aggregate
Item-Level Usage
End-Product
End-Product by
Customer
Item-Level Sales Value
by Customer
6-31
dp&c Chapter 6
Using Product Families in Forecasting
Product families should be organized to match the actual
SKUs the supply channel sells to the marketplace as well
as how they are processed or purchased
Since product families should never exceed more than
perhaps a dozen or so, they are easily identifiable
Product families permit sales to use detailed financial and
demand history data. This data can be “rolled-up” from
actual SKUs and summarized into the product families to
which they belong
As actual sales occurs through time and the data is rolledup into the appropriate product families, sales is provided
with a more accurate view of the viability of their forecasts
6-32
dp&c Chapter 6
Pyramid Forecasting – Overview
Marketing and
sales roll-up
forecast
Total
business volume
Management
forces down
forecast
Product family units
and monetary value sold
Individual product units and
monetary value sold
6-33
dp&c Chapter 6
Pyramid Forecasting – Example
US$ (000)
• Business level forecast: value
US$1,960
S&OP process
disaggregation
• Business level total product
US$1,400
family demand roll-up:
100,000 units
value
• Product family level
Family A
Family B
roll-up and forecast: US$800 (57%)
US$600 (43%)
value
60,000 units
- units
40,000 units
• Product level A1 (50%)
A2 (50%)
B1 (66%)
B2 (33%)
demand: US$400
US$200
US$400
US$400
value
40,000 units 20,000 units 20,000 units 20,000 units
- units
Unit costs:US$10
US$20
US$20
6-34
US$10
dp&c Chapter 6
Exercise 6-1 Pyramid Forecasting
Historical Demand
March
8,100
Product Family A & B/units
Detail Demand for June/SKUs
Forecast Rollup
Item A1
Item A2
Item A3
Item B1
Item B2
Item B3
Actual Demand
1,300
1,050
975
3,325
Family A Total
2,100
1,850
1,450
5,400
Family B Total
8,725
Combined Total
July Forecast
Base Family Forecast
Forecast
Disaggregation
8443.75
Percent
38.1%
61.9%
Family Level
Product Family A
Product Family B
Total
SKU Forecasts
Percent
39.1%
31.6%
29.3%
38.9%
34.3%
26.9%
Item A1
Item A2
Item A3
Item B1
Item B2
Item B3
6-35
April
8,450
May
8,500
Percent
39.1%
31.6%
29.3%
100.0%
38.9%
34.3%
26.9%
100.0%
Forecast
3,217.8
5,225.9
8,443.8
Forecast
1,258.1
1,016.2
943.6
2,032.3
1,790.4
1,403.3
dp&c Chapter 6
Chapter 6
Demand Management
Inventory
Creating the
Management
Basics
Supply Plan
6-36
dp&c Chapter 6
Supply Plan Components
Production Plan
Historical
data
Resource
requirements planning
Inventory plan
Supply
Plan
Distribution planning
Performance
measurements
Operations data
Master files
6-37
dp&c Chapter 6
Production Planning Process
Corporate Strategies
Production
Strategy
Financial Plan
Production
Rates
Strategy OK?
Costs OK?
Rates OK?
Performance OK?
Production
Performance
Supply Plan
6-38
dp&c Chapter 6
Production Strategies
Sales ($millions)
5
Sales =
4
3
2
Production =
1
Level =
Chase =
Combo =
0
1
2
3
4
5
6
7
8
9
10
11
Time (Periods)
6-39
dp&c Chapter 6
Level Production Plan Graphic
Quantity
9,500
9,000
8,500
8,000
7,500
Forecast
7,000
Prod Plan
6,500
Inv Plan
6,000
5,500
5,000
March
April
May
June
July
August
Sept
Months
6-40
dp&c Chapter 6
Level Production Plan Example
Product Family
Ending Inventory Target/units
Unit of Measure
Flat Screen TVs
7,000
100 units
Past Periods
January February
SALES FORECAST
8,000
8,000
ACTUAL SALES
7,500
7,800
PRODUCTION RATE
8,000
8,000
ACTUAL RATE
7,800
7,750
INVENTORY PLAN
6,000
6,200
ACTUAL INVENTORY
5,500
6,100
Production rate =
Forecasted Periods
March
April
May
June
July
August
Sept
8,000
8,250
8,500
8,500
9,000
9,000
9,250
8,771
8,771
8,771
8,771
8,771
8,771
8,771
6,871
7,393
7,664
7,936
7,707
7,479
7,000
(7,000 – 6,100) + 60,500
7 months
6-41
= 8,771 (rounded)
dp&c Chapter 6
Chase Production Plan Graphic
Quantity
10,000
9,000
8,000
Forecast
Prod Plan
7,000
Inv Plan
6,000
5,000
March
April
May
June
July
August
Sept
Months
6-42
dp&c Chapter 6
Chase Production Plan Example
Product Family
Unit of Measure
Flat Screen TVs
100 units
Past Periods
January February
SALES FORECAST
7,000
8,000
ACTUAL SALES
6,910
7,600
PRODUCTION RATE
7,000
8,000
ACTUAL RATE
7,800
7,750
INVENTORY PLAN
7,000
7,400
ACTUAL INVENTORY
6,900
7,050
Forecasted Periods
March
April
May
June
July
August
Sept
8,000
8,250
8,500
8,500
9,000
9,000
9,250
8,000
8,250
8,500
8,500
9,000
9,000
9,250
7,050
7,050
7,050
7,050
7,050
7,050
7,050
6-43
dp&c Chapter 6
Resource Planning – Definition
Capacity planning conducted at the business plan level.
The process of establishing, measuring, and adjusting
limits or levels of long-range capacity. Resource planning
is normally based on the production plan but may be
driven by higher level plans beyond the time horizon for
the production plan (e.g., the business plan). It
addresses those resources that take long periods of time
to acquire. Resource planning decisions always require
top management approval.
6-44
dp&c Chapter 6
Resource Planning Process
Production Plan
Resource
Capacity
Profiles
Bills of
Resources
Resource
Capacity
Calculation
Capacity OK?
Structure OK?
Load OK?
Availability OK?
Resource
Review
Supply Plan
6-45
dp&c Chapter 6
Resource Profile and Bill of Resources
UNIT OF
MEASURE
RESOURCE PROFILE
Resource Profile:
MACHINE SHOP
WELDING LINE
ASSEMBLY A
ASSEMBLY B
FINISHING LINE
HOURS
HOURS
HOURS
HOURS
Cu Ft
Monthly
Capacity
19,000
27,500
30,000
9,250
3,600.0
Bill of Resources:
BILL OF RESOURCES
MACHINE SHOP
WELDING LINE
ASSEMBLY A
ASSEMBLY B
FINISHING LINE
UNIT OF
MEASURE
HOURS
HOURS
HOURS
HOURS
Cu Ft
Product
Family A
5
3
6
2
0.5
6-46
Product
Family B
5
7
8
2
0.5
Product
Family C
4
8
5
2
1.0
Product
Family D
3
5
6
2
1.5
dp&c Chapter 6
Inventory and Distribution Planning Process
Corporate Strategies
Target
Inventory
Values
Product Family
Inventory
Review
Channel
Design
Targets OK?
Quantities OK?
Channel OK?
Logistics Structure OK?
Detail
Logistics Plan
Supply Plan
6-47
dp&c Chapter 6
Inventory Planning Grid Review
Product Family
Opening Balanace
Target inventory:
Maximum Inventory
Minimum Inventory
Flat Screen TVs
700
March
500
1,100
250
June
500
Sept
500
Dec
500
Original Inventory Plan
January February
March
April
May
June
July
August
Sept
Next 3
Months
12 MO
TOTAL
SALES FORECAST
13,400
13,200 12,900 12,500 12,100 11,800 11,400 11,100 12,300
36,000 146,700
PRODUCTION PLAN
13,100
13,100 13,100 12,133 12,133 12,133 11,600 11,600 11,600
36,000 146,500
INVENTORY PLAN
400
300
TARGET INVENTORY
500
133
167
500
500
700
1200
500
500
500
500
500
MIN VIOLATION
OK
OK
OK
MIN
MIN
OK
OK
OK
OK
OK
MAX VIOLATION
OK
OK
OK
OK
OK
OK
OK
MAX
OK
OK
Inventory Minimum
Balance Violations
6-48
dp&c Chapter 6
Warehouse Capacity Analysis
Product Family
Opening Ballance
Weight/Unit (lbs.)
Quantity per Pallet
Cube Space per Pallet (feet)
Flat Screen TVs
1600.0
8.0
5
48
Current Year's Warehouse Plan
January February March
INVENTORY PLAN
WEIGHT (lbs.)
CUBE SPACE (feet)
PALLETS
CAPACITY/Cube (feet)
PERCENT USAGE
2,400
19,200
23,040
480
40,000
57.6%
2,000
16,000
19,200
400
40,000
48.0%
3,000
24,000
28,800
600
40,000
72.0%
April
May
June
July
August
3,000
24,000
28,800
600
40,000
72.0%
3,000
24,000
28,800
600
40,000
72.0%
4,000
32,000
38,400
800
40,000
96.0%
4,000
32,000
38,400
800
40,000
96.0%
4,000
32,000
38,400
800
40,000
96.0%
6-49
Sept
Next 3
Months
12 MO
TOTAL
3,000 8,000
24,000 64,000 291,200
28,800 76,800 349,440
600 1,600
7,280
40,000 120,000 480,000
72.0% 64.0%
72.8%
dp&c Chapter 6
Chapter 6
Demand Management
Inventorythe
Balancing
Management
Basics
Demand and
Supply Plans
6-50
dp&c Chapter 6
Sales and Operations Planning – Definition
A process to develop tactical plans that provide
management the ability to strategically direct its
businesses to achieve competitive advantage on a
continuous basis by integrating customer-focused
marketing plans for new and existing products with the
management of the supply chain. The process brings
together all the plans for the business (sales, marketing,
development, manufacturing, sourcing, and financial) into
one integrated set of plans. It is performed at least once a
month and is reviewed by management at an aggregate
(product family) level.
APICS Dictionary
6-51
dp&c Chapter 6
S&OP - Characteristics
 It is a formal business process used by the firm’s leadership team to connect
corporate business planning with tactical planning, driving master scheduling
and distribution planning
 It provides managers with an opportunity to review and update the strategic
business plan to meet organizational and marketplace changes as they occur
through time
 It ensures that the demand and supply plans are realistic, synchronized, and
support the business plan
 It provides sales and marketing with an opportunity to periodically review and
revise demand plans so that they are closely synchronized with actual sales
occurring in the marketplace
 It enables operations managers to review and revise production and inventory
plans that support the demand plan while optimizing productive and financial
assets
 It uses the aggregate data of sales, production, and inventory along with
aggregate planning time buckets and product families to ensure greater
planning accuracy. S&OP rarely uses individual products
6-52
dp&c Chapter 6
S&OP – A Balancing Act
Demand
Forecasts
Actual
Orders
Inventory
Supply Resources/
Orders
Capacity
Supply
Demand
S&OP
Process
6-53
dp&c Chapter 6
Demand and Supply Volume and Mix
D
E
M
A
N
D
F
O
R
E
C
A
S
T
I
N
G
&
D
E
M
A
N
D
M
G
M
T
Business Plan
VOLUME
S&OP
Demand
Plan
Supply
Plan
PRODUCT MIX
Master Scheduling
MRP
R
E
S
O
U
R
C
E
P
L
A
N
N
I
N
G
S
U
P
P
L
Y
Plant and Supplier
Scheduling
6-54
dp&c Chapter 6
S&OP Foundation Components
Grids and
Graphs
S&OP
Teams and
Roles
Product
Families
S&OP
Historical
Data
Demand
Plan
Supply Plan
6-55
dp&c Chapter 6
S&OP Teams and Roles
Executive S&OP team. This team is composed of the senior
executives of the firm. The primary role of this team is to
provide strong leadership and commitment and making final
demand and supply decisions
Executive sponsor. This individual is usually a member of the
executive team assigned to champion the S&OP process. The
primary role of the executive sponsor is to set clear
performance expectations for top management, authorize
necessary resources, and clear obstacles hindering an effective
S&OP process
S&OP process owner. This individual chairs the S&OP team
meetings. Responsibilities include maintaining the S&OP
implementation project schedule, manage the list of issues
arising from the team meetings, assist in issue resolution, and
report problems to the executive S&OP team
6-56
dp&c Chapter 6
S&OP Teams and Roles (cont.)
Demand planning team. This team is composed of managers
responsible for demand management product analysis,
customer service, sales administration, marketing, and account
managers, as well as forecast analysts, new product
coordinators, field sales, and the S&OP process owner The
primary role of this team is to generate the new management
forecast for the next fifteen to eighteen months into the future
Supply planning team. This team is composed of managers
responsible for plant management, purchasing, materials,
production control, logistics, quality, accounting and distribution
as well as the master scheduler, new products coordinator, and
the S&OP process owner. The primary role of this team is to
generate the production and inventory plans
6-57
dp&c Chapter 6
S&OP Databases
Product families. The S&OP process centers on the use of
product families for all demand and supply planning activities.
Planning at an aggregate level enables managers to focus on
the right level for tactical decision making. S&OP works best
when there are no more than 12 to 16 product families
Demand plan. The demand plan enables the S&OP process to
assemble, review, and authorize the anticipated customer
demand that will drive the planning process and is created by
the S&OP demand planning team
Supply plan. This component is concerned with defining and
validating the manufacturing and distribution capacities and
capabilities needed to execute the demand plan. Assembling
and managing this database is the responsibility of the S&OP
supply planning team
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dp&c Chapter 6
S&OP Databases (cont.)
Historical data. This component is concerned with the collection
and management of the firm's historical forecast, sales,
production, and transaction database histories. Assembling and
ensuring the accuracy of these databases is the responsibility
of all individuals in the company
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dp&c Chapter 6
S&OP Planning Grids – MTS
Past Periods
SALES
FORECAST
ACT SALES
DIFF. MO
CUM
DIFF. %
January February
March
April
Current
Period
May
Forecasted Periods
June
July
August
Sept
Oct
2,000
2,150
150
150
7.50%
2,000
1,950
-50
100
2.50%
2,000
2,200
200
300
5.00%
2,050
2,150
100
400
4.97%
2,100
2,100
2,100
2,150
2,150
2,150
2,000
1,950
-50
-50
-2.50%
2,000
2,000
0
-50
-1.25%
2,050
2,000
-50
-100
-1.65%
2,100
2,150
50
-50
-0.61%
2,200
2,300
2,300
2,300
2,300
2,300
1050
800
-250
-300
-9.8%
7.4
1100
800
-300
-600
-14.5%
7.6
900
1100
1300
1450
1600
1750
8.6
10.5
12.1
13.5
14.9
PRODUCTION
PLAN
ACTUAL
DIFF. MO
CUM
DIFF. %
FINISHED GOODS INVENTORY
PLAN
ACTUAL
DIFF. MO
CUM
DIFF. %
DAYS ON HAND
1000
950
-50
-50
-5.0%
9.7
1000
1000
0
-50
-2.5%
9.1
6-60
dp&c Chapter 6
S&OP Planning Grids – MTO
Current
Period
Past Periods
BOOKINGS
FORECAST
ACT BOOKINGS
DIFF. MO
CUM
DIFF. %
PRODUCE/SHIP
PLAN
ACTUAL SHIPMENTS
DIFF. MO
CUM
DIFF. %
January February
50
55
45
49
-5
-6
-5
-11
-10.0% -10.5%
March
52
55
3
-8
-5.1%
April
60
50
-10
-18
-8.3%
Forecasted Periods
58
June
60
May
July
65
August
65
Sept
70
Oct
70
45
43
-2
-2
-4.4%
45
42
-3
-5
-5.6%
50
51
1
-4
-2.9%
50
53
3
-1
-0.5%
50
55
55
60
65
65
45
48
3
3
6.7%
4.6
55
55
0
3
3.0%
4.3
57
59
2
5
3.2%
4.5
67
56
-11
-6
-2.7%
4.5
64
69
79
84
89
94
4.7
5.0
5.3
5.2
5.5
ORDER BACKLOG
PLAN BACKLOG
ACTUAL BACKLOG
DIFF. MO
CUM
DIFF. %
BACKLOG (Wks)
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dp&c Chapter 6
Chapter 6
Demand Management
Inventory
Monthly
S&OP
Management Basics
Process
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dp&c Chapter 6
Monthly S&OP Process
Step 5
Decisions & updated S&OP plan –
S&OP grid final pass
Executive
S&OP Meeting
Step 4
Scenarios, issues, recommendations
for meeting
Step 3
Pre-Executive
S&OP meeting
Supply planning
Step 2
Step 1
S&OP data
gathering
Demand
planning
S&OP grid – third
pass
Resource plan grid – second
pass
S&OP grid – first pass
Actual sales, forecast, backlog
supply, and inventory data
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dp&c Chapter 6
Step 1 – Data Gathering
•
•
•
•
Update previous month’s data files
Generate information for new statistical forecast by
sales and marketing
Share information with appropriate people
Automate feeds to S&OP planning grids
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dp&c Chapter 6
Step 2 – Demand Planning
•
•
•
•
•
•
•
Demand Management team reviews demand
information and forecast variances
Update the existing statistical forecast
Forecast by product families
Forecast includes any product lifecycle changes for the
time frame covered by planning horizon
Generate the S&OP MTS forecast
Create first pass MTS S&OP grids
Executive authorization
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dp&c Chapter 6
Step 3 – Supply Planning
•
•
•
•
•
•
Supply management team reviews supply
performance to plan
First-pass MTS and MTO grids reviewed against
current family-level capacity plans for possible change
Adjust supply plan to meet inventory/backlog targets
Run resource requirements planning and readjust the
supply plan where needed
Develop alternative scenarios for resource problems
needing review at S&OP pre-meeting
Create second pass S&OP resource grids
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dp&c Chapter 6
Exercise 6-2 Resource Requirements
Calculation
Step 1: Create grid of past production and new forecast
Product Family
PC-1500
PC-1600
PC-1700
Month -1 Month 1
150
150
110
105
100
105
Total
360
360
Production and Forecast
Month 2 Month 3 Month 4 Month 5
165
175
175
175
105
105
110
110
105
105
105
105
375
385
390
390
Total
990
645
625
2,260
Step 2: Create load profile for each product family
Product Family
PC-1500
PC-1600
PC-1700
Product Load Profile
Work Center K200-1 Assembly
1.5 hrs/unit
1.8 hrs/unit
2 hrs/unit
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dp&c Chapter 6
Exercise 6-2 Resource Requirements (cont.)
Calculation
Step 3: Calculate the product family resource profile
Product Family
PC-1500
PC-1600
PC-1700
Month -1
225
198
200
Total
623
Resource Profile (in standard hours)
Month 1 Month 2 Month 3 Month 4 Month 5 Total/hrs
225
247.5
262.5
262.5
262.5
1,485
189
189
189
198
198
1,161
210
210
210
210
210
1,250
624
646.5
661.5
670.5
670.5
3,896
Step 4: Create resource requirements planning (RRP) report
Work Center K200-1
Std hrs required
Capacity avail.
Over/under load
Cum over/under
Month -1 Month 1
623
624
625
625
2
1
2
3
RRP Report
Month 2 Month 3 Month 4 Month 5 Total/hrs
646.5
661.5
670.5
670.5
3,896
625
625
625
625
3,750
-21.5
-36.5
-45.5
-45.5
-146
-18.5
-55
-100.5
-146
-315
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dp&c Chapter 6
Exercise 6-2 Resource Requirements (cont.)
Calculation
Step 5: Graph RRP results
680
675
670
665
660
655
650
645
640
635
630
625
620
615
610
605
600
670.5
670.5
661.5
Std hrs required
Capacity avail.
646.5
623
624
Month -1 Month 1 Month 2 Month 3 Month 4 Month 5
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dp&c Chapter 6
Step 4 – Pre-Executive S&OP Meeting
•
•
•
•
•
•
•
•
Initial set of performance goals and metrics
Explanation of data gathering process
Updated financial view of the S&OP plan
Decisions/recommendations for each product family
Decisions/recommendations for each resource
requiring change
Areas where a consensus could not be reached
Explanation of the S&OP grids and graphs – 3rd pass
Explanation of the preparation for the Executive
Meeting: topics, flow, roles, responsibilities, agenda
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dp&c Chapter 6
Step 5 – Executive S&OP Meeting
•
•
•
•
•
•
Accept or make changes to the Pre-Executive S&OP
team recommendations or alternatives for each product
family
Authorize production or procurement changes
Compare production plans to business plan and make
required adjustments
Make decisions where no agreement was reached by the
Pre-Executive S&OP Meeting team
Review business key performance indicators where
performance was less than planned
Authorize the overall S&OP demand and supply plan
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dp&c Chapter 6
Exercise 6.3 Solving Impasses – Workforce
Costs
Product Family B
Employee Production Rate
Labor Cost/$50 per hr*20 days
Cost of Layoff of Employee
Cost of Hiring Employee
Product Family B
CHASE
PRODUCTION
PLAN
# EMPLOYEES
EMPLOYEE COST
EMPLOYEE CHANGE
LAYOFF COST
HIRE COST
Sound Systems
100 units/month/employee
$ 8,000 per employee/month
$ 5,500
$ 2,000
Forecasted Periods
Past Periods
Next 3
12 MO
Months
TOTAL
8,000
8,000
7,500
8,000
9,000
11,000
12,000
10,000
9,000
24,000
90,500
80
80
75
80
90
110
120
100
90
240
90.5
$ 640,000 $ 640,000 $ 600,000 $ 640,000 $ 720,000 $ 880,000 $ 960,000 $ 800,000 $ 720,000 $ 1,920,000 $ 7,240,000
-5.0
5.0
10.0
20.0
10.0
-20.0
-10.0
-10.0
0.0
0.0 $ 27,500 $
- $
- $
- $
- $ 110,000 $ 55,000 $
55,000
0.0
0.0 $
- $ 10,000 $ 20,000 $ 40,000 $ 20,000 $
- $
- $
January
February
March
April
May
June
July
August
Sept
CHANGE COSTS
$
- $
- $ 27,500 $ 10,000 $ 20,000 $ 40,000 $ 20,000 $ 110,000 $ 55,000 $
55,000 $ 337,500
TOTAL COSTS $ 640,000 $ 640,000 $ 627,500 $ 650,000 $ 740,000 $ 920,000 $ 980,000 $ 910,000 $ 775,000 $ 1,975,000 $ 7,577,500
Product Family B
LEVEL
PRODUCTION
Forecasted Periods
Past Periods
January
February
PLAN
8,000
8,000
# EMPLOYEES
80
80
UNITS PRODUCED/CUM
8,000
16,000
PLAN/CUM
8,000
16,000
EMPLOYEE COST
$ 640,000 $ 640,000
EMPLOYEE CHANGE
LAYOFF COST
0.0
0.0
HIRE COST
0.0
0.0
$
- $
CHANGE COSTS
TOTAL COSTS $ 640,000 $ 640,000
$
$
$
$
$
March
April
May
June
July
7,500
96
9,600
7,500
768,000
16.0
32,000
32,000
800,000
8,000
96
19,200
15,500
768,000
0.0
768,000
9,000
96
28,800
24,500
768,000
0.0
768,000
11,000
96
38,400
35,500
768,000
0.0
768,000
12,000
96
48,000
47,500
768,000
0.0
768,000
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
6-72
$
$
$
$
$
August
$
$
$
$
$
10,000
96
57,600
57,500
768,000
0.0
768,000
Sept
$
$
$
$
$
9,000
96
67,200
66,500
768,000
0.0
768,000
$
$
$
$
$
Next 3
12 MO
Months
TOTAL
24,000
288
96,000
90,500
2,304,000 $ 7,680,000
0.0
- $
32,000
2,304,000 $ 7,712,000
dp&c Chapter 6
Benefits of the S&OP Process
•
•
•
•
•
•
Establishes operational plans consistent with the
business plan
Continually updates the production, financial, and
sales plan
Provides for cross-functional planning
Establishes regular meetings with senior executives to
resolve demand versus supply trade-offs
Checks availability of resources to validate the
production plan
Increases teamwork and collaborative skills
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dp&c Chapter 6
“Education in Pursuit of
Supply Chain Leadership”
dp&c Chapter 6
Chapter 6
End of Session
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dp&c Chapter 6