Sales & Operations Planning Simulation
GENERAL BRIEF
The objective of this session is to put today’s learning into practice, and to run a
S&OP cycle. We will be working for a fictitious confectionery company.
The UK subsidiary started off two centuries ago making bite-size chocolates on the
South Coast of England, but more recently moved to Devon to take advantage of the
availability of the local, high quality milk. It has now diversified into a wide range of
chocolate confectionery, but it is still best known for it’s bite-size chocolates, which it
markets in the UK under its ‘Chox’ brand name. The company is still known locally
as ‘Chox Confectionery’, although it is now the UK subsidiary of a multi-national.
Two years ago the ambitious Scandinavian confectionery group ‘Alchoca’ bought the
Devon operation, and is now integrating it into the Alchoca business. The
Scandinavians realised the potential of Chox in the rest of the world and are now
selling it in several countries globally, with plans to expand.
The manufacturing operation for Chox, starts by mixing bought in ingredients (cocoa
mass, cocoa butter, local creamy Devon milk, sugar, vanillin and vegetable fat) in a
conch to give a chocolate of 23 micron particle size. The chocolate is then moulded
into the appropriate shape and wrapped for sale. The Devon site has an established
S&OP process looking 12 months into the future.
Ingredients
Wrapped
Finished
Packs
Packing Line 1
Conch
Chocolate
Packing Line 2
Moulding
Unwrapped
Sweets
Singles
3 packs
10 Packs
Packing Line 3
It is January 3rd 2000. The January S&OP cycle is starting. Each person will assume
the role of a manager in Alchoca and take part in the S&OP process for the Chox
family. To start, you will be assigned your role and will go into one of two teams:
Demand and Supply.
TIPS
1. Use numbers of sweets rather than packs as the level for carrying out S&OP
2. Assume that the time from chocolate manufacture through to packing is short and
that the distribution chain is short unless you know otherwise from your brief
3. Remember that you are working at an aggregate, rough-cut level. You should
simplify where possible
4. Don’t forget to cheat!
Sales & Operations Planning Simulation
SUPPLY FACTS
Recipe (quantity per batch)
cocoa mass
200kg
cocoa butter
200kg
local creamy Devon milk
150kg
sugar
250kg
vanillin
10kg
vegetable fat
200kg
Sweet size
Each bite-size sweet weighs 10g
Pack formats
Single sweet
Multipack of 3 sweets
Family bag of 10 sweets
Each format is wrapped on its own dedicated machine, capable of running at 4,000
wraps (sweets) per hour.
Capacity data
Conch capacity: 1 batch takes 24 hours yielding 1000kg (assume 1% loss)
Moulding capacity: Half a batch can be moulded at once; moulding takes 6 hours,
followed by 4 hours clean down. A new moulding operation should not take place if
there is less than 12 hours left before moulding is shut down – i.e. in a double shift
operation, only half a batch can be moulded per day.
Inventory
At the start of 2000, the inventory is:
20,000 unwrapped sweets
10,000 single sweet packs
2,000 3-packs (6,000 sweets)
400 10-packs (4,000 sweets)
Demand
Typical monthly demand is 1 million sweets, split roughly 50% singles, 30% 3-pack,
20% 10-pack.
Sales & Operations Planning Simulation
BRIEF FOR CHOCOLATE MANUFACTURING MANAGER
Your role is to help determine the available capacity. You currently run a two-shift 5
days per week operation, with conching running ‘lights out’ overnight during the
week (i.e. one batch is made every day, ). Each shift crew in your area consists of 10
people, and you are at full strength. It takes 2 months to train a new member of staff
before they can join the shift. Staff are prepared to work overtime, however extended
overtime working (>3 months) is likely to be unsustainable.
You have budgeted to train all your staff offline for 1 day per month in the shift team
grouping, and achievement of this training target is key to the long term success of the
department and an important element in your CID.
You also want to reduce the clean down time in moulding. Ernst & Young have
advised you that a 75% reduction in this time is possible, but would require taking
moulding out of service for a 2 week period. You plan to do this during the summer
(normally a period of low demand due to the seasonality of chocolate)
Sales & Operations Planning Simulation
BRIEF FOR PACKAGING MANAGER
Your role is to help determine the available capacity. You currently run a two-shift 5
days per week operation. Each shift crew in your area consists of 30 people, and you
are at full strength. It takes 1 months to train a new member of staff before they can
join the shift. Temporary labour is readily available at short notice to run full or half
(twilight) shifts.
You are concerned that the reliability of the equipment is adversely affected by poor
quality packaging material. You would therefore resist any change of specification
without extensive trials having taken place on each machine, (equivalent to losing 1
weeks production per machine)
Sales & Operations Planning Simulation
BRIEF FOR ENGINEERING MANAGER
On average downtime due to maintenance is as follows:
Conch: 2 weeks in August
Moulding: 2 weeks in August
Packaging: maintenance carried out during operations (no August shutdown)
Ernst & Young have advised that the August shutdown could be avoided if the
manufacturing plant was available for maintenance for a 24-hour block each month.
Note that weekends are not available for this maintenance work due to the high cost
of contractors
You know from your experience that the leadtime on ordering new equipment is:
Packaging equipment: 6 months (+ 1 month learning curve @ 50% capacity
Moulding equipment: 9 months (+ 1 month learning curve @ 50% capacity)
Conch: 12 months
Ordering equipment with a specification other than that identical to equipment already
in service will add a delay of 6 months prior to ordering, while specification and
tendering takes place.
Sales & Operations Planning Simulation
BRIEF FOR DEVELOPMENT MANAGER
As a response to trying to add further growth into global sales, there is a recognised
need to develop a new chocolate recipe with a higher melting point for tropical
countries. You have produced a suitable recipe in the lab, which raises the melting
point to 35C. by adding an emulsion of fat, special high density oils, and water in
place of the vegetable fat.
To be able to get this to market you need to scale up to production. Your plan is as
follows:
1 week downtime on conch to upgrade it
1 week downtime on moulding equipment to upgrade it (could be done
simultaneously with conch upgrade)
2 trial batches of chocolate (moulded but not packed – unable to be sold)
5 test batches of chocolate to be sold in Southern Europe
Sales & Operations Planning Simulation
BRIEFING FOR HUMAN RESOURCES MANAGER
The site has a good industrial relations climate, and staff are flexible.
Due to the local economy there is a ready pool of labour in the winter, but in July &
August it is not possible to recruit permanent staff (although staff recruited before
July will stay through the summer).
If staff are asked to work overtime for greater than 3 months it is likely that increased
absenteeism will lead to a 10% loss of production output.
Sales & Operations Planning Simulation
BRIEFING FOR QUALITY MANAGER
You know from experience that 1 batch per month fails the quality test after conching
due to particle size. This can be reworked, but the output is lost
As part of your CID, you are the champion for continuous improvement. You
anticipate that by releasing the production staff for 2 hours / week (i.e. a 5% loss of
output), capacity could be increased by 5% every 6 months in each are where
continuous improvement is practised.
Sales & Operations Planning Simulation
BRIEFING FOR PURCHASING MANAGER
Due to adverse weather in Ghana, a poor cocoa crop is predicted, and your supplier
tells you that a maximum of 2000kg per month of cocoa mass will be available from
October onwards.
You have identified a source of supply in Brazil, which is of adequate quality, but you
will need to make 4 batches of chocolate (conched) using the new source which
cannot be used for moulding.
You can achieve a purchase price variance of 0.3p per carton by switching to a new
supplier. This will enable you to meet your CID objectives and enhance your bonus.
You will need to run trials on each packaging machine for 1 shift.
Sales & Operations Planning Simulation
BRIEFING FOR PLANNING MANAGER
Using the S&OP Matrix, your role is to develop the forward capacity plan. Later you
will use this with the sales plan to generate the production and inventory plan.
As a first step, you should work with your colleagues to identify the bottlenecks
You should use options where possible and guide the S&OP team to recommend the
best one for sign off by the directors at the S&OP meeting.
Your aim is to maintain inventory between 100,000 and 500,000, based on volumes of
1 million sweets / month. Due to a good Christmas period and the desire to move
stock before the end of the financial year, inventory is currently lower than target at
only 50,000
Sales & Operations Planning Simulation
BRIEFING FOR DEMAND MANAGER
Your role is to pull together the forecast information from around the world and
generate a sales plan which can be used in the S&OP matrix. Where possible you
should provide qualitative as well as quantitative data, and express the sensitivities.
Later you will be the conduit between planning and the customer base as the S&OP
plan is developed.
Sales & Operations Planning Simulation
BRIEFING FOR GROUP MARKETING MANAGER
For trademark reasons you were unable to launch the Chox product in Europe under
that name, so in most of Europe it is known as “Raider” (which was a defunct
trademark bought from a competitor). With the advent of the internet, the desire to
advertise on Sky and the opportunity for global sponsorship deals, you are keen to
harmonise branding, which would mean changing the brand name in the UK to
Raider.
To implement this change is about a 6 month process as there is a need for new
artwork, and supporting promotional campaigns. You have been directed by the board
to link the launch to the Sydney Olympics in September 2000, where Alchoca are a
core sponsor. Focus groups have reacted positively to the name Raider linked to
sporting excellence. The plan would be to accompany the change in the UK with
heavy promotion which you anticipate boosting sales by 30% in September and
October. Elsewhere in the world a 10% increase in sales is anticipated in September
and October as a result of the Olympics sponsorship.
Sales & Operations Planning Simulation
BRIEFING FOR EXPORT MANAGER
As export manager your responsibilities are managing the shipping and
documentation for export orders. Currently you air freight all orders outside Europe,
and are keen to hit your budget by moving to sea freight. To do this you need to add 1
month to the leadtime (i.e. the factory needs to plan production 1 month before sales
are forecast).
You have now overcome the technical barriers by using temperature-controlled
containers, and believe you could implement the change on goods leaving Devon
from April onwards.
Sales & Operations Planning Simulation
UK SALES MANAGER
You are responsible for sales in the UK market, which is fairly flat for this mature
product range. You feel that provision of historical sales data is adequate for
forecasting forward.
You traditionally carry out promotions in November and May, which generated a
20% increase in sales last year. You plan a similar level of promotions this year and
next. You are aware that there is pressure to link in with the Alchoca sponsorship of
the Sydney Olympics in September 2000, which would involve a promotion in
September; if this went goes you will not run the promotion scheduled for November.
Sales history in 1999 was (in ‘000s of packs) (excluding effect of Olympics
promotion):
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Chox
s’gle
150
200
300
300
260
180
160
160
250
180
280
250
Chox
3-pk
30
30
25
30
40
20
20
20
30
20
40
40
Chox
10pk
10
12
18
20
20
12
12
15
10
10
16
10
This does not include sales into Unichoc, a major wholesaler with whom you have a
partnership agreement. The Key Account Manager manages that partnership
Sales & Operations Planning Simulation
BRIEFING FOR KEY ACCOUNT MANAGER
You are the Key Account Manager responsible for the relationship with Unichoc, a
major wholesaler, with whom you have a partnership agreement. As part of this
agreement, Unichoc provide you with forecast covering 12 months. This is the latest
one, in ‘000s of packs:
Jan
Feb
Mar
Apr
May
Jun
Chox
s’gle
80
60
85
95
80
50
Chox
3-pk
10
10
15
22
20
Chox
10pk
8
4
5
8
6
Jul
Aug
Sep
Oct
Nov
Dec
60
60
90
90
70
100
8
8
9
12
15
15
20
4
3
4
5
6
6
8
Unichoc have included their planned promotional activity, but have not taken account
of any increase in sales due to national promotion of the brand.
Sales & Operations Planning Simulation
BRIEFING FOR SOUTHERN EUROPE MIDDLE EAST, & AFRICA REGIONAL
SALES DIRECTOR
Your region covers the Mediterranean countries. Trademark issues have meant that
‘Chox’ is not acceptable outside the UK, and so the product is branded ‘Raider’.
Chocolate consumption is traditionally low in the warmer countries, but is growing
through the marketing of global brands such as Mars, M&Ms and Raider.
You see future growth from a new chocolate that is being developed with a high
melting point. You have not factored the additional sales that would generate into this
forecast, but you believe there would be a 20% increase in sales following launch.
As a proactive manager you see the benefits of providing an accurate forecast to the
manufacturing sites, so you have already developed a monthly forecast for your
region, based on the input from your country sales managers.
Here is the latest forecast for 2000, in ‘000s of packs
Jan
Feb
Mar
Apr
May
Jun
Raid
er
s’gle
30
40
50
40
25
30
Raid
er 3pk
5
3
3
4
3
Raid
er
10pk
2
3
2
2
2
Jul
Aug
Sep
Oct
Nov
Dec
45
55
55
65
70
75
2
2
4
5
6
7
8
2
2
3
2
3
4
6
Sales & Operations Planning Simulation
BRIEFING FOR NORTHERN EUROPE & ASIA REGIONAL SALES DIRECTOR
Your region covers Scandinavia, Eastern and central Europe, and Asia (except Middle
East). Trademark issues have meant that ‘Chox’ is not acceptable outside the UK, and
so the product is branded ‘Raider’
Much of your business is opportunistic, making it difficult to forecast. You do not
really see the need for monthly forecasting, and you have split your quarterly forecast
evenly over 3 months. If questioned you will admit that sales in the first month of
each quarter tend to be 20% higher than each of the remaining months.
Here is the latest forecast for 2000, in ‘000s of packs
Jan
Feb
Mar
Apr
May
Jun
Raid
er
s’gle
50
50
50
40
40
40
Raid
er 3pk
3
3
3
8
8
Raid
er
10pk
2
2
2
1
1
Jul
Aug
Sep
Oct
Nov
Dec
60
60
60
100
100
100
8
5
5
5
8
8
8
1
1.5
1.5
1.5
1
1
1
Sales & Operations Planning Simulation
BRIEFING FOR WESTERN EUROPE & THE AMERICAS REGIONAL SALES
DIRECTOR
Your region covers Western Europe, North & South America). Trademark issues have
meant that ‘Chox’ is not acceptable outside the UK, and so the product is branded
‘Raider’
With highly developed markets you have a predictable business, and are confident
that the numbers are accurate. Your forecast includes promotional activity in
September which would drive a 20% increase in sales for 3 months. This promotion
would not happen if a groupwide promotion linked to the Sydney Olympics took
place.
Here is the latest forecast for 2000, in ‘000s of packs (excluding Chox sales in UK)
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Raid
er
s’gle
180
160
120
140
180
160
160
120
120
120
100
140
Raid
er 3pk
30
25
20
16
15
15
12
21
32
20
20
25
Raid
er
10pk
4
5
4
4
3
3
3
2
4
4
6
4