Posted: April 24th, 2025
forecasting demand Powerpoint
Forecasting and Demand Presentation
Forecasting is essentially a reactive approach that considers fluctuations in demand to be mostly outside the firm’s control.
Rather than simply forecasting and reacting to changes in demand, however, business executives would prefer to influence the
timing, pattern, and certainty of demand to whatever extent they can. They do this through demand management activities that
adjust product characteristics including price, promotion, and availability. The purpose is to influence product demand to achieve
sales objectives and to accommodate the supply chain resources and capacities that a firm has in place.
1. How would you require extra resources to expand and contract capacity to meet varying demand for your current
organization?
2. How does backlogging smooth out certain orders to demand fluctuations?
3. When does customer dissatisfaction create an inability to meet all demands?
4. How would you buffer a system through the use of safety stocks (excess inventories), safety lead time (lead times with
a cushion) or safety capacity (excess resources) at work?
5. 10 – 12 slides excluding cover and reference page
6. Three outside sources
EXAMPLE TO USE: Beats Earbuds: use Beats earbuds as an example in your discussion.
Due: November 1
Chapter 13
Sales and Operations Planning
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Learning Objectives
13-1 Describe the role and the process of sales and operations planning.
13-
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Define the contents of an aggregate plan.
13-3 Explain the relevant costs in developing an aggregate plan.
13-4 Contrast different types of aggregate production strategies.
13-5 Develop alternative aggregate production plans.
13-6 Explain the differences in aggregate planning in services versus manufacturing industries.
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Harvesting the Fruits of S&O P at Sunsweet Growers
Learning Objective 13-1
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Sales and Operations Planning
Sales and Operations Planning (S&O P): process for integrating marketing and operations plan to develop a tactical plan.
Attempt to balance supply and demand.
Learning Objective 13-1
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Sales and Operations Planning Overview
Figure 13-1 Overview of Sales and Operations Planning
Learning Objective 13-1
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Balancing Objectives 1
Table 13-1 Sales and Operations: Balancing Objectives
Sales
Operations
Aggregate forecasts
Detailed forecasts
Many product variations
Few product variations
Rapid-response
Long production runs
High service
Stable production schedules
Maximize revenue
Maximize output; minimize costs
Learning Objective 13-1
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Balancing Objectives 2
Table 13-1 Finance and Operations: Balancing Objectives
Finance
Operations
Maximize financial returns
Minimize costs
Reduce financial risk
Reduce variance
High returns on investment
Maintain up-time
Focus on customers with highest contribution margins
Focus on grouping orders together to enhance operational efficiency or to reduce setups
Learning Objective 13-1
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Benefits of Sales & Operations Planning 1
Quantitative benefits:
Improved forecast accuracy.
Higher customer service.
More stable supply.
Better new product introduction.
Learning Objective 13-1
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Benefits of Sales & Operations Planning 2
Quantitative benefits:
Better organizational teamwork.
Faster and better aligned decision making.
Greater accountability for performance.
Better business visibility.
Learning Objective 13-1
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Demand Planning and O M
Figure 13-2 The S&O P Process
Learning Objective 13-1
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Levels of S&O P Maturity 1
Table 13-3 Sales and Operations Maturity Model
Stage 1: Marginal Process
Stage 2: Typical Process
Stage 3: Classic S&O P Process
Stage 4: I B P Process
Informal meetings
– Sporadic scheduling
– Desired outcomes rarely addressed
Routine meetings
– Regular cadence established
– Spotty attendance and preparation
Disciplined meetings
– 100% preparation and participation
– Roles clearly defined
– Clearly defined outcomes:
Event-driven meetings
– Address changes or supply-demand imbalances
– Strategic as well as tactical planning
Disjointed processes
– Separate, misaligned plans
– Unclear involvement with shott-term outlook
Interfaced processes
– Demand plans reconciled
– Supply plans aligned to demand plans
– Supply plans aligned to demand plans
– Sales directors and department managers
Integrated processes
– Demand & supply plans jointly aligned; constraints identified; some risks identified
– Execs, directors, managers: from ops, sales, finance
– C P F R with limited number of suppliers and customers
Extended processes
– Demand, supply, and capital plans aligned internally and externally using collaboration hub
– Extensive risk/ scenario planning
– C P F R with all important suppliers & customers
– Frequent outcome reviews & process improvements
Learning Objective 13-1
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Levels of S&O P Maturity 2
Table 13-3 Sales and Operations Maturity Model
Stage 1: Marginal Process
Stage 2: Typical Process
Stage 3: Classic S&OP Process
Stage 4: IBP Process
Minimal technology
Multitude of spreadsheets. Sequential updates. Much data cleansing and manual translation
Interfaced applications
Demand planning and multi-facility E R P and advanced planning systems interfaced on a one-way basis. Incomplete data. Business intelligence available but not routinely used
Integrated applications
Integrated, concurrent demand and supply planning packages. Business intelligence, analytics, scenario evaluation tools. Master data consistently defined and hạrmonized. External information brought in manually
Full set of integrated
technologies
Advanced S&O P workbench. External facing collaborative software integrated with internal systems. Master data harmonized throughout the supply chain
Traditional measures
Many metrics, function specific, outcomes only
Interfaced measures
Consolidated set of K P Is Cross-functional awareness
Integrated meásures
Functional and aligned K P Is approved by team; trade-offs addressed. Cross-S O P process scorecard. Industry benchmarking
Strategic measures
Profit-based metrics. Measures of strategic initiative attainment. Aligned with customer promises. Best in class benchmarking
Learning Objective 13-1
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S&O P: Recent Trends and Developments
Advances in digital technology such as:
Analytics.
Big Data.
Internet of Things (I o T).
Blockchain.
These developments are:
Driving down costs.
Improving overall performance.
Enabling S C to be more responsive.
Learning Objective 13-1
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Aggregate Production Planning
Aggregate Production Planning:
Balances production, inventory, resources and demand.
Specifies production rates, inventory, employment levels, backlogs, possible subcontracting, and other resources needed to meet the sales plan.
Learning Objective 13-2
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Aggregate Production Planning Costs
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.
Backorder/lost sales: expediting supply, lost goodwill.
Subcontracting: unit cost and loss of control.
Learning Objective 13-3
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Aggregate Planning Strategies 1
Level: produce at a constant rate, use changing inventory levels to buffer supply and demand.
Learning Objective 13-4
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Creating a Level Aggregate Plan
Level: produce at a constant rate, use changing inventory levels to buffer supply and demand.
P = level production rate
E I = desired ending inventory level
B I = beginning inventory
N = Number of planning periods
Learning Objective 13-4
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Aggregate Planning Strategies 2
Chase: change production to match demand, inventory remains relatively stable and low.
Learning Objective 13-4
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Aggregate Planning Strategies 3
Chase: change production to match demand, inventory remains relatively stable and low.
Hire and Fire Employees: Produce all units internally by hiring workers in high-demand months and firing/laying off workers in low-demand months.
Use Overtime: Produce internally the quantity required to meet demand in the lowest-demand month and use overtime production to meet demand in other months.
Subcontract: Produce internally the quantity required to meet demand in the lowest-demand month and use subcontracting to meet demand in other months.
Discussion question:
What circumstances would favor a chase plan over a level plan?
Learning Objective 13-4
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Aggregate Planning Strategies 4
Figure 13-3 Retail Sales by Week
Learning Objective 13-4
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Aggregate Planning Strategies 5
Hybrid: combination of level and chase strategies.
Learning Objective 13-4
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Level Aggregate Plan Example 13-1 1
Example 13-1
The level production rate for the Sodas Galore plan is:
Determine the number of workers needed to produce the required quantity each month:
= 10 production employees
Learning Objective 13-5
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Level Aggregate Plan Example 13-1 2
P = level production rate
= demand in period i
EI = desired ending inventory level
BI = beginning inventory
N = Number of planning periods
Learning Objective 13-5
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Level Aggregate Plan Example 13-1 3
Determine the number of workers to hire or fire.
Table 13-5 Sodas Galore Planning Data
Current workforce
8 workers
Average monthly output per worker
4,000 cases per month
Inventory holding cost
$0.30 per case per month
Regular wage rate
$20.00 per hour
Regular production hours/month
160 hours
Overtime wage rate
$30.00 per hour
Hiring cost
$1,000 per worker
Subcontracting cost
$1.15 per case
Firing/layoff cost
$1,500 per worker
Beginning inventory
5,000 (all safety stock)
8 workers: Need to hire 2 additional workers.
Learning Objective 13-5
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Level Aggregate Plan Example 13-1 4
Develop the plan.
Table 13-6 Sodas Galore Level Production Plan
Beginning inventory = 5,000; Beginning workers = 8
Month
Demand
Regular Production
Overtime or Subcontract Production
Ending Inventory*
Workers Required (4,000 cases/ worker)
Hire
Fire/Lay Off
Jan.
24,000
40,000
0
21,000
10
2
0
Feb.
32,000
40,000
0
29,000
10
0
0
March
32,000
40,000
0
37,000
10
0
0
April
48,000
40,000
0
29,000
10
0
0
May
60,000
40,000
0
9,000
10
0
0
June
44,000
40,000
0
5,000
10
0
0
Total
240,000
240,000
0
130,000
2
0
Learning Objective 13-5
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Level Aggregate Plan Example 13-1 5
Ending Inventory*
21,000 = Beginning Inventory + Production − Demand
= 5,000 + 40,000 − 24,000
= 21,000
29,000 = Beginning Inventory + Production − Demand
= 5,000 + 40,000 − 24,000
= 21,000
Note: the Ending inventory of prior period becomes the Beginning Inventory of the next period.
Learning Objective 13-5
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Creating a Chase Aggregate Plan
Chase: change production to match demand, inventory remains relatively stable and low.
Three options to consider:
Produce everything in house, vary the workforce level.
Produce everything in house, workforce level to meet lowest demand period, use overtime for higher demand.
Produce everything in house, workforce level to meet lowest demand period, use subcontractor to produce higher demand.
Learning Objective 13-5
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Chase Plan Example 13-2 1
Table 13-7 Chase Plan: Adjust Workforce Size
Beginning inventory = 5,000; Beginning workers = 8
Month
Demand
Regular Production
Overtime or Subcontract Production
Ending Inventory*
Workers Required (4,000 cases/ worker)
Hire
Fire/Lay Off
Jan.
24,000
24,000
0
5,000
6
0
2
Feb.
32,000
32,000
0
5,000
8
2
0
March
32,000
32,000
0
5,000
8
0
0
April
48,000
48,000
0
5,000
12
4
0
May
60,000
60,000
0
5,000
15
3
0
June
44,000
40,000
0
5,000
11
0
4
Total
240,000
240,000
0
30,000
9
6
Learning Objective 13-5
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Chase Plan Example 13-2 2
Regular production:
Under the Chase plan, Production = Demand.
To produce 24,000 units, 6 workers Are needed.
Fire/ layoff:
Since at the beginning of the period, there are 8 Workers, two will be laid off.
Learning Objective 13-5
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Chase Plan – Overtime or Subcontract Example 13-3
Table 13-8 Chase Plan: Use Overtime or Subcontract Labor
Beginning inventory = 5,000; Beginning workers = 8
Month
Demand
Regular Production
Overtime or Subcontract Production
Ending Inventory*
Workers Required (4,000 cases/ worker)
Hire
Fire/Lay Off
Jan.
24,000
24,000
0
5,000
6
0
2
Feb.
32,000
24,000
8,000
5,000
6
0
0
March
32,000
24,000
8,000
5,000
6
0
0
April
48,000
24,000
24,000
5,000
6
0
0
May
60,000
24,000
36,000
5,000
6
0
0
June
44,000
24,000
20,000
5,000
6
0
0
Total
240,000
144,000
96,000
30,000
0
2
Overtime or subcontract production: Units needed each month are met by either overtime work or subcontracting.
Learning Objective 13-5
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Comparison of Five Plans at Sodas Galore Example 13-4
Table 13-9 Sodas Galore: A Hybrid Solution
Beginning inventory = 5,000; Beginning workers = 8
Month
Demand
Regular Production
Overtime or Subcontract Production
Ending Inventory*
Workers Required (4,000 cases/ worker)
Hire
Fire/Lay Off
Jan.
24,000
32,000
0
13,000
8
0
0
Feb.
32,000
32,000
0
13,000
8
0
0
March
32,000
32,000
0
13,000
8
0
0
April
48,000
32,000
8,000
5,000
8
0
0
May
60,000
32,000
28,000
5,000
8
0
0
June
44,000
32,000
12,000
5,000
8
0
0
Total
240,000
192,000
48,000
54,000
0
0
Learning Objective 13-5
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Comparison of Five Plans at Sodas Galore
Table 13-10 Comparison of Five Plans at Sodas Galore
Aggregate Plan
Reg. Prod. Cost
Overtime Cost
Subcontr. Cost
Inventory Cost
Hire Cost
Fire/Lay Off Cost
Total Cost
Level
$192,000
0
0
$39,000
$2,000
$233,000
Chase-Hire/Layoff
$192,000
0
0
$9,000
$9,000
$9,000
$219,000
Chase-Overtime
$115,200
$115,200
0
$9,000
0
$3,000
$242,400
Chase-Subcontract
$115,200
0
$110,400
$9,000
0
$3,000
$237,600
Hybrid
$153,600
$57,600
0
$16,200
0
0
$227,400
Learning Objective 13-5
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Aggregate Planning for Service
Yield Management: adjusting prices in response to demand levels.
Services can not create inventory to buffer demand.
Modify prices to encourage customers to purchase for service at supplier desired times.
Goal is to maximize revenue and profit.
Dynamic Pricing – the practice of rapidly adjusting prices to increase, decrease, or shift demand in a given period.
Discussion question:
Why are consumers more likely to accept dynamic pricing in some settings rather than others?
Learning Objective 13-5
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Service Aggregate Plan Example 13-5 1
Suppose Nile Inc., an Internet retailer, needs to develop an aggregate plan for its warehouse operation. Demand in the warehouse is stated in terms of the number of labor hours required each quarter to pick, pack, and ship customers’ orders. Because the business is seasonal, demand is expected to be as follows:
Quarter 1: 15,000 labor hours.
Quarter 2: 12,000 labor hours.
Quarter 3: 10,000 labor hours.
Quarter 4: 18,000 labor hours.
Learning Objective 13-5
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Service Aggregate Plan Example 13-5 2
Full-time employees work 500 hours per quarter, and their total compensation (including benefits) is $10.00 per hour. A worker can work overtime, up to a maximum of 100 hours per quarter, for $15.00 per hour. If, however, a full-time employee is not busy for 500 hours, the employee is still paid for those hours.
Part-time workers can be hired as needed, as long as each works no more than 400 hours per quarter (there is no minimum requirement of hours for a part-time employee). Part-time workers earn $8.00 per hour. The company currently employs 20 workers. The hiring and firing cost for a part-time employee is $1,000 for each hire or fire.
Learning Objective 13-5
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Service Aggregate Plan Example 13-5 3
A total 10 workers must be hired to meet the first quarter demand.
Table 13-11 Level Plan for Nile Inc
Quarter
Demand (hours)
Regular Hours Paid
Overtime Hours Paid
Number of Hires
1
15,000
15,000
0
10
2
12,000
15,000
0
0
3
10,000
15,000
0
0
4
18,000
15,000
3,000
0
Total
60,000
3,000
10
Cost of level plan = Regular pay + Overtime pay + Hiring cost
= $655,000
Learning Objective 13-5
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Service Aggregate Plan Example 13-5 4
Chase Plan – Workforce will be large enough to only meet minimum demand requirement of 10,000 hours, thus permeant workforce is 20 workers → maximum 2,000 hours of overtime available.
Table 13-12 Chase Plan for Nile Inc.
Quarter
Demand
Regular Hours Paid
Overtime Hours Paid
Part-Time Hours
Part-Time Workers Needed
Hire
Fire
1
15,000
10,000
2,000
3,000
7.5=8
8
0
2
12,000
10,000
2,000
0
0
0
8
3
10,000
10,000
0
0
0
0
0
4
18,000
10,000
2,000
6,000
15
15
0
Total
40,000
6,000
9,000
23
8
Learning Objective 13-5
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Service Aggregate Plan Example 13-5 5
Cost of plan:
= $593,000
Learning Objective 13-5
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Student Activity
Rework the Nile Inc. chase plan assuming that the permanent workforce is 17 workers. How does your answer differ from the chase plan illustrated in Table 13-12?
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Sales and Operations Planning Summary
Balancing supply and demand is difficult.
S&O P is a cross-functional process.
A sales and operations plan will either influence demand to match supply, or match supply to demand.
S&O P must be a dynamic, responsive process.
There are multiple costs to consider.
The three basic strategies for S&O P are level, chase, and hybrid.
Services use yield management.
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End of Main Content
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Accessibility Content: Text Alternatives for Images
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Sales and Operations Planning Overview – Text Alternative
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At the center of this diagram is sales and operations planning process which coincides with financial budgeting (3 to 18 months) and has an output of an aggregate sales plan and an aggregate production plan. The inputs of the unconstrained marketing plan are: Orders on Hand, Current Customers, New Customers, Competition, Margin Analysis, New Products, Promotion Plans, Pricing. The inputs of the resource plan are: Inventory Replenishment, Capacity Constraints, Mix Constraints, Material, Transportation & Storage Constraints, and Suppliers.
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Demand Planning and O M – Text Alternative 1
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Step 0: Create Functional Input: Review Previous Plans and Results, Apply Lessons Learned. Step 1: Unconstrained Marketing Plan: Sales, Marketing, Brand Management, New Product. Step 2: Initial Resource Plan: Manufacturing, Supply Management, Logistics, Other. Step 3: Balanced plan. Step 4: Financial Review. This step can lead back to step 1, 2, or 3 for plan adjustments. Step 5: Executive Meeting: Review of Alternatives, Decision Making. Then comes the one plan: aggregate demand plan and aggregate production plan. Step 6: Implementation and follow up, which leads back to step 0.
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Aggregate Planning Strategies 1 – Text Alternative
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Quantity is on the y-axis and incremented by 50s from 0 to 200. Time period is on the x-axis and incremented by 1s from 1 to 12. Three lines are graphed: Demand, Production, and Inventory. Demand is roughly a sine wave, starting at (100, 1), curving up to (150, 7) before curving back down to (100, 12). Production is a horizontal line at 125. Inventory is the most widely varied line, starting at (100, 1) and curving up to (150, 4) and then down to (1, 10) and ending at (50, 12).
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Aggregate Planning Strategies 2 – Text Alternative
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Quantity is on the y-axis and incremented by 50s from 0 to 200. Time period is on the x-axis and incremented by 1s from 1 to 12. Three lines are graphed: Demand, Production, and Inventory. Demand and Production are same; they are a wave, starting at (100, 1), curving up to (150, 7) before curving back down to (100, 12). Inventory is a horizontal line at 10.
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Aggregate Planning Strategies 4 – Text Alternative
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Graphs has dollars, running from 4,000 to 14,000 on the vertical axis and time in weeks (1 through 53) on horizontal. The hypothetical data trends fairly evenly around 4,500 with small peak around week 13 up to 6,500 and down to 4,000 before resuming the typical trend. Then starting at week 41, the data trends steeply up to 14,000 and then back down to 4,500 by week 50.
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Aggregate Planning Strategies 5 – Text Alternative
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Quantity is on the y-axis and incremented by 50s from 0 to 200. Time period is on the x-axis and incremented by 1s from 1 to 12. Three lines are graphed: Demand, Production, and Inventory. Demand is a wave, starting at (100, 1), curving up to (170, 7) before curving back down to (100, 12). Production starts at (80, 1) and is level until (80, 5) where it climbs to (150, 6), where it is horizontal until Time 9, then it goes down to a quantity of 90 and is level to the end. Never crossing above a quantity of 50, Inventory trends downward until Time 5, then spikes up one period, then back down and level for two periods, then up one period, then down and trends upward for the last three periods.
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