Covolo Diving Gear Team 3: Neiko Jennings, Patricia Iseley, Michael Davis, Kenneth Fleck, Wesam Hoblos SALES AND OPERATIONS PLANNING AUGUST 2013 – SEPTEMBER
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Covolo Diving Gear Team 3: Neiko Jennings, Patricia Iseley, Michael Davis, Kenneth Fleck, Wesam Hoblos SALES AND OPERATIONS PLANNING AUGUST 2013 – SEPTEMBER 2014
Team 3: Neiko Jennings, Patricia Iseley, Michael Davis, Kenneth Fleck, Wesam Hoblos
SALES AND OPERATIONS PLANNING
AUGUST 2013 – SEPTEMBER 2014
Introduction
Covolo Diving Gear is a prestigious manufacturer of diving equipment that utilizes secial German made parts.
As of late, Covolo has experienced manufacturing quandaries. In order to resolve their dilemmas, Sales and Operations planning will be used to help coordinate their efforts.
This presentation will demonstrate the most effective solution for Covolo Diving Gear.
TOP-DOWN BOTTOM UP
Single, aggregate sales forecast
Consistent product mix from one period to the next
Products must have similar resource requirements
Separate estimates of requirements for each product added up to find forecast
Unstable product mix from one period to the next
Products/services have different resource requirements
TOP-DOWN VS. BOTTOM UP
TOP-DOWN PLANNING
Top Down Planning Sequence:Corporate Strategic PlanningBusiness PlanTactical or Production PlanDetailed Planning and Control: Master Schedule
Consensus Production Plan for Sept. 2013 – Aug 2014
Sales and Operations PlanningLevel vs. Chase Production Plan
Recommendation: Chase Plan
Why?Cost / Benefit
wesamhoblos
Sales and Operations Planning offers us the ability to compare and contrast the costs associated with the different methods of setting our production levels for the next year.Both the Level and Chase Production Plans have their advantages and disadvantages. Given the nature of our business, as well as the “bottom line” cost, we are recommending that the Chase Plan be authorized for September 2013 through August 2014.And now we will look at why the Chase Plan is our recommendation and go through exactly how the Chase Plan will lower our costs, as well as take a look at the disadvantages of the Chase Plan.
Total Cost
Level Production Plan = $30,996,000
Chase Production Plan = $29,084,090
wesamhoblos
Please refer to the table for the Level Production Plan in Appendix 1. As you can see, if we take the total estimated sales forecast for the next twelve months and manufacture gauge sets equally over that time so as to equal the sales forecast over the twelve month period, our total costs will be $30,996,000. On the other hand, the Chase Production Plan (see Appendix 2), where we change our production level each month to match the sales forecast for that month, will cost $29,084,090. For this reason the Chase Plan is our recommendation to you today.
Total Cost Breakdown - Where do the numbers come from?
2 Major differences in the costs of each planCost of changing production levels (Hire/Layoff
costs)Cost of holding additional inventory
wesamhoblos
The Chase Production Plan says we will save $1.9 million. So where does the difference come from? It comes from two places. First it comes from the costs associated with changing production levels. Because our gauge sets are always made the same way, the only costs in changing production levels are those that revolve around laying off employees in slower months, and hiring new workers in those months with higher production levels. The second cost difference comes from the differences in the amount of inventory that is held, and the cost that it incurs.
By The Numbers
Regular Production Costs Level Plan = $28,608,000Chase Plan = $28,083,520
Hiring and Layoff Costs Level Plan = $0Chase Plan = $66,650
wesamhoblos
Both the Level Plan and the Chase Plan are broken down into their regular production costs, hiring and layoff costs, and inventory holding costs in Appendices 3 and 4 respectively. As you can see, because the target is still to meet the forecasted demand for the next twelve months in both plans, their regular production costs are roughly the same. The Human Resources Department has estimated that the cost of laying off one worker is $500, and the cost of hiring and training a new worker is $1,250. But if you look at the costs associated with the hiring and firing of employees, you can easily see that the Level Plan calls for no changes in labor over the entire year, while the Chase Plan will incur those costs due to the monthly changes in production level.So far it would appear that the Level Plan is dominant in terms of the costs of implementing it.
By The Numbers
Inventory Holding Costs Level Plan = $2,388,000Chase Plan = $933,920.00
wesamhoblos
But here we see the main factor that separates the two, the costs of holding units in inventor instead of selling them. The cost of holding one unit in inventory is $8, which adds up quickly when you’re talking about tens of thousands of units. Because the Chase Plan does maintain a small buffer to demand each month, there is an inventory holding cost each month. Here we see that for the year the Chase Plan has a cost of over $900,000However, because the Level Plan calls for much larger stockpiles of inventory during the slower months, those months incur a much higher cost. Not only do those costs affect the particular month in question, but until demand rises and those stockpiles begin to be reduced, they incur those costs month after month, and therein lies the almost $2 million in savings from using the Chase Production Plan.
SALES AND OPERATIONS PLANNING
How will a monthly S&OP update with roll ing planning horizons help alleviate Patricia’s concerns?
Monthly meetings will allow the company to stay organized and on the same page
Efficient Communication and Coordination with Management and Department Heads
Allows you to forecast upcoming months thus making sure production is up to speed or notified
Allows you to plan and see Short term and long term goals and expectations
Keeping Idle Workers or Hiring and Firing?
Full production = 160 hoursAverage labor hours/gauge set = 0.25Holding cost = $8/gauge set/month
160 hours x 4 gauge sets/hr = 640 gauge sets
640 gauge sets x $8 = $5, 120 per month
$5,120 x 12 = $61,440 per year
Keeping Idle Workers or Hiring and Firing?
Hiring/Firing cost for Chase Plan = $66,650
Savings for idle workers = $5,210
Advantages After Plan Change
Are there still advantages to S&OP, even though the forecasts may change a couple of months after the plan is created?
It allows everyone to see the goals they must reach
Advantages After Plan Change
It can help the company in both the short run and the long run
Allows them to know what spending limit and sales will be for that certain time period
