S&OP Example

Demand Forecast: Quarter Demand $($units$)$

$19,000$

$212,000$

$315,000$

$412,000$

Constraints:

Start inventory $=1000$ units

Ending inventory must be

$=>1000$ units per quarter

Max number of Workers $=13$

$($Assume we start with $12)$

Regular time capacity $=13,000$

units$/$quarter

Costs:

Inventory Holding Cost $=$

$$2$ per unit per quarter

Production Costs:

Regular time $=$ $$7\mathrm{.}50/$unit

Overtime $=$ $$10\mathrm{.}00/$unit

Hire$/$Fire Cost $=$ $$550/$employee

Production Rates & Inventory PositionsProduction Rates & Inventory Positions

for S&OP Strategiesfor S&OP Strategies

Strategy Quarter Beginning

Inventory

$+$ Production

Regular Overtime $-$ Demand $=$ Ending

Inventory

$11,0009,000$

Level $212,000$

$315,000$

$412,000$

$11,0009,000$

Chase $212,000$

$315,000$

$412,000$

$11,0009,000$

Mixed $212,000$

$315,000$

$412,000$

Costs of S&OP StrategiesCosts of S&OP Strategies

Strategy Quarter Workers Regular

Prod

$+$ Overtime

Prod

$+$ Hiring &

Firing

$+$ Inventory

Holding

$=$ Total

Cost

$1$

Level $2$

$3$

$4$

Totals

$1$

Chase $2$

$3$

$4$

Totals

$1$

Mixed $2$

$3$

$4$