2. Patricia Rodriguez, vice president of marketing, states,

“I’ve got to tell you all that I’m pretty comfortable with the forecasts for September through November, but after that, a lot could change. It’s just very hard to forecast for four or more months out in this kind of market.” How will a monthly S&OP update with rolling planning horizons help alleviate Patricia’s concerns? Are there still advantages to S&OP, even though the forecasts may change?

June 15, 2009.—It has been two weeks since their contentious semiannual planning meeting, and the senior staff members for Covolo Diving Gear are getting ready to start their first monthly S&OP meeting. Gina Covolo, CEO, gets the ball rolling:
I know it’s been a busy two weeks for all of you, and I appreciate you working extra time to get ready for this meeting. Production is already set for the next two months, so we’re going to start by planning for this September through the following August. I’ve had Patricia from marketing develop a sales forecast for these 12 months, and I’ve also had David from manufacturing estimate manufacturing costs and labor requirements, as well as capacity in the plant.Mary from HR was also good enough to come up with some estimates of how much it costs to hire and train new workers, as well as the cost of laying off folks. Finally, Jack from purchasing was able to get the accounting folks to estimate the cost of holding a gauge set in inventory for a month. So let’s see what we’ve got.

Mary passes out the following information to all of the attendees:

■ Manufacturing cost per gauge set: $74.50 ■ Holding cost: $8 per gauge set per month ■ Average labor hours required per gauge set:
0.25 hours ■ Labor hours available per employee per month: 160 ■ Plant capacity: 35,000 gauge sets per month ■ Cost to hire and train a new employee: $1250 ■ Cost to lay off an employee: $500 ■ Beginning and ending workforce is 50 ■ Beginning inventory is 10,000

Transcribed Image Text:

MONTH SALES FORECAST September 2006 October 30,000 gauge sets 31,500 November 35,000 December 37,000 January 2007 22,000 February 18,000 March 17,500 April 27,000 May 38,000 June 40,000 July 42,000 August 40,000