UEP Getting Ahead Through Six Practices, Practice 5 World Class Integrated Planning
1. Getting ahead through
Six Practices
Practice 5
Supply Chain Consultancy
World-class
Integrated Planning
Recently, McKinsey and Co. (in conjunction their major concerns. This is not surprising.
with Georgia Tech College of Management) Over the past 10 years, supply chains have
published a report which indicated become increasingly global, opening new areas
that six supply chain related practices of risk and uncertainty. Issues such as natural
are fundamental to giving companies a disasters, political instability and exchange rate
competitive edge. According to the findings, fluctuations can affect supply at very short
companies who excel in these six areas notice and have potentially catastrophic effects.
are dominant in terms of service, cost and Add to this the complexity of new routes to
inventory. In this paper Derek Thomason market, a more informed and fickle customer
and Martin Green look at the fifth of these base, shorter product lifecycles and high
practices, World class integrated planning: levels of commercial activity (e.g. promotions,
end to end and top to bottom marketing campaigns etc) and it is easy to
understand why planning has risen up the
Many senior supply chain executives report business agenda.
that planning and forecasting is now one of
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2. Yet many businesses operate planning processes that are based on historical models and do not
reflect this change in circumstances.
Every supply chain must have a plan; note that this is singular, i.e. one plan. This plan must be
integrated (i.e. joined together) and synchronised (i.e. performed in a timely manner).
Companies that do not have integrated planning are characterised by:
constant ‘fire fighting’ in response to unplanned or unexpected events;
high levels of inventory (often the wrong inventory) at multiple levels in the supply chain;
distrust of the plans and activities of other departments.
Planning is thus complex and multi dimensional:
Vertically within a business. I.e. The plans and aspirations of the senior management team
need to percolate down through the business to affect behaviours at the ‘shop floor’ level;
Horizontally within a business (or even between businesses). i.e. all the various departments
within a business must work to achieve the same business objective. Indeed, this can be
extended to include both suppliers and customers.
Time. The business needs to make decisions far in advance of the end ‘event’ hence the need
to plan rather than just respond. At the same time it needs to be able to react quickly, maybe
in a matter of hours.
We address each of these dimensions in the following chapters.
Clients that have integrated planning exhibit the following characteristics:
a planning framework that cascades down from the high level corporate plan to affect the
behaviours of the staff on the shop floor, e.g., a Policy Deployment Matrix (or PDM) process;
KPIs that encourage everyone to focus on customer value and overall supply chain
effectiveness rather than ‘Silo’ efficiency, e.g., focusing on customer service;
a culture that encourages cross functional dialogue and collaboration, both internally and with
trading partners (e.g. in Unipart we deploy a process called Ten(d) to Zero. This aims to reduce
suppliers errors to zero);
A process that provides end-to-end visibility of supply chain performance to everyone;
A process that provides visibility of all upcoming events and changes in a timely manner. (e.g.
promotional activity or introduction of new product lines)
a process that segments the planning effort, for example:
Complex or problem areas are put ‘under the microscope’;
Figure 1. The Planning Hierarchy Automation of planning and forecasting is deployed in less onerous areas;
a continuous improvement culture that empowers everyone (at all levels) to challenge current
processes and develop improvements
Strategic
Planning Note that several of these points are ‘cultural’ rather then ‘technical’.
Vertical Planning - Policy Deployment (or Hoshin Kanri)
Business It is all very well having a grand master plan and a strategy, but if it does not translate into actions
Planning
and changes in behaviours at the shop floor level, the vision is unlikely to be realised.
Figure 1 illustrates the key vertical planning requirements. At the top are the business strategy
Sales and
Operations and the planning objectives. At the bottom are the key materials planning processes, including
Planning demand planning, procurement, manufacturing and inventory planning.
Policy Deployment (also known as Hoshin Kanri) is a tool to cascade business objectives down
Demand Management and through each level of management, to ensure that everyone is moving in the same direction. It
Manufacturing Scheduling
is a method of sorting the many desirable projects from the few essential ones. In Planning and
Forecasting terms this is a prerequisite
Integrated
Planning
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3. There are four main parts to the successful use of Policy deployment, these are:
establishing aims and projects;
developing deliverables and results;
agreeing resources and accountabilities;
monitoring progress.
Establishing the mission of the unit being planned and its aims starts at the senior management
level in terms of business objectives. This is then converted into a required set of project
deliverables and the results by which progress will be measured.
Each level and function is then asked to identify its supporting aims, project deliverables and
results needed to meet the business goals.
The cascade continues to objectives for the individual.
Figure 2. A typicalPDM planning process
Jun Jul Aug Sept Oct Nov Dec
Financial Corporate
Planning Budgeting
Planning
Pre-work Level One Business PDM
Function / Project PDM Level Two
Policy
Deployment
Department / PDM Level Three
Team & Individual plan Level Four
Horizontal planning: Sales and Operations Planning
Typically the supply chain planning process is split into two areas, demand and supply. Inventory
or ‘backlog’ forms the buffer between the two. Thus the levels of inventory or the size of the
backlog are indicators of the extent to which supply and demand are synchronised (or not!!).
Sales and Operations Planning (S&OP) is a key tool in the integrated planning armoury. While
most companies operate demand, and a number of supply planning processes, (including
inventory, MRP, MPS etc), they frequently do not bring these together in a formal way. In fact,
many companies do not have a formal supply plan, relying on their ability to react and respond to
short term circumstances. These cultures breed a reliance on ‘heroes’ and a distrust of ‘the other
side’.
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4. Figure 3. The horizontal planning components
Generating Demand
Account /
Consumers Category Channel Promotions
Consumers
Customers
Suppliers
NPD
Integrated Customer
Planning Service
Manage
Purchase Manufacture Inventory Distribute
Ensuring Supply
S&OP is the tool that:
provides end-to-end visibility of the supply chain;
bridges the gap between high level business plans / strategies and operational requirements;
ensures clear and concise communication between the demand generation side of
the business (Sales and Marketing) and the supply side of the business (Procurement,
Manufacturing, Inventory, etc).
Figure 3 shows how S&OP sits at the centre of all the key business processes and provides an
important role in integrating plans across the supply chain.
As S&OP is usually attended by the most senior managers, it also provides a vital link in the
vertical planning dimension. i.e. it helps translate strategy into action
However, implementing S&OP is not simply a ‘technical’ process. By its nature, it often challenges
conventional wisdoms and forces conversations that in the past have not been held. It requires
information (and data) to be presented and discussed in different ways and common units of
measure to be developed. (For example, sales may plan in terms of £s, while supply chain may
work in tonnes, cases or units).
At Unipart we treat S&OP as a cultural and process change exercise. While technology is
necessary to support the process, success will only come with significant changes in attitude. In
other words it is more about ‘hearts and minds’ then it is about systems and processes.
The main pre requisite for implementing this process is that there MUST be a senior champion
on the board. Without this support and commitment, the process will fail to unlock the potential
that S&OP offers for integrated planning
Time as a planning dimension
Our experience shows that many planning processes are not ‘fit for purpose’. This is because
all businesses need to plan against a number of time dimensions. At the one level there is the
longer term plans associated with obtaining new capacity and developing new skills. At the other
end of the scale, businesses often need to be able to react to changing circumstances in a matter
of days or even hours.
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5. Figure 4 The traditional planning process
Demand signal Forecast (MPS?) Production Make Ship
Schedule
week 0 week 1 week 2 week 3 week4
Many businesses operate on a rigid operational planning process which is summarised in figure 4.
While this may suit some businesses, in today’s turbulent trading environment, the process is
often too slow to react to changes in circumstances. The result is that plans are ‘out of date’
almost before they are published and the business slips into ‘firefighting mode’. Nobody trusts
(or adheres) to the plan.
The solution lies partially in understanding the demand characteristics in more detail and
recognising that ‘one size does not fit all’. For example, a business may have products that fit into
all or some of the following:
Stable demand
Promotions or planned ‘spikes’
New products
Seasonal lines
Slow moving lines
Each of these requires a different planning process. Products may move from one process to
another over time (for example, as a product moves into a promotion). Thus (for example), we
may choose to allow our standard automated planning and forecasting process to look after the
products on ‘stable demand’. However, when a product is due to go on promotion, it needs
to be taken out of the standard process and ‘put under the microscope’. This may involve daily
reviews with key stakeholders and the use of different data to manage the process. Again, S&OP
is the mechanism that coordinates this activity.
Education and Training
One of the first questions we ask is ‘how many of the supply chain team have received any
formal supply chain training?’ The answer is usually a lamentably small number.
Education is a pre-requisite to Integrated Planning as it raises awareness of the broader issues
in managing a supply chain and reduces distrust between the key stakeholders. This education
is usually required at ALL levels in the business, from CEO down to the shop floor (although,
naturally the nature of the training will differ).
Process Definition.
One of the major issues within planning and forecasting is that there can be a lack of clarity of
roles and responsibilities. Forecasting is a classic area. The key input to this process has to be the
demand plan, owned by the sales and marketing team. However, they rarely have the incentive
to put effort into this process and when they do, it is often based on value (£). Supply Chain
then have to interpret this into cases, pallets and tonnes by SKU. Alternatively, supply chain may
have responsibility for producing a forecast (usually statistically), and then try to get input from
the sales and marketing teams. The resulting forecast has an element of ‘not invented here’ about
it. One of the benefits of S&OP mentioned above is that it forces businesses to confront these
issues. A clear description of the processes, together with clarity on roles and responsibilities,
provides a basis for process improvement. This then allows businesses to ‘blue-print’ and trial
process improvements.
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6. Expert Input
Developing a new (or improved) planning process requires careful facilitation and change
management. It also requires someone with new insights and free of existing organisational
politics. If this does not happen, there is a grave danger of simply reinventing old processes. This
frequently happens when businesses install new software. This software is usually configured to
replicate historical processes, and the opportunity to undertake significant improvement is lost
Conclusions
In today’s turbulent business environment, having a planning process that is truly ‘fit for purpose’
is more important then at any time in the past. The process needs to be integrated at all levels
in the organisation and effectively engage all the key stakeholders. At the same time, the process
needs to be able to respond rapidly to changing circumstances. Developing and implementing
a new process is complex, involving not just changes in ways of working, but also changes in
attitudes and behaviours across the business. However, the benefits associated with this effort
are significant. McKinsey report that companies with world class planning processes “were 4
times more likely to achieve top third inventory performance, 2.6 times more likely to achieve
top distribution and logistics performance, and 1.3 times more likely to achieve top service
performance”.
So it is well worth the effort!
UEP is uniquely positioned to support planning and forecasting projects. Many of the techniques
are already established within our business through the Unipart Way (our way of working). We
have established a reputation for thought leadership and present regular seminars on the subject.
Unipart Expert Practices
As the consultancy arm of Unipart Logistics, Unipart Expert Practices (UEP) provides supply
chain consulting services. UEP has particular areas of expertise in process re-design, sustainable
employee engagement, supply chain strategy, design and operation. UEP’s clients include Shell,
Home Delivery, ESAB, Network Rail & Sky.
The next articles in this series, together with any other publications from our quarterly
publication Living Logistics are available from the Thought Leadership section of our web site.
www.unipartlogistics.com/consulting
For more information contact:
Unipart Expert Practices
Unipart House, Garsington Road
Cowley, Oxford
OX4 2PG
Tel: +44 (0) 1865 384690
uep.enquiries@unipart.co.uk
or visit our website:
www.unipartlogistics.com/consulting
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