You’ve bought a new car. You fill it with the appropriate fuel, wash and clean it and get it fully serviced every year to ensure it’s in peak condition. However, we neglect to do the same for our core planning processes in business.
Businesses invest in new planning tools, reengineering planning processes, senior manager recruitments and team restructures, but fail to put in place simple processes to ensure they continue to extract maximum value from investments.
A review only happens when there are major stock outs, large write-offs, product withdrawals or substantial changes in staff.
Planning is the process of organising the efficient, effective flow and storage of goods, services, dollars, people and related information from point of origin to point of consumption. It is the process of translating the request for product into activity and cost to satisfy customers.
The Value of Planning
If done well it can become a competitive advantage because it can take out cost through a reduction in inventory carrying costs, transportation and warehousing costs, ordering costs, and write-off and markdown costs. It can increase revenue through better service levels, stock availability, customer loyalty and new customers, making it easier to do business with you. It also can free up cash with lower inventory holdings, allowing the business to reinvest in growth initiatives.
Failure to plan properly can cause the slow death of the company through additional cost, lost sales and business, and no cash to support growth. On top of this, supply chain costs are likely to be double that of competitors.
Looking at supply chain costs as a percentage of sales, ‘best in class’ performers have roughly half the costs of ‘average in class’ performers. In other words, if you’re an average performer, your supply chain costs are likely twice that of the best performers.
Best in class performers have higher asset turnover because inventories are lower, often by 20-40 percent comparatively, while customer response times are faster. In a climate of tight credit and higher capital costs, those that can generate superior cashflows and return on capital employed (ROCE) will outperform.
What to do
Set up your warning lights.
In your car, when the engine light goes on, it prompts you to perform a specific action. Your planning processes need to use the same approach.
Don’t just review KPI measures, put in place process measures as well. In addition to reviewing measures such as forecast accuracy, schedule adherence and late purchase orders, also consider the percentage of forecast exceptions processed, the number of statistical forecast overrides and manual orders overrides compared with the automated ones.
Measure information pack availability, actions completed on time and meeting attendance.
While some of these processes are dependent on system capabilities, if you don’t measure them, they won’t improve. The key here is what ‘action’ to take when your business warning light goes on.
Book your planning ‘service’.
The process of maintenance and continuous improvement needs to be embedded into your existing processes. It doesn't take much to install a culture of continuous improvement. Don’t just focus on the car; look at the driver as well.
The two key areas to review are the processes themselves and the people who manage them.
Assess the planning process
Is it still suitable for your circumstance? Does your planning process support your company’s strategic objectives and your current customer offer? A good process manages inputs, not your outputs.
Build assessment into your existing processes. For example, at the end of your monthly supply review meeting, spend the final 10 minutes reviewing the meeting against its documented objectives. In your weekly planning work in progress (WIP), allocate time to focus on an area for review and plan these out in advance.
For larger processes, like annual budgeting, conduct a workshop. Record what worked well and what to improve for next time. Remember, nothing loses the engagement of people more than when adherence to a process is stressed over its business value.
Assess the planning people
Conduct a skills audit of your planning team. It can be a self-assessment or can include 360-degree feedback.
Create a template for your review to identify the key skills required to fulfil the roles.
This should focus on technical areas and system skills such as how to generate a statistical forecast in demand planning. It should also include process skills such as understanding how the process works and how to contribute to it. Finally, the review should include interpersonal skills and the ability to clearly communicate, present and partner the business.
The assessment should determine the baseline of the planning team’s current skills, where staff would like help, gaps that may need to be filled and what support may be required during certain activity periods.
The key here is to not make this process too onerous. The goal is to identify a few key areas that need development.
To build positive engagement from your planning team, communicate that this is a learning and development activity, it is not about performance management.
Incorporate the assessment into existing people management processes. As the goal of the review is to build a plan for the team’s capability needs, the review can be conducted yearly or half yearly as required.
Build your improvement plan
You now have a baseline from which you will be able to track improvement. It is time to build your service plan. Unlike getting your car serviced, this plan should be a series of activities you will undertake over the year.
Don’t build a plan that states you will increase forecast accuracy from x to y. Ensure you focus on the activities that will deliver the outcome.
Implement bottom up statistical forecasting
Training demand team on new item setup
Forecast accuracy improvement of x%
Review safety stocks utilising forecast errorRough Cut Capacity Planning training
DIFOT improvement of x%
Waste reduction of x%
|Automation of SOP information||Planning time saving x/hrs a week|
|Effective meeting skills training||
S&OP effectiveness improvement of x%
Track against your plan. Tracking against goals will educate the organisation on the levers that these activities will improve.
- Have you executed against your planned training calendar?
- Are your process improvement activities tracking to plan?
- Are the business’s KPIs moving in the right direction?
Share your plan with the organisation and seek feedback on it. This is a key step in any change management process.
Drive that extra performance. Appoint a champion who can push the process forward. Develop a Centre of Excellence and use internal subject matter experts for continuous support. Review the use of your technology – is there any latent system capability? And finally, you can always use experts who can help you break through.
Be aware ad-hoc management won’t do. Buying a new car doesn’t always make for a better driving experience, you need to know how to drive it and keep it regularly maintained.
DO YOU NEED TO UPDATE?
If you answer yes to any of the below, you may have out-of-date planning processes.
Over the last 5 years have you:
- Added new products to your portfolio
- Sold to new customers or markets
- Had changes to your Supply Chain network
- Imported more products
- Hired new people
- Reviewed your planning master data
- Reviewed your ERP configuration
Dan Knox is a Senior Manager at GRA and a trainer with the Supply Chain Business Institute.
This article was first published in Supply Chain Review in Augusts 2013.
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