Saturday, May 14, 2005

Planning & Management - Is there a difference?

Supply chain practitioners need to change their thinking from rapid re-planning to active / agile management. The focus in supply chain improvements in the early 2000s used to be on cutting down planning cycle time. That is to reduce the amount of time to create or update a demand plan and get the supply plan aligned to that demand plan. The demand plan stated what the volume of each item that can be sold based on the latest history information. The supply plan figured out how much of that needs to be procured, produced and transported, where and when. This is what I refer to as the rapid re-planning mindset. The focus on rapid re-planning has several problems associated with it. By the time the plan is created (how ever rapid the plan creation is), the plan is already based on stale information. Also rapid re-planning leads to a very jerky supply chain because of the constant re-creation of the plan with a lot of plan changes; these plan changes lead to inefficiency. Given that the market is inherently variable and given the product proliferation that is there, rapid re-planning leads to lot of complaints about forecast accuracy. There have been several attempts to fix these issues.
  1. Move towards daily planning from weekly planning so that the plan is following the market rapidly.
  2. Incremental planning to reduce the planning cycle time to reduce how stale the information was when the plan was created.
  3. Plan repair rather than re-planning to counter the jerkiness of the plan.
  4. Create a freeze period so that the plan changes are not there in the short term.
  5. Improve forecast accuracy through better forecasting techniques like rule based forecasting etc.

Some of the above are good initiatives in their own right and should be done. But each of them addresses a symptom rather than the root-cause.

Some forward thinking companies have moved more towards an active / agile management. They use rapid re-planning as a last resort. The forward thinking companies create a plan that is anchored on a few metrics allows some flexibility on other metrics (for example, in a financial quarter, revenue could be the highest priority; margins and market share could be next lower priority). These companies constantly monitor their actual against plan to find deviations. If a product line is underselling, the first priority is to see how that product line can be made to contribute as was planned. The levers (or degrees of freedom) to make the plan happen could be price changes, promotions, sales incentives, channel incentives or others. Only as a last resort, and only a few times in a quarter, with the causes documented, is the plan revised; Revising the plans could be to reduce the contribution of that product line to the revenue plan, to reduce the procurement for that product line and to reduce the production for that product line.

The process of monitoring plan deviations, using all the levers to get back to plan and only as a last resort to re-plan is the mindset of active management.

What do you think?

Karthik Mani

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