Skip to 0 minutes and 13 seconds Planning is the glue that holds the supply chain together because a goal without a plan is just a wish. The planning process essentially has three steps– goal definition, option evaluation, and implementation review. So let’s take an everyday example of planning a holiday to see this process in practise. What do I want to get from my holiday? I want the opportunity to relax, do a bit of sightseeing, and see a little bit of culture. I have two weeks, a specific budget, and I’m constrained to fly from certain airports. That’s my resources. Once I know those factors, I can try to evaluate the different options.
Skip to 0 minutes and 51 seconds There may be other activities that we need to plan in the shorter term– things like currency, making sure your passport’s up to date, and so on and so forth.
Skip to 1 minute and 2 seconds The big day’s arrived. I’m finally off on holiday. But all the way through my holiday, I begin to think about which bits are going well, which bits aren’t going so well, and the things that I would definitely do again. And next year, I can build that into my planning process. The planning process exists at a company or supply chain level, too. Just thinking about our holiday example, at the goal definition level, or the strategic level, they have to plan what type of holidays they’re offering, what locations they’re going to offer them in, also, what sort of pricing policy they’re going to have.
Skip to 1 minute and 33 seconds Moving into the tactical planning horizon, this is really where the organisation is looking to balance demand and supply. So it looks at its holiday portfolio and sees holidays in Spain could be popular, whilst demand for holidays in Portugal are not so high. It increases the price of the holidays in Spain to try to suppress demand and lowers the price of the holidays in Portugal to try to increase demand. So it gets better balance between demand and supply across its holiday portfolio. The operational phase is when people are actually on their holidays. And at this level, the holiday companies are trying to make sure the accommodation, travel excursions are all happening as they planned.
Skip to 2 minutes and 11 seconds So supply chain planning is really, really important because it ensures that consumers get what they want at the lowest possible supply chain cost.
The planning process
Planning is essential to ensure that our ‘wishes’ become reality at a price we can afford, as a ‘goal without a plan is just a wish’.
One of the things that I find fascinating about the planning process is that it supports all aspects of our lives, at an individual and organisational level. To paraphrase Eisenhower, whilst plans may change, it is the process of planning that is important. As illustrated in the video the planning process has 3 key stages: goal definition, option evaluation and implementation and review. In many situations it is an ongoing process, where the review from one cycle of planning (e.g. what went well and badly from one holiday) provides an input to the next. This is a generic process that is tailored to different types of planning, and can be affected by both the ‘planning horizon’ and the ‘level of planning’ or ‘planning hierarchy’.
The planning horizon is linked to the time period in which we can make changes without there being a serious consequence in terms of cost. If we think back to our holiday analogy. If we have to cancel a holiday at very short notice (i.e. in the frozen period) then we usually cannot get any of our money back. This is because the travel agent has already had to commit to hotels and flights etc. which cannot be easily changed at short notice. From a manufacturing perspective, this links to period in which changes to the final production schedule cannot be made without incurring high costs as materials and capacity have already been committed. There can be some flexibility to the final production schedule if materials and capacity are available. The frozen period is typically 1 month.
In the slush period some changes can be made to the plan but they need to be confirmed to check that materials and capacity are available. From a holiday planning perspective, this may be the period in which you can change or amend your booking but where a penalty charge is still in place (e.g. only refunded 60% of the price paid). Together the frozen and slush time horizons comprise the ‘operational’ level of planning; the level in the planning hierarchy where changes to the plan have a direct impact on capacity and resources, and have the largest cost implications. Its typically the first 3 months.
The liquid planning horizon as its name suggests is the period in which changes to the plan can be made as required without incurring a cost penalty. This is the period in which you could cancel a holiday with little or no financial consequence. It is much longer in its duration and comprises of two levels in the planning hierarchy. The strategic level looks to the longer term, to create a long term strategic direction for a business. This includes activities such as creating a 5-year business plan, and the annual company planning process. A critical link between the strategic and operational levels, is tactical planning. It typically covers a 3 -24 month planning horizon, and is the process that seeks to ensure that demand and supply are balanced.
Going back to our holiday analogy. This is where a holiday company will review how the actual demand for holidays is developing against the initial forecast. They will assess the gaps between demand and supply and take action accordingly. For instance, if demand is strong they may schedule more flights and hotels to offer more a particular location. If demand is weaker than predicted, they may reduce price to stimulate demand or cancel hotel and slight bookings. This process is known as the Sales and Operations Planning (S&OP) or Integrated Business Planning (IBP) process. It is arguably the most important planning process in a business.
As part of your day to day living what type of planning activities do you do at the:
- Operational level?
- Tactical level?
- Strategic level?
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