The Business Planning Process

Processes of Master Planning of Resources (MPR):

·         Demand Management

o   Forecasting independent demand

o   Planning distribution

o   Managing actual customer orders

·         Sales and Operations Planning (S&OP)

o   Formal monthly process

o   Primary purpose of the S&OP:

§  Determine supply rates to achieve inventory targets

o   Output from S&OP:

§  Approved production plans

§  Sales Plan

§  Inventory/Backlog Plan

·         Master Scheduling

o   Rough-Cut Capacity Planning (RCCP)

§  Develop master production schedule > Test against production constraints > Evaluate > Retest if needed > Evaluate > Determine final plan

o   Output from Master Scheduling Process

§  An Approved Master Production Schedule (MPS)

o   Final Assembly Schedule (FAS)

§  Supported by the MPS

§  Represents how products are made to customer specifications

§  Can replace MPS in some environments (e.g. engineer-to-order)

 

The Planning Process

 

Balance of Supply and Demand

·         Demand Side of the scale:  Forecasts and Actual Demand

·         Supply Side of the scale:  Production Orders and Purchase Orders (placed with suppliers)

·         The CHALLENGE:  TO KEEP THE DEMAND AND THE SUPPLY SIDES IN BALANCE

 

Product Volume:  Expressed in rates of demand at the product family level.  The demand for your product determines how much you’ll make.

 

Product Mix:  Determines amounts of each individual product within a family that should be produced based on the plan.

 

Product Volume

Product Mix

 Bird’s Eye View

Detailed

How much to produce?

Which Products to produce?

Selling and Production Rates

Customer Orders

Product Families

Individual Products

Sales and Operation Planning

Master Scheduling

 

 

Planning Hierarchy

1.      Strategic Planning:                  Less Detailed; Long term

a.      Very high level: Vision, mission, and value statements; Analysis of organization’s strengths and weaknesses, opportunities, and threats.

b.      Goals are normally defined broadly at this step and financial in nature.

2.      Business Planning

a.      Specific goals and Targets based on direction set by strategic planning.

3.      Sales and Operations Planning

4.      Master Scheduling:                  Most Detailed; Near Term

 

Planning Horizon:  “the amount of time a plan extends into the future” –APICS dictionary

·         How long would the planning horizon be for the Master Scheduling process, short of long?  Why?  Short, the master scheduling process deals with working the details of the production schedules: lead times, lot sizing, small capacity changes to individual work centers.

·         When discussing the planning horizon you can include recent history with it.

·         Long-term horizons: 5 year; S&OP: 2 years; Budget and Financial plans: 1 year

 

The Business Plan:  Long-range strategy typically stated in dollars and grouped in product families

·         Includes:

o   Revenue, cost, and profit objectives

o   Budgets

o   Statement of Cash Flows

o   Projected Balance Sheet

·         The Common Features:

o   Nature of the firm:  What is it? What kind of business?

o   Location/facilities

o   Type of Organization and what skills of people required:  How is your organization structured?  What skills are crucial for your team?

o   Processing Technology levels

o   Requirements for Capital Resources:  How will you get the $$ you need?

o   Primary stakeholders interests:  Who and what groups of people will be affected?  What are their interests/goals out of this business?

 

·         Market Environment

o   Location of Customers and their relationship with you.

o   Growth Rates

o   Changing needs of the customer

o   Economic considerations

·         Business Environment

o   Competitors – current and future

o   Business growth projections

o   Financial resources availability

o   Emerging technologies – their impact on your plan

·         Key Business Performance Goals

o   Growth

o   Profitability

o   ROI (Return on Investment)

o   Market Share

o   Customer Service

o   Reputation

o   Company Value

·         Business Stakeholders:  Any group of people affected by your operations

o   Community

o   Management Team

o   Owners and Shareholders

o   Members of Associations

o   Employees

o   Customers

o   Suppliers

* Be careful about pleasing one group too much which then could anger another group…balance is the key for long-term success. 

·         Benchmarking:  Comparing how your organization does with you competitors

o   Strategies

o   Capabilities

o   Processes

o   Costs

o   Logistics

o   Systems

·         Business Plan Strategic Data Sources

o   Marketplace Needs – Market research, focus groups, forecasts

o   Environmental Scanning – Demographic data, govt. regulation, economic outlook, competitive environment.

o   Company Capabilities – skill levels of team members, available resources

o   Financial Targets – Revenue, cash flow, and profit

o   Strategic Goals – cost reduction, productivity, customer service, quality

 

Manufacturing Environments

·         Make-To-Stock (MTS):  Many types of raw materials; Few types of finished goods

·         Make-To-Order/Engineer-To-Order (MTO/ETO):  Few types of raw material; Many types of finished goods.

·         Assemble-To-Order (ATO)/Mass Customization:  Hybrid

 

 

P/D Ratio

·         P = Manufacuring Production Time or Lead Time

·         D = Customer required Delivery Time

·         If this is greater than 1 (production time exceeds customer required delivery time) you’ll have to forecast which means more risk. 

 

Manufacturing Environment Strategy

Supply Process

Make-to-Order

Discrete Batch

Assemble-to-Order

Intermittent Batch

Make-to-Stock

Continuous Flow/Repetitive

Mass Customization

Flexible High Volume

Engineer-to-order

Project, Discrete

 

Process Choices

·         Process Industry

o   Manufacture of any product that can be moved by hydraulic or pneumatic pressure through pipes/tubes

o   Liquids, chemicals, gases

o   A raw material undergoing changes via a chemical process (mixing, sterilizing, fermenting, cooking, combining, etc…)

·         Service Delivery

o   Delivered direct to customer that cannot be stored ahead of time.

o   Standardized Service:  same for all customers

o   Customized Service:  unique for each customer

·         Distribution Network Structure

o   The middle man between the manufacturer and the consumer (e.g. grocery store)

o   Retailers, agents, wholesalers, brokers

·         Multiple Environments within Same Facility

o   Can have make-to-stock, make-to-order, and engineer-to-order all within one facility

o   Example:  Lamps inc.

§  Make-to-Stock:  produces many of the exact same lamps to sell in high volume.

§  Make-to-Order:  High end, expensive, anti-aging lamp only made when a customer places an order.

§  Engineer-to-Order:  A lamp that must be engineered and completely customized for specific use… on the space shuttle for instance.

 

Sales and Operations Planning

·         Balances supply and demand

·         Deal with products families (not individual products)

·         Focus on volumes

·         Reviewed monthly

·         Formal business process

·         Benefits

o   Connects business plan to departmental activities

o   Means to achieve a common goal among different departments

o   Realistic production plans are created

o   Avoids hidden decisions made by only one department

Product Families

·         Similar manufacturing requirements

·         Similar sales requirements

·         Proportionate cost and revenue effects

·         Similar function and design

Product/Service Hierarchy (Forecast accuracy the best at the top, the worst at the bottom)

1.      Total Company

2.      Business Unit

3.      Product Family

4.      Product Subfamily

5.      Catalog Number/Model/Brand

6.      Package/lot Size

7.      Stock keeping Unit (SKU)

 

Resource Planning

·         Process of establishing, measuring, and adjusting levels of long-range capacity

·         Is the plan feasible based on capacity?

Bill of Resources

·         What is needed to produce one unit of the selected item or family?

·         Labor, Materials/Components, Facilities, Equipment, Research and Development, Finances.

 

Master Scheduling (usually determined by a person, not a computer)

·         Balances supply and demand

·         Specific products/end items

·         Subject to independent demand

·         For order promising

·         Sets boundaries for material and capacity planning

·         Formal business process

 

Rough-Cut Capacity Planning (RCCP)

·         Process of converting the master production schedule into requirements for critical resources (labor machinery, warehouse space, suppliers ‘capabilities, money)

·         Is the MPS feasible?