Most manufacturers take advantage of planning software (MRP and its variants) to set production schedules and lay out replenishment requirements for inventory. Most companies also engage in a formal business planning process to set strategic objectives, plan cash flow and financial requirements, allocate funds to major business functions, plan capital expenditures, etc. But are these processes tied together into one integrated planning approach?
General Dwight D. Eisenhower was known to have said “Plans are useless but planning is essential” to acknowledge that the real world seldom behaves as we expect, but we must plan nevertheless. The end result of the planning process is a set of actions and goals that guide activities. In the case of manufacturing plans, the planning process lays out manufacturing and purchasing activities (orders) that must be carried out at the specified times in order to have products to meet demand, avoid shortages, minimize excess inventory, and best use the resources available. In other words, the planning process provides instructions that tell operations what to do to support the ultimate objective of satisfying customer demand.
The real question is whether that objective is properly in tune with the business objectives – sales expectations, profit targets, market share, etc.
For most companies these days, the key planning process comes together in Sales and Operations Plan or S&OP. APICS describes planning in general as a top-down process that starts with the business plan that sets long-term targets for sales, profit, etc. at a high level. That business plan is broken down into successively more detailed views thusly:
- Business plan: high level and long term e.g., total sales, margin, share, etc.
- S&OP: intermediate to long term (typically 18-24 months) for product families or groups
- Master Schedule: Intermediate term (6 to 18 months) for individual products
- Material Requirements Planning: (up to 12 months) for all products, assemblies, materials and components
- Execution – production and purchasing are activities carried out to support the plan
This, of course, is a highly simplified view but makes the point that the detailed plan must be driven from the overall business objectives in a top-down manner. Only in this way can the individual activities accomplished day-to-day be tied directly to what the company is trying to achieve. If whatever you’re doing is not according to the plan, it’s not generating value for the company. Note that the ultimate achievement of corporate objectives is inescapably tied to meeting customer demands. After all, they are the ones buying the products that put the money into company coffers that keeps the lights on. The top-down planning process translates corporate objectives into customer/product plans – supply and demand are matched in the S&OP step – which are then translated into specific actions for individual departments, functions and employees. The plan keeps everyone working toward the common goals.
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