By Rod Hozack, Partner at Oliver Wight Asia Pacific
In the last article, we defined time fences and outlined the value in managing the tactical horizon. In this blog, we look at what plans are being managed with Integrated Tactical Planning.
The core plans for ITP are the same core plans used in the Integrated Business Planning process, i.e. product plans (new launches, deletions, and changes to SKUs), demand plans, and supply plans. There are also the core ‘resultant plans’, inventory and financial projections, which can’t be managed discretely but depend on the interplay of the core plans. Some may say this is just semantics, but how often have you heard of cost-cutting or inventory-reduction projects that are being managed in isolation? They get results but are rarely ever sustainable.
The product plan
In terms of the planning time fence, product plans can be defined as:
- Readiness for launch – products are in the last stage before launch, and we want to make sure everything is set and ready to go, from product availability and distribution, to Sales team preparation, to advertising and PR. These plans are usually down to the level of weekly or even daily buckets.
- Product portfolio changes, which are in the final stages of execution, include executing the phase-in and phase-out plans to minimize potential obsolescence and write-offs.
- Trials and product testing.
The demand plan
The demand plan is what we are anticipating to sell inside the planning time fence. While we often say that the demand plan coming out of Demand Review is an unconstrained statement of demand, inside the planning time fence, it is a plan that we are going to deliver, and it may differ significantly from the original forecast. The reason is that we have now committed to spending money and want to optimize the return on that investment, as well as meet the signed-off monthly Integrated Business Process plans.
Like the product plan, the demand plan is prorated into weekly buckets and phased according to weekly off-take patterns.
This plan then becomes the guiding plan for all other plans, in that the supply and supplier schedules are built from it, the financial outcomes are derived from it, and it is one of the inputs in calculating inventory projections. It is extremely important to be continually working at improving the demand plan but, at the same time, also recognizing and planning to the fact that it is never going to be perfectly “right”.
The supply plan
The supply plan is the cost-effective response to what we have planned to sell. Once inside the planning time fence, we become less flexible with supply, in that materials and goods have been ordered, shifts and labor have been organized, capacities and storage locations optimized, and any changes to these plans will cost more money, e.g. air freight, ‘cut pallets’, or part transport loads. These plans are then matched to the prorated weekly demand plan, out to the planning time fence, and in the near term, e.g. the next two weeks, down into daily buckets.
The financial and inventory plans
Outcomes of product, demand, and supply plans are the financial and inventory plans. The crucial thing to note here is that these plans cannot be managed directly or discretely. They have a cause-and-effect relationship with the proceeding plans. While it is important to test changes against financial and inventory outcomes, the levers remain primarily in the product, demand, and supply plans.
How the plans are managed is a whole new discussion topic; check the next blog in our series (#4 of 6), coming soon, to find out more.