(Editor’s Note: Second of a two-part series. Part One in the April-May issue outlined the basic principles of constraints-base thinking, dealt with the pain points of disparate data, employee knowledge accessibility and process management. Part Two discusses the use of best practices and new technology to achieve effective forecasting and planning.)
Part Two--The Solution: Leverage Planning Best Practices Supported by Emerging Technologies to Achieve Effective Forecasting
How to achieve effective Planning?
The answer is simple: identify constraints, minimize these constraints by employing planning best practices , and develop a workflow-based Planning approach that charts out possible constraints in the planning process and seeks alternatives when bottlenecks occur.
“[S]electing the proper Planning technique…[has] a profound impact on accuracy; however, the largest improvements to Planning performance [come] not from techniques but rather from improvements in the systems and management of the sales Planning function.” (John T. Mentzer and Carol C. Bienstock, Sales Planning Management (1998)).
Enterprise Planning Best Practices
While Planning and performance management responsibilities can reside anywhere, enterprise planning works best in the existence of a group, responsible for coordinating the enterprise planning effort. This group uses
a toolbox of planning process support technologies, analytical and statistical techniques, incorporating relevant operational system and exogenous data,
in order to generate a model forecast.
To realize substantial gains in planning quality and accuracy, a model
forecast is translated into the appropriate unit or level of measure and
then supplemented with qualitative adjustments from individuals located throughout the enterprise, and often across geographic regions.
This requires cross-functional integration, communication, coordination, collaboration and reconciliation of forecast adjustments between marketing, sales, operations (production and corporate services), logistics, finance, executives, and sometimes customers and suppliers. Tracking and providing access to user-specific plan accuracy, associated with multi-dimensional rewards (i.e., the impact of plan accuracy on profitability, customer service levels) for planning participants, minimizes game playing while promoting organizational learning and ongoing improvements to accuracy.
The resulting demand plan must then be carefully evaluated in light of
systemic supply constraints and trade-offs.
Case Study: How a $3.5 billion complex manufacturing corporation benefited from adopting a TOC-based enterprise planning approach
Department |
Benefit of Improved Planning Process |
Executive Management |
Improve revenue predictability by 20%;
increase stock price stability
|
Logistics |
Reduced handling, warehousing and transportation costs by $12.6 million annually
|
Finance/Operations |
Reduce inventory and inventory carriage
costs by $6.5 million annually
|
Marketing/Sales |
Increase revenues by $0.5 million annually |
Figure 6: A TOC-based enterprise planning process can benefit every functional group within an organization.
A New Generation of Software
The headlong rush to purchase and install complex software during the past decade has resulted in headaches for many companies. Rather than resulting in substantial savings, these investments often created short-term customer service glitches, operational inflexibility, and heavy workloads.
A New generation of software that is built from the foundation up - on the principles espoused in TOC – offers exciting opportunities to surmount these problems and create more adaptable, and productive environments.
Specifically, the complexities of enterprise demand and supply planning may be overcome by leveraging emerging technologies that adopt a systems approach to the planning process, support the resolution of key information bottlenecks and streamline automate and facilitate the process and transform information into usable forms.
Browser and Web Services based analytical and decision support tools, technologies, and open standards (Http, Java, XML) provide the rich and flexible architecture, business hierarchies and rules needed to support
cross-functional Planning process and next-generation interfaces.
They enable accelerated data processing and analysis capabilities, process integration and collaborative interaction while providing real-time access to forecast results. They may also be used to both automate and thereby accelerate the Planning process.
A Breakthrough in Interface Technology
A new breed of applications which leverage XML, Browser and Web Services technologies to integrate desktop applications such as Outlook and Excel seamlessly into enterprise applications is beginning to transform the way business processes are managed. For example, these new applications integrate enterprise planning applications directly with spreadsheets and
e-mail clients. With these applications, you don’t just export data from a Web interface into Excel - Excel is the user interface – Web pop-up windows merely supplement it. In this secured, bidirectional, server controlled, workflow-driven environment, spreadsheets are centrally managed and the common problem of Excel proliferation is eliminated.
This new environment dramatically improves user adoption and allows users to easily navigate seamlessly across disparate data sources and qualitative inputs, within and between business functions, at any level in the business hierarchy. It is an approach that combines the strengths of Excel – familiarity, flexibility, analytical sophistication – and eliminates its weaknesses – lack of security, lack of process control, inability to navigate dense data, and, limited computational power.
Comparison of Traditional and Emerging Enterprise Planning Solutions
Feature |
Traditional Constraint
|
Solution |
Impact |
User Interface |
Rigid, no offline capability, limited ability to perform adhoc analysis, significant user training |
Integrated, bi-directional Excel-based interface leveraging AJAX , XML and web services technologies supplemented by browser “Pop-up” windows using web services. |
Environment is familiar to users, reduced training costs and increased adoption, flexibility improves planning and decision-making process |
Planning |
Fixed BOMs |
A Service Oriented Architecture (SOA) that supports Rough Cut Capacity and Supply Planning, Build Planning, Trade-off Analysis, Scenario Management, Statistical BOMs, ratio analysis, and attach-rate management processes. |
Improved forecast accuracy and better build plans |
Offline Capability |
Limited availability |
Flexible and powerful offline Planning capability delivered automatically via email and available within Excel environment |
Reduction in planning cycle times, improved forecast participation, and increased forecast accuracy |
Process Automation |
Limited and inflexible one-dimensional, serial process management |
Multi-level, conditional workflow system integrated into Outlook or other e-mail client; users can participate in planning processes from within their inbox; calendars are automatically updated; processes are monitored and tracked. |
Reduction in planning cycle times; decrease in manual labor required to manage processes; improved collaboration and participation in planning processes |
System Integration |
Time consuming, costly, inflexible, error-prone |
Standardized, adaptive integration tools leveraging XML and other standards wherever possible. |
Reduced implementation and maintenance costs |
Figure 7: Emerging Technologies can provide significant support in optimizing enterprise forecasts. The net result of this new generation planning applications is increased participation in the planning process by: (1) readily translating plans into the appropriate unit of measure ($, units, weight, etc.) while working within the Excel environment; (2) easily gathering vital qualitative inputs and communicating underlying assumptions from all parties regardless of their geographic location and organizational affiliation; (3) supporting personalized adhoc, multi-dimensional “what-if” analysis—e.g., pricing, promotions, scenario planning, etc.—to improve understanding of business drivers, their effect on Planning, thereby improving Planning accuracy; and (4) providing instant access to user-specific, up-to-the-minute plans, monitors and metrics, supporting their business planning and decision-making activities.
Multiple users may collaboratively review, develop and adjust forecasts and supply plans in real-time. Gaps between top-down and bottom-up plans
may be automatically identified and prioritized, supporting the reconciliation process. Automated alerts, messaging, spreadsheet integration, and process support technologies enable forecasters to focus on analysis, rather
than repetitive number crunching and manual process management.
Planners may configure the routing of information from each phase of the planning process, based on job functions and reporting relationships. Performance metrics may be automatically generated and distributed.
The entire process may be monitored and tracked from a graphical interface, displaying progress (e.g., sales x% complete, two hours remaining before close of forecast window), thereby greatly enhancing process visibility.
Dynamic planning is possible through configurable exception-based instant messaging capabilities that immediately alert forecasters to forecast performance issues (a threshold has been exceeded, warranting that the forecast be revisited) or process breakdowns. Alerts may likewise be used to initiate an on-line collaborative session. E-mails reminders for “late” deliverables or to escalate unresolved issues may be automatically sent to managers or directly placed on the “desktops” by leveraging Outlook calendaring and task capabilities. Online training tools enable employees
may find, ask and resolve questions, significantly curbs training costs.
The benefits associated with these emerging technologies to support Enterprise Planning processes include:
- Increased participation in the planning process, use of
enterprise-wide intellectual capital:
- Improves plan accuracy
- Increases legitimacy and therefore likelihood of use of forecasts in planning and decision-making activities
- Automation of and improved visibility into the planning process:
- Dynamically communicates changes in demand throughout
the organization, reducing response time
- Enables analysts to focus on analysis rather than manual process management and repetitive number crunching
- Significantly reduce overall forecast process cycle time
- Increased ease of analytic capabilities and therefore user “interaction” with the forecast deepens understanding of business drivers, thereby increasing accuracy
- Improved ease of access to personalized forecasts and performance metrics, promotes proactive business management, information sharing, organizational learning and therefore increasing Planning accuracy and customer satisfaction over time
- Maximized business predictability reduces operational costs, improves resource allocation, translating the enterprise forecast into a competitive weapon (ability to stay lean and mean)
- Improved organizational agility, consistency, and efficiency by controlling “spreadsheet proliferation” and managing, maintaining,
and securing spreadsheets in a systematic manner
How to start down the path towards improved planning?
First, understand that effective planning is a process not an act. Realizing that effective planning requires a broad approach, conduct an external audit or
self-assessment of the process, identify potential bottlenecks, identify and subordinate all activities to overcoming the bottlenecks, and identify means of adapting demand to minimize constraints. Second, build executive consensus for overcoming planning constraints. Third, identify an automated solution to manage planning constraints. Such a solution needs to be flexible, familiar/easy-to-use (an Excel interface is superior to a Web interface in this area), easy-to-maintain and does not involve a “black box” optimization engine. Finally, venture forward, eliminating all bottlenecks!
About the Author:
Glen Margolis is Founder & Executive Vice President of Services
at Steelwedge Software. Glen is a veteran of multiple startups and founded
a successful contract manufacturing organization. He was a senior supply
chain strategy consultant with Mercer Management Consulting and Ernst &
Young. Glen holds a Bachelor's in Engineering from the Webb Institute
and a Masters in Finance from Harvard University.
Sources:
William H. Dettmer, “Goldratt’s Theory of Constraints” January 2001
Chaman L. Jain (ed.), Practical Guide to Business Planning (2001).
Daniel Lewin, “XML “Web Services: The Other Mile” presented to the
DCI Real-Time Enterprise Conference, December 2002.
Glen W. Margolis, “Enterprise Planning: New Technologies and New Approaches,” presented at the University of Tennessee Planning Forum,
May 2002.
John T. Mentzer, Carol C. Bienstock, and Kenneth B. Kahn, “Benchmarking Sales Planning Management,” Business Horizons (May-June 1999)
John T. Mentzer and Carol C. Bienstock, Sales Planning Management (1998).
Gartner Group, “In Search of One-Number Planning” (January 2001).
Footnote:
#1. 77% of large corporations have a separate planning department. Chaman L. Jain (ed.), Practical Guide to Business Planning (2001).
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