Part 4 - How is change managed in your business?
30 Mar 2022
In part three of our Integrated Tactical Planning (ITP) blog series we looked at what plans are being managed with ITP. In our final installment we look at how you manage change in your business.
Change in the context of Integrated Business Planning is defined as a significant alteration to any of the core plans - causing a knock-on effect to the inventory position and/or financial commitments. The most volatile plan is the demand plan, which has a special term for change, “abnormal demand” defined as actual sales or orders that are over or under the forecast, or in the wrong time bucket. Most companies react overtly and speedily to demand coming in that is over forecast, because it creates a sense of urgency, as well as the feeling that there is a potential upside financially. Under selling however tends not to be noticed until the month has past. It is vitally important that all abnormal demand is formally identified and managed to re-optimise the whole plan.
There are several components to managing change, including:
1. Pro-actively seeking misalignment
This is primarily done through the customer service function at order entry and promising. There are several levels to this, from comparing orders against forecast, to having the system isolate an EDI order that is outside the tolerance of the last several week’s average sales. At a slightly higher level, the ability to “see” inventory and at least promise against current or future inventory is a good start. It is essential however to have rules around when to stop promising and check with the demand manager.
2. Reactively managing through exception reports
In this instance, an exception report is generated at least once a week, (sometimes more often), to compare by SKU, the demand plan (forecast) for that period, against the actual sales for the same period. This also needs tolerances set, to flag if there is a threat to the safety stock, or potential excess load on capacity. Once flagged, a follow up is required to assess the root cause, and for the potential impact to the core plans out to the time fence.
3. Setting up the planning system for ‘Normal Cause’ variation
This requires an inventory policy to be established that amongst other things calculates a safety position based on past variations in sales. There are as many formulas to do this as there are mathematicians, but the most important thing with setting these up is that it is routinely tested against consumption – it is testing adherence to the ‘use it, or lose it’ principle. Once set up, tolerances can then be set to demand variance reporting and order promising as well as rules around following the exception, action, suggestion or alert messages generated by the planning system (different Enterprise Resource Planning Systems have different terms for theses recommendations)
4. Responding to the planning system recommendations
The supply planning system requires human intervention to “firm” supply orders inside the planning time fence. This has three primary effects:
- It continues to drive all lower-level planning such as production, purchasing and capacity planning.
- It prevents automatic changes to supply orders, even though after regeneration, the computer system might become out of balance.
- It avoids ‘nervous’ planning because the potential myriad of changes are being controlled by the system, and actioned by a person.
This means that inside the planning time fence we have supply stability as the default position/assumption. The system stacks up recommendations to re-balance the plan just outside the planning time fence and the planner then chooses to accept, reject, or modify each recommendation to sensibly re-balance the plan.
5. Ad hoc
This may seem common sense but many companies do not deliberately empower their front line staff to raise peculiarities as they come in, or even request that they “keep an eye out.” It shouldn’t matter whether it is an order entry and promising person, or someone picking and packing in distribution, we should be encouraging people to raise anything that looks wrong and point them to one of the Integrated Tactical Planning quorum to facilitate follow up and management.
To summarise, the core plans – product, demand, and supply – derive the core dependent plans, inventory and financial outcomes, and are the focus of attention in managing change inside the nominated time fences.
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