Integrated Tactical Planning

Inspiring Business Performance

In format ive gu ides on indust ry best pract ice

Integrated Tactical Planning Tactical planning, effective execution

THE OL IVER WIGHT – WHITE PAPER SER IES

Introduction

Many companies that have embarked on an Integrated Business Planning

implementation still find senior managers being dragged into short-term tactical issues

and problem solving. Despite putting considerable effort and energy into executing their

plans, many still struggle with poor customer service, high costs, high inventories, and

frustrated employees. Whilst Integrated Business Planning is highly effective in aiding

planning over a four to 24- or 36-month horizon right down to EBIT projections, it was

never designed to control the execution of those plans within the one- to three-month

tactical horizon. This is the role of Integrated Tactical Planning. Unless plans are properly

managed and coordinated during this time period, execution is problematic. Constant

last minute changes and “firefighting”, poor service, high costs, and employee frustration,

plague the business.

The successful deployment of Integrated Tactical Planning will define and calm the process of management and communication in the execution window, bridging the divide between the various functions within the organisation, and ultimately leading to improvements in customer service, inventory levels, and other key metrics.

The process is tightly orchestrated into weekly and daily segments, enabling the monthly Integrated Business Planning plans to be executed as efficiently as possible. but for

Integrated Tactical Planning to perform at its best, there must be a supreme level of organisation and awareness throughout the company. There must be strict rules citing responsibility for managing the process, with fellow employees made aware of when decisions are made and how they are managed. When the synchronised processes of Integrated Business Planning are perfectly aligned with those of Integrated Tactical Planning, they produce productive and profitable results for the business.

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Rod Hozack

Oliver Wight Partner

When should you think about Integrated Tactical Planning?

If you recognise any of the following symptoms within your organisation you may need to focus attention on Integrated Tactical Planning:

1. The S&OP or Integrated Business Planning process is having trouble gaining traction with most of the attention focused on the next few months

2. Crisis and emergency meetings take up most of the week for senior managers

3. There is an intense focus on delivering this month’s numbers

4. Plans keep changing and either there is a “fix it now and apologise later” culture, or everyone is waiting for senior management to decide how to solve problems

5. Customer service is always below 95% (OTIF) and often plummets to below 80%

6. It seems nothing can be done about the steady and relentless increases in costs and inventory

7. Purchasing is making “best guesses” on long-lead-time items – often with costly errors

8. Nobody knows exactly what the run rates are, or they know they are invalid, but use them for planning anyway

9. Planning is being done to 100% capacity but the business never seems to hit the plan

10. Nobody really seems to know how the end-to-end value chain works and fixing one element, negatively impacts another

11. There have been many initiatives to fix “the problem”, but results seems to slide back once the “project” is completed


As the table above shows there are many symptoms of a failing planning process and it is a common misconception that deploying S&OP (or more likely, its latter-day incarnation, Integrated Business Planning), will fix these issues.

Integrated Business Planning is a powerful decision-making process that sits at the heart of the Oliver Wight Integrated Business Model (figure 1) and is the means by which many organisations now choose to run their entire business. However, as the Model shows, Integrated Business Planning cannot work in isolation; it needs to be supported by equally effective monthly (re-) planning, and weekly and daily execution processes. Thus the Integrated Business Model is a deliberately designed and an all-encompassing set of processes, which integrates the annual business planning cycle with the daily execution of plans, ensuring everybody within the organisation is aligned with a single game plan in support of the overall business strategy.

Many organisations mistakenly find themselves deploying a monthly Integrated Business Planning process, which creates plans and gives the Executive visibility over 24 to 36 months, but without paying attention to how those plans are to be executed, or they try to use the Integrated Business Planning process to manage both the longer-term planning horizon and shorter term execution horizon. Another common error is setting up a weekly Integrated Business Planning process, which by definition is not Integrated Business Planning at all.

Without Integrated Tactical Planning within the short-term planning and execution window, it is inevitable senior managers will be drawn into spending their time on day-to-day problem-solving, rather than longer-term decision-making.

Integrated Tactical Planning is part of the ‘below-the-line’ processes within the Integrated Business Model (figure 1). The objective of Integrated Tactical Planning is to take control of the signed-off Integrated Business Planning plans and ensure they are being deployed at a weekly and daily level. Any significant changes are then formally managed to continually re-optimise plans in the short term. Most companies do some of this, but tend to overly rely on good people, rather than well-designed processes and a defined way of working, which focuses on cost-effective management of change and maintaining competitive advantage.

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Figure 1: Integrated Business Model


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The Integrated Tactical Planning time frame

The time frame for Integrated Tactical Planning is usually referred to as the ‘time fence’ or the ‘planning time fence’. The most precise way of defining this planning time fence is when expenditure on variable and semi-variable expenses begins.

For example, in a manufacturing or physical goods environment, the lead time for purchasing materials and products could be several months for items sourced overseas, or weeks, if they are locally sourced. But this is only one time fence the business might be committed to. As shown in Figure 2, other time fences should also all be considered: managing customer order expectations, contractual obligations, trade spend and promotional planning, and new product introduction. All these are commitments to spend money on resources to deliver future demand requirements competitively and cost effectively.

Whereas the monthly Integrated Business Planning process manages resource and supply to meet the demand plan, the key concept of the Integrated Tactical Planning process is managing demand to meet the resource and supply plan inside the planning time fence.

“It is useful to think of Integrated Tactical Planning as the cogs in a gearbox - it doesn’t matter how big or small those cogs are, if one is broken the car stops. Each cog relies on the next, but a clutch is required to separate them and change gear to speed up, climb hills, slow down, or make some tight cornering. To do this requires mechanisms to be designed into the gearbox in the first place, and not force-fitted afterwards.”

Figure 2: Managing Time Fences


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Managing business plans

The core plans for Integrated Tactical Planning 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 ‘resultant plans’, which are not discrete plans but plans derived from and dependant on, the core plans i.e. financial outcomes and projections, and inventory projections.

Product planIn terms of the planning time fence, product plans can be defined as follows:

1. Readiness for launch – products are in the final stage before launch and it is critical to ensure everything is ready to go, from product availability and distribution, to sales team preparation, advertising and public relations. This plan is now down at the level of weekly or even daily buckets.

2. Product portfolio changes, which are in the final stages of execution, and will include executing the phase-in and phase-out plans to minimise potential obsolescence and write-offs.

3. Trials and product testing

Demand planThe demand plan, or forecast, is the anticipation of what will be sold out to the planning time fence. While it is often said the demand plan resulting from the Integrated Business Planning Demand Review is an unconstrained statement of demand, once inside the planning time fence, the demand plan becomes the plan that is going to be delivered; as such it may differ significantly from the original forecast. The reason is that at this stage there has been a commitment to expenditure and the priority is optimising the return on that investment, as well as meeting the signed-off monthly Integrated Business Process plans. As with the product plan, the demand plan is pro-rated into weekly buckets, and phased

according to weekly offtake patterns (see Figure 3 overleaf). This plan then becomes the guiding plan for all other plans, in that supply and supplier schedules are built from it, financial outcomes are derived from it, and it is one of the inputs in calculating inventory projections. It is extremely important to work continually to improve the demand plan, but at the same time also recognising it is never going to be perfect, and planning accordingly.

Supply planThe supply plan is the cost-effective response to what has been planned to be sold. These plans are matched to the pro-rated weekly demand plan, out to the planning time fence, and in the near term, i.e. the next two weeks, down to daily buckets. Once inside the planning time fence, flexibility with the supply plan is reduced because materials and goods have been ordered, shifts and labour have been organised, and capacities and storage locations optimised. So any changes to the plans at this stage will cost money - items airfreighted at short notice, ‘cut pallets’ distributed or part loads transported.

Financial and inventory plansOutcomes 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 preceding plans. While it is important to test changes against financial and inventory outcomes, the levers remain primarily in the product, demand and supply plans.

Figure 3 shows an example of how plans are pro-rated and aligned with any recurring or identifiable phasing. The demand planning part of the Integrated Business Planning process identifies seasonality or known one-off events, and the plans and numbers communicated that month, phased accordingly. Since these


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are monthly buckets, they need to be pro-rated into weekly buckets reflecting the normal off-take pattern. Often companies have really big first weeks of the month, or last weeks of the month, often because of terms of trade or promotional activity. Whatever the reason, requirements need to be set up to match this pattern. In some industries, such as fresh milk

for example, a daily pattern also needs to be considered.

The seasonality and weekly phasing assists with managing the ‘lumpiness’, but as with managing lead-times it is important to plan for what is known in the first instance, and then work to remove the causes of the lumpiness.

Change management

Change in the context of Integrated Business Planning is defined as a significant alteration to any of the core Integrated Business Planning plans - causing a knock-on effect to the inventory position and/or financial commitments. The most volatile plan is the demand plan and ‘abnormal demand’ is defined as actual sales or orders, which are over or under the forecast, or in the wrong time bucket. Most companies react overtly and quickly 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, on the other hand, tends not to be noticed until the month has past. It is vitally important, however, that all abnormal demand (over and under) is formally identified and managed to re-optimise the whole plan.

There are several key components to managing change.

Figure 3: Monthly, Weekly, Daily Phasing


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1. Pro-actively seeking misalignmentThis is primarily done through the customer service function at the point of order entry and order promising. There are several levels, from comparing orders against forecast, to having the system isolate an EDI order outside the tolerance of average sales over recent weeks. 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 about when to stop promising and check with the demand manager.

2. Reactively managing through exception reportsIn this instance, an exception report is generated at least once a week to compare the demand plan (forecast) for that period by SKU, against the actual sales for the same period. This also needs tolerances set, to flag if there is a threat to the safety stock assigned or excess load on spare storage capacity. It is important to note that once flagged, a follow up to tackle the cause of the threat and assess its impact on the plans is also needed.

3. Setting up the planning system for ‘normal cause’ variationThis requires an inventory policy to be established, which among 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 whichever the preferred option, the most important thing is to routinely test it against consumption to adhere to the ‘use it, or lose it’ principle. Once the inventory policy is set up, tolerances can 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 these recommendations) .

4. Responding to the planning system recommendationsThe supply planning system requires human intervention to “firm” supply orders inside the planning time fence. This has three primary effects:

a. It continues to drive all lower-level planning, such as production, purchasing and capacity planning.b. It prevents automatic changes to supply orders, even though after regeneration, the computer systems becomes out of balance.c. 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, supply stability is created by default. 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. For instance, an SKU might have a safety stock quantity of 100 and an order quantity of 100, and when the week is rolled over, safety stock has been consumed by one unit. The system will automatically recommend ordering 100 more units but because the planner now has the information in front of them, with a default position set up in the system of not automatically changing the plan, they can sensibly choose to ignore the suggestion, and let a little more safety stock be consumed before re-balancing.

5. Ad hocThis 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 they ‘keep an eye out’. It shouldn’t matter whether it is a dedicated order entry/order promise person, or someone picking and packing in distribution, everybody should be encouraged to raise anything that looks wrong, with the appropriate member of staff.


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Managing the Integrated Tactical Planning process

The quorum managing Integrated Tactical Planning will vary from company to company, and by size and industry type, so this section uses generic roles.

Demand The senior role for governing this element is the Demand Manager. In smaller companies the Demand Manager may also be responsible for demand planning and control. In larger companies responsibilities might be split into Demand Manager, Demand Planner, and Demand Controller. However the demand controller aspect of the role is the most important here. It is the responsibility of the Demand Controller to be ‘all over’ the difference between incoming sales orders and the progression to meet the monthly forecast/demand plan. They play a pivotal liaison role in identifying and managing potential abnormal demand, and liaising with Order Entry and Order Promising, Supply Chain, Production, Distribution and so on, to fully understand the impact and what can be done about getting back on track.

Each of the four major elements of planning execution requires at least one formally defined role to identify and manage changes to plans inside the planning time fence as follows:

1. Understanding demand and controlling demand-generation levers - Demand Manager/Controller

2. Understanding supply, and controlling supply and supplier capabilities and costs - Supply Planner/Scheduler

3. Managing incoming orders and managing customer expectations - Customer Service/Order Entry

4. Managing changes to the product portfolio and supporting plans - Product Planning Manager

Figure 4 shows how each of the roles and responsibilities interact. The objective is to ensure the many potential influencers for each element are channelled through a small number of key roles, and thereby managed effectively.

Supply As with the demand manager the supply planning role may also be performed by one person or a number of people, depending on the size of the company. Unlike the demand manager role, however, there is a plethora of different job titles and descriptions, so for the purposes of this document, we will use the title ‘supply chain planning manager’ to describe the most senior role.

In smaller companies the Supply Chain Planning Manager is directly involved in both supply planning and supply scheduling. In larger companies however, there might be a number of other roles, such as a category supply planner, and even a factory, supply or distribution scheduler. The scheduler and supply planner are the ones who are most engaged in the Integrated Tactical Planning

Figure 4: The Quorum of Roles


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Decision making

The working hypothesis is ‘silence is approval’. This means that as plans are signed off through the monthly Integrated Business Planning cycle, the Executive and other senior managers, can safely assume that plans are on track. This includes assuming the weekly plans out to the planning time fence are also on track or being appropriately managed.

The cascade of plans is depicted in Figure 5. The important characteristic of this hierarchy is that it relies on key roles at each level understanding their responsibility, and knowing when an issue should be escalated. This saves many people-hours and truly empowers individuals to make the right decisions, at the right time, throughout the organisation.

So, as each day, week and month passes, the model allows for proactive gear changes to shifting circumstances, rather than costly uncontrolled reactivity or firefighting.

Often during Oliver Wight coaching and change management programmes it becomes apparent the client organisation is erroneously treating all its customers, and SKUs the same.

Figure 5: Monthly, Weekly, Daily Plan Alignment

process. Their primary responsibility is to cost-effectively meet the changes in demand, and since this is inside the planning time fence commitment zone, they will zealously guard the stability of the plan – unless the benefit of the change can be demonstrated to outweigh the cost.

Customer Service/Order EntryOften overlooked for its insight into customer buying habits and demand levers, Customer Service can play an extraordinary role in maintaining stability of supply plans inside the planning time fence. Again, in smaller organisations, customer service, and order entry and order promising is likely to be a single role; in larger organisations it could be several

individuals with specialist category or channel responsibility. It is however, the order entry and promising role that is most relevant to Integrated Tactical Planning - promising to the forecast and communicating wherever this is not the case.

Product This role is more straightforward in most organisations and is typically at the heart of the product development project management function. It involves coordinating changes to the plan especially where it intersects with demand and supply requirements and capabilities. The Product Planning Manager is therefore the champion of identifying and managing any changes to the product portfolio plans.


Figure 6: Standard Customer Promise - Breakout

Figure 7: Weekly Planning Process and Meeting

The Integrated Tactical Planning sequence

Weekly Review MeetingIntegrated Tactical Planning operates continuously through the established quorum - every hour, every day. It is important to conduct a weekly review of the regenerated plans, to formally agree that the re-cast plans resulting from changes, which have occurred during the week, are valid and doable. While all business environments are different, the generic flow for this weekly meeting might look like this:

1. Key issues to be resolved at this week’s meeting

2. How did we do last week? a. Demand variance to forecast b. Portfolio changes to plan c. Supply schedule attainment d. Supply delivery e. How close to the monthly signed off plans? f. Data integrity misses

It is vital that once the value proposition or unique selling benefit has been agreed, the decision-making and escalation criteria are defined based on a customer versus SKU Pareto. While this really forces people to think hard about the trade-offs, once done, it also gives them direction on how to make decisions as plans change, which all functions in the business have agreed with in advance. Figure 6 is an example of how this might be set out. It is recommended that two tables be created; the first table is a ‘business as usual’ condition; and the second, anticipating or modelling what we want to do as a company if a supply constraint occurs.

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Conclusions

If your Integrated Business Planning process is not delivering all you think it should, then it may be lacking integrity in terms of what is being done week-to-week, day-to-day. Integrated Tactical Planning formalises the weekly and daily execution processes, and aligns them

with goals signed off in the monthly Integrated Business Planning cycle; thus key operational metrics see a step change in improvement, and time is released for people to spend on longer-term activities, so both long-term and short-term business goals can be achieved.

Figure 8: Weekly Planning Process Steps

3. How are plans going this week?4. Significant demand variance implications

on next week and out to the planning time fence

5. Significant impacts on the supply plan next week and out to the planning time fence

6. Agreement on the daily supply schedule for the next two weeks

7. Agreement on the rough-cut capacity plans out to the planning time fence

8. Progress with significant initiatives – value engineering, new product launches etc.

9. Agree that core plans are doable based on the knowledge we have to date

10. Hedging and flexibility plans11. Minutes12. Critique

To facilitate the review meeting, it is important to formally map each step and activity in the preparation cycle, as shown in figure 7.

The SIPOCThe next step is to define the SIPOC (supplier of input to a process with outputs going to a customer), for what happens every day, and whose responsibility it is, in order to continue the weekly cycle. Figure 8 outlines an example of a simple daily routine.

Daily Review MeetingThe final step is to define the daily meetings, which are usually site or facility based. Their purpose is to maintain the ability to supply to

the agreed weekly supply plan. A daily meeting closes the loop and ensures that all levels of the process are continually synchronised. An example of a daily meeting agenda is:

1. How did we do yesterday?2. What is on for today?3. Any issues with doing the plan for

tomorrow?4. Will we meet the weekly plan as agreed

at last weeks Integrated Tactical Planning meeting?

5. What is to be escalated, and to whom?

This meeting should be no more than 15 minutes and may contain other items, such as safety performance. The important part is that it is about plans and performance, not just performance, as occurs in most organisations.

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Inspiring Business Performance

The information contained is proprietary to Oliver Wight International and may not be modified, reproduced, distributed or utilised in any manner in whole or in part, without the express prior written permission of Oliver Wight International.

About Oliver Wight

Oliver Wight has a 40 year track record of delivering business improvement to some

of the world’s best-known organisations. We believe that sustainable improvement can

only be made through your own people. So unlike other consultancy firms, we transfer

our knowledge to you, which means you can achieve performance levels and financial

results that last.

At the leading edge of management thinking and practice, our Integrated Business Planning (IBP) model lies at the heart of our clients’ journey to outstanding business performance. Oliver Wight originated Sales and Operations Planning in the 1980s and IBP can most simply be described as advanced S&OP; evolving from its production planning roots over

40 years ago into the fully integrated management and supply chain collaboration process it is today. IBP allows the senior executive to plan and manage the entire organisation over a 24 month horizon, aligning tactical and strategic plans each month and allocating critical resources to satisfy customers in the most profitable way.

Oliver Wight Asia/Pacific131 Martin Street, BrightonVictoria 3186, Australia

T: +61 (0)3 9596-5830F: +61 (0)3 9596-5840

[email protected]

www.oliverwight-ap.com

Oliver Wight Europe, Africa & Middle East

The Willows, The Steadings Business CentreMaisemore, Gloucester GL2 8EY, UK

Oliver Wight Americas

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Integrated Tactical Planning

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