Typical Challenges of Demand and Operations Planning (DOP)
Organizations abound with bold and innovative strategies, as well as inspiring and creative ideas. Yet, how many times has the result failed to align with the initial idea? Is it not common to hear the following statements?
- This new product meets market expectations, but it’s impossible to get it in a reasonable time.
- We have Product A in large quantities, but we are experiencing major inventory shortages for Product B, which is on sale.
- We want to launch a new product this fall, but we postponed until winter because of procurement problems and lack of internal capacity.
These situations usually result from insufficient care in the long term, and a poor integration of the different operational planning aspects. It can prove complex to integrate the various planning processes that help identify the foreseeable issues and opportunities.
A robust planning of demand and operations answers the following core questions:
- How do we want to address customer requests?
- What kind of visibility will we have on our projected volume of business?
- What are the most viable inventory management strategies?
- What is the required capacity for meeting the demand?
- How will our supplies be triggered?
- In what order do operations need to be carried out?
These are essentials that can turn a strategy or an initiative into an operational reality.
Growing Interest Toward Operational Planning
In recent years, Createch witnessed a growing interest in the performance of DOP processes. We believe this is due to the rising cost of mistakes related to the processes themselves. In the past, we would mitigate averagely done plannings with overtime and mass hiring. Today, most organizations are faced with a labor shortage that prevent them from using this approach. Planning mishaps now often end in lost sales.
Planning Is a Control Tower
DOP acts as the control tower of your company’s supply chain. This control tower should offer extended visibility—from the customer request to the delivery of the product/service. The key to success is to integrate stakeholders in planning, and to align with their operations so that the delivery meets the customer’s expectations in terms of cost and efficiency.
Photo credit: Visio software, Office suite
This solution may appear simple, but implementing it requires tenacity, effort, and precision in the long-, medium- and short term.
Integrating Planning Processes and Expanding Horizons
Comparing operations planning to trip planning can help in understanding the various moving parts.
When planning a trip, there’s no need to check the daily weather forecast in advance. What’s more important is the budget, date of departure, and recreational activities to choose from. The closer we get to the hoped-for moment, the more we refine the plan. On site, we make weather-related decisions, adjust the initial plan, and make the most of that precious vacation time.
Most manufacturing and distribution companies focus their efforts on short-term DOP. Very few engage in long-term processes. Planning with a wide-angle view helps to take proactive action on long-term challenges, and to stabilize short-term operations as much as possible. The implementation of performing processes at different planning levels will result in a better operational efficiency. Among these planning levels are:
- Demand planning: Forecasting based on various strategies to address demand velocity and variability for products offered by the company.
- Industrial and commercial planning (sales and operations planning): Striking a balance between the objectives of the sales plan, the budget, and the operational capacity of the company.
- Production planning and capacity management: Understanding and controlling the supply (the company’s capacity) and the demand in order to elaborate à medium- to long-term plan that will meet the customer’s expectations.
- Supply planning and inventory management: Determining the optimal quantities to keep in inventory, and the necessary supplies to achieve the master production plan.
- Scheduling: Sub-constraint of the available short-term capacity; identifying the appropriate production sequence for items maximizing operational efficiency.
Turning to Human Capital and Technology for Process Improvement
The implementation and optimization of DOP processes depend on the coordination of three key factors of success.
- Processes: Implementing best practices and performance indicators.
- People: Defining roles and responsibilities, developing training materials, coaching, and managing change.
- Technology: Aligning the data and functionalities that support the existing processes, supporting the use of technology tools, implementing data governance processes.
Neglecting one of these can result in improvement efforts ending in one of the three unproductive areas: employee alienation, employee frustration or automation chaos. This concept is depicted in the image below. Past projects with a subpar outcome may find their place in the Venn diagram.
The Importance of a Structured Improvement Approach
A structured approach is necessary for improving DOP activities. The goal is not only to generate and submit a report, but to put in place the foundations for a structured support system. This includes the analysis and implementation of future processes while taking account of labor, productivity, and technology.
Our approach to accomplishment lies on the following key activities:
- Define: Define and validate the business case, and start gathering data.
- Measure: Present the results of the data analysis, and map the current process.
- Analyze: Analyze the current process using accelerators that help in identifying issues and areas of improvement, target problems, and determine the root cause of such problems.
- Improve: Establish the guiding principles, map the future process, and define the implementation strategy.
- Control: Monitor the performance of the process.
Besides, this same approach integrates seamlessly in a technology implementation environment. It is effective to build a vision based on a preliminary analysis, map the target processes, and identify the technology requisites that will guide the choice of a solution.
Anticipated Gains of an Integrated Demand and Operations Planning
The challenge that awaits process-planning stakeholders is to balance and optimize the three conflicting objectives: operational efficiency, customer service level, and control of inventory levels.
Even if they often go into opposite directions, these three performance aspects can be optimized by implementing best practices specific to each organization, developing the required skills, and supporting the processes linked to a suitable technology.
Improving planning activities allows the organization to:
- Make gains in customer service, whether by preventing stock outs, delivering on time, or minimizing customer delivery times.
- Increase profit margins significantly by optimizing inventory levels to prevent the selling off of goods, or by minimizing the cost of unforeseen operational issues such as overtime and additional transport costs.
- Make capacity gains through better use of available resources, better management of unforeseen events, and stabilization of the operational plan—a key element in the current labor shortage context.
Do you need help in implementing your integrated demand and operations planning? Our experts took part in several successful projects; they will gladly assist you at each step of the process, from design to implementation. Contact us now!