(Do Better Execution Methods Eliminate the Need for Planning?)
By John Dougherty
Planning! That’s old fashioned! “MRP, MRP II, they never worked well any way and you certainly don’t need them if you can execute (make and buy products) quicker and more reliably using World Class methods!”
This is a message you hear more and more often, and a lot of people listen. Why? Because not everyone was successful implementing planning tools, and even those who were have found that additional benefits can be gained from improving their method of execution.
From the mid-50’s to the mid-80’s, data tracking and planning were the hot solutions to resource management problems. As the use of computers became feasible in manufacturing during to 1950’s, the initial efforts were to use them to track data (inventories, recipes, bills of material, purchase orders, customer orders, etc.). In the 60’s many people began to realize that just having data on computers didn’t improve how they managed their businesses, it only improved the efficiency with which they used old tools (for instance, order point inventory control). Then began the MRP CRUSADE. For the next 25 years thousands of companies implemented MRP II tools to improve their ability to plan and schedule. Hundreds were very successful (Class A). Many were marginally successful but disappointed because they didn’t achieve the same high level of success that was promised. Why? Many just implemented it as a change in software tools. People, management and underlying business practices weren’t addressed. Some tried it without ensuring that the data was accurate enough to support the process. Often only one or two functions in the company were properly involved (often Sales and Marketing and Development and Design were not part of the efforts), thus dooming those companies to achieving only part of the potential benefits of MRP II.
Many were hindered by overly complex and unreliable processes (Manufacturing, Purchasing, Customer Order Promising, etc.). In the mid-80’s, new solutions began to emerge. The success of the Japanese economy and the potential of “Japanese-style” manufacturing methods began to attract a lot of attention. Many companies began pursuing these approaches under various names such as Just-In-Time, Total Quality Management (TQM), Continuous Flow Manufacturing, etc. Interestingly enough, there were hundreds of companies who were very successful, some partially successful and some not at all. The reasons? The same as listed above. Some of the most successful companies that benefited from these improvements in execution methods were those that had already done a good job optimizing their planning processes. These included Hewlett-Packard, Steelcase, Black & Decker, the Tennant Company, Xerox Corporation, etc,
Planning vs. Execution: The Real Deal!
Suggesting that a company should choose between improving planning and improving execution makes about as much sense as suggesting that an auto racer should choose between a good transmission and a good engine. Both are required to win races and need to be designed, installed and used in a way to optimize their linkages.
If a company’s business has been reengineered such that manufacturing and supplier lead times have been drastically cut, batch sizes and order quantities reduced and flexibility enhanced, certainly a planning process needs to reflect, anticipate and support this type of execution. But to say that no planning is needed at all is naive. Figure 1 shows that even with a quicker and more agile response to customer demand, there are very few environments where some forward material and capacity planning isn’t needed. This would be the case only in an environment where customers always give you more lead time than the cumulative manufacturing and purchasing time.
Often the most profitable thing for a business is anticipation, not just efficiency.
Dr. Ira Smolowitz
The level of precision of the planning may vary depending on how the process has been designed. For instance, you may not need to do detailed part-by-part material requirements planning week by week out through a full planning horizon of three or six months or more. Key suppliers usually need some idea of the amount of capacity and critical raw materials that will be required in the future.
As shown in Figure 1, the booked customer demand is often not far enough into the future to give development, purchasing and manufacturing enough lead time. A planning system using forecasts in needed to trigger these activities. Then they can be ready to respond to the customer demand when it comes. Planning for and aligning your resources (people and equipment) almost always needs to be done well in advance of the customer lead time. A good planning system is needed so that material and capacity are available for the execution system when it’s “time to make the donuts.” Otherwise, manufacturing and suppliers will be constantly in expedite mode, which leads to unanticipated costs, delays and problems.
As well as a lack of planning horizon, some approaches to Just-In-Time execution (often called synchronous, continuous or demand flow manufacturing) are based on the presumption that demand patterns from the customers can be smoothed or made level over a period of time. Only in very rare cases are companies able or willing to say to their customers that they’re only producing so much per week and that customers may have to wait for delivery in periods of peak demand or take delivery early in periods of low demand. Even if given suppliers had enough clout to enforce this, they’d merely be opening the doors for their competition to provide the product when the customers wanted it. The key to success is to adjust manufacturing to the customer, not the customer to manufacturing.
Because in many cases it is difficult to smooth demand, a planning system needs to be established to take into account material and capacity constraints and provide for build-ups and hedge planning to deal with peak and underloaded time periods.
It is equally important to understand that reaching a Class A level of planning via Supply Chain Management, MRP II, Distribution Resource Planning (DRP), etc. will not produce all the benefits possible, or perhaps even necessary, to be competitive into the next century. Excellent implementation of a planning system will minimize the amount of inventory and cost necessary to support a high level of customer service given the precision of the execution systems. By reducing set up times, cycle times, batch sizes, waste, scrap and complexity, you can significantly improve upon even the best Class A planning system.
The Proof is in the Pudding
Time and time again Partners for Excellence has helped clients make major improvements in their business by optimizing their execution systems, minimizing waste, simplifying flow, etc. In the end, these companies limit the benefits possible if they don’t have Sales & Operations Planning, accurate inventories and bills of materials, realistic capacity and material plans and future visibility for their suppliers. The planning and tracking may be simpler with a shorter horizon and involve less complexity and less inventory. However, if you do things quicker, with less lead time and inventory, does this make the need for accurate data greater or lesser? We think the answer is obvious. If you’ve got less, you really need to know what you have and when you need more! Companies that have optimized execution without an optimized planning system to support it inevitably end up stumbling over material shortages, unbalanced inventories and other material and capacity surprises.
Companies that reach a Class A level and then don’t aggressively attack waste, cut lead times and batch sizes, shorten cycles, minimize the distance that materials move and attempt to simplify their whole approach to designing and finishing product for the ever-changing customer requirements also fall short of what the marketplace demands. Sooner or later they find that though their costs and inventories have been reduced, they’re not nearly low enough to compete with the competition that has addressed these issues.
Given enough time and a complete understanding of the roles of planning and execution, a company successful in one area will eventually come to the conclusion that they need to balance that success with improvements in the other. THE BETTER YOU EXECUTE, THE BETTER YOU NEED TO PLAN! THE BETTER YOU PLAN, THE BETTER YOUR OPPORTUNITY FOR IMPROVING EXECUTION.
Sadly, if companies don’t learn this lesson, they’ll actually see a degradation of performance over time if they settle for improvement in only one area. Figure 2 shows what happens to companies that stop after a single innovation. At the bottom left of the diagram you see the arrow pointing up which indicates improved performance with the implementation of an innovation (which could be either improved planning or improved execution). The dotted horizontal line represents the new expected standard to be maintained with the innovation. If the project is simply called complete and no further efforts are ongoing, the diagonal line entitled “What Can Occur” shows that many of the gains can be lost. However, if the new standards of performance are continually raised (shown by the line with the gradual curve upwards), through a philosophy of “Continuous Improvement” or “Kaizen,” then the benefits can be built upon and even improved over time.
However, despite all efforts, improvements eventually will begin to flatten out without yet another innovation, as indicated on the right-hand side of the diagram. This is just a graphical way of re-emphasizing this point: If you improve one part of the process and stop, you risk stagnation or degradation. If you continue to maximize the benefits from an innovation, sooner or later it will lead you to the realization that other areas also need innovation.
Having the best internally driven process will, in the long run, be of little help to a firm that has not anticipated fundamental changes in the marketplace.
Dr. Ira Smolowitz
Which Comes First?
A company can start with either planning or execution innovations. As they proceed, work on one will trigger the need for improvements on the other. The answer for any single company should be based on their current environment and must be linked to their customers’ perceptions of that company’s products and services and how well these match the current marketplace requirements. For instance, if customers feel that lead times are too long and product quality and costs are unsatisfactory, a manufacturing company may attack the execution improvements and innovations first. But if a company is in an environment where customer service levels are inconsistent, inventory levels vary and their reliability as a supplier is in question, then certainly that company should attack the planning issues first.
How about a concurrent attack on both areas? Certainly this could be possible, depending on the amount of work to improve each area. Our experience is that companies that try to do too many things at one time end up doing none of them very well. It’s usually better to pick one area, focus the energies of the entire organization on improving that area quickly and then move on and attack the subsequent areas in a more sequential fashion.
A lot of this could depend on the inherent complexity of the product and the company itself, the number of locations, people, raw materials, customers, etc. Sequencing the efforts by product lines, divisions or locations can also be an effective approach.
No matter where your company is today, it is vital that you understand the role of both planning and execution in maintaining or improving performance for your customers. Rare is the company that can’t improve each area to some degree. It is vital to understand the role of each function, and the interaction of these functions. Then you can put together a reasonable, time-phased plan to achieve the targeted improvements in both planning and execution. Like most endeavors in life, understanding the issues and the alternatives is half the battle. Don’t be blinded by the buzz words, acronyms, approaches and philosophies that insist there is a single answer. The answer is to continually improve effectiveness and flexibility by weaving together better planning and execution processes.