Back to Basics: A Review of the Top-down Planning Hierarchy

Introduction

Organizational planning entails a broad spectrum from long-term strategies to detailed daily tasks. This applies for all entities: global corporations, government agencies, non-profit firms, family businesses and individuals. Success depends on utilizing an effective top-down planning process that ensures consistency through each level, as follows:

•  Vision/Mission Statement
• SWOT Analysis
• Corporate Strategy
• Business Planning
• Sales & Operations Planning
• Master Scheduling
• Detailed Planning

 These items illustrate a progression from broad-based long-term plans to detailed short-term schedules, with consideration of market effects (forecasting) as well as operational constraints (capacity). This hierarchy will ensure that the tactical actions of clerical and labor positions support the high-level vision of executive management.

 It appears that every business, restaurant, video store or even bowling alley, has a vision/mission posted at the entrance or on its website. At the lowest level, every business must be processing sales, work and purchase orders, else they would not exist. The question is whether there is any connection between the two extremes, and in fact, there is not in many cases, as given by the extreme amount of change orders or expediting taking place at the lowest level. Expediting is simply a case of failed planning at a higher level.

 The balance of this paper will describe the appropriate characteristics at each level.

 Vision/Mission Statement

It is common to confuse or even interchange the concepts of a vision and mission statement, and/or utilize language that sounds good, but does not specify what the firm does. The author has witnessed a multitude of environments that boast of all-inclusive visions or missions that suggest policies that promise to accommodate a wide range of potentially conflicting interests: satisfying customers, embracing environmental concerns, valuation of employees, etc. The following statement is a common example of these generic “cover all bases” missions:

 “Provide high quality goods and services in a safe, timely and cost effective fashion. We will utilize leading-edge technology while preserving the environment. Our commitment to our employees is our priority.”

The good intentions of such a finely crafted, touch-feely statement aside, it is not possible to determine what this firm does, what they make or deliver, nor who their target market is. Each of these questions is answered in this preferred example:

“To enhance the practice of pharmacy, we will deliver advanced pharmacy automation technology and services that increase patient safety, improve pharmacy efficiency, and set new benchmarks for quality, productivity, and customer satisfaction.” (Innovation Associates, manufacturers of automated pharmacy carousels for dispensing drug prescriptions)

Further clarity is obtained by defining a vision as “a future utopian state of being, what we aspire to be” and a mission as “the things we do on the path to get there.” Visions should be described by nouns and adjectives, whereas missions are characterized by actions, verbs and adverbs. Each statement should be limited to about thirty words or less for two primary purposes: (1) ensuring employees can commit them to memory; and (2) forcing executives to keep them concise and focused.

 The vision and mission statements, from a theoretical perspective, are permanent fixtures though infinity, or at least the life of the entity. From a practical standpoint, they are considered valid as long as the company continues to exist within an environment that continues to exist. Examples that may call for a change in vision and/or mission include: the company was bought out; an extreme change in market conditions (regulation or global effects); the patriarch of a family business passed on; etc.

SWOT Analysis

The SWOT analysis is a process of environmental scanning, both internal (strengths and weaknesses) and external (opportunities and threats). Theoretically, it should be easier to conduct internal scanning. In practice, companies are often like people as they are better at objectively recognizing the opportunities and threats. They as well tend to undervalue/overvalue strengths while exaggerating/downplaying weaknesses. This may result from either a group think mentality or an inability to see in a mirror what is obvious to others, and highlights the value of engaging external consultants for the SWOT analysis.

 The SWOT should be performed periodically and this will vary depending on the size and nature of the business. The typical review period is one to five years, although the speed of change in the global economy is narrowing this window.

 Corporate Strategy

The firm creates a corporate strategy based upon the results of the SWOT analysis. It recognizes the limitations of the specific weaknesses and threats, while simultaneously taking advantage of strengths and opportunities. Corporate strategy defines and aligns marketing and operational approaches. For example, a marketing strategy of delivering high volume, standard commodities in the consumer goods markets matches an operational strategy of automated, dedicated production lines.

 The corporate strategy includes decisions relative to changing markets, such as expanding distribution, research and development of new products, or targeting a firm for acquisition. The operations side of the business must conform to this to keep supply and demand in balance, and includes decisions such as building new factories, expanding operations at current sites, and hiring or outsourcing policies. These plans typically consider periods from five to ten years in the future.

Business Planning

This is the level at which words become numbers, the language of the corporate strategy is converted into dollars and timelines. Although this is still a relatively high level in the planning hierarchy, it begins to add details. Whereas the strategy applied to the corporation at large, business plans are assigned to the specific individual business units.

 Business plans view a time horizon of three to five years into the future, and typically break these into quarterly or annual time buckets, with an annual, semi-annual or quarterly review. The markets and constraints are generally viewed from the sole perspective of monetary units. Market forecasts down to this level are most appropriately derived from qualitative forecasting, the qualified judgment or opinion of experts familiar with the market niches.

 Sales & Operations Planning

The business plan of each unit is disaggregated into a sales and operations plan for each product (good or service) family. The dollars are converted into product units, and the sum of all product family operations within a business unit should approximate the business plan at the higher level.

 The S&OP relies on a combination of qualitative as well as quantitative forecasting, which is the use of formulas or mathematical models to calculate a quantity. In addition, S&OP considers the operational constraints that may inhibit a firm’s ability to deliver: cash flow, storage space, labor, shipping capacity, etc. This capacity validation process is known as resource planning. Although S&OP is often described as a manufacturer’s plan to develop a valid production plan, the generic term operations can apply to distribution or service firms as well.

 The S&OP typically extends one to two years into the future and utilizes monthly planning buckets, as well as a monthly review process.

 Master Scheduling

This level of detail introduces the common concept of a schedule, defining specific products to due dates. The master schedule can apply to manufacturing, service or distribution respectively as follows: master production schedule, master service schedule, master distribution schedule.

If master scheduling is based on forecasts, as is the case for some make-to-stock environments, they would generally be derived from quantitative techniques. It is common that master scheduling is based solely on specific customer orders. For example, some MTS firms are responding specifically to a dealer or distributor’s replenishment order.

 Consistency is ensured by validating that the sum of the specific end items within a product family approximates the S&OP at the higher level. In addition, the master schedule is tested for feasibility via the rough-cut capacity planning process. The master schedule horizon varies widely, from several weeks to several months, depending upon the cumulative lead-time: the sum total of all lead times from acquisition of inputs (such as raw materials) to the point where the product is available (such as final assembly). It generally relies on weekly buckets and a weekly review.

 Detailed Planning

This is the most detailed and short term plan, characterized by specific work orders, labor assignments, stock allocation, and daily or even hourly schedules. It will ensure that all resources (operator, machine, material) are allocated to support customer deliveries.

 MRP is the common tool for planning at this level for manufacturers, and there is an analogy for other areas of application as well. Hospitals schedule surgeons, nurses, equipment and operating rooms for a patient’s surgery. Restaurants schedule receipt of deliveries and the working hours of wait staff. From a generic viewpoint, detailed planning specifically defines purchase orders, work orders and sales orders, and whatever resources are necessary to fulfill them.

 It is only after this lowest, most detailed and short-term planning takes place, that the actual execution of work takes place on shop floors, or in salesrooms, or warehouses. Everything above this level took place in a meeting room or office, as recorded in spreadsheets, databases or meeting minutes. Everything below this level is illustrated via physical movement of personnel, machinery, or product.

 Summary

The need for a top-down planning hierarchy has been described as essential to an organization’s success to ensure several consistencies:

·        A balancing of supply and demand at each level

·        Aligning operations with marketing strategy

·        Coordination of schedules among operators, equipment and materials

·        Ensuring the daily work tasks support the higher level vision/mission statements

This is accomplished via a periodic review process at each level that considers the planning horizon, size of the discrete time bucket, items to be planned, and resource constraints. As business planners complete the hierarchy, the focus changes from long term, broad plans based on qualitative forecasts, toward short term, detailed schedules in support of specific customer orders.