Supply Chain Profitability – Growth Planning for Complete Control
When many companies prepare their growth plans, the plans are often conceived by the executive staff and/or marketing staff without consulting with the operations staff or determining the company’s operational requirements vs. capabilities. The growth plan is memorialized and new goals are set. It was not determined if and how well those goals can be achieved with available resources, or what resources are required vs. those available to achieve them. The growth plan usually is a single percentage number and does not consider contingencies for better or worse than anticipated results. Growth goals are often not achieved, customers are disappointed, and the company’s competitive position and profits suffer.
Using the above scenario, if a company determines they will grow 10% a year for 5 years that will be the number. What happens though when they have unexpected large increases in sales growth, e.g. grow of 25% in a year? Based on providing systems and resources to accommodate 10% a year (if they even did that), at what point will they fail to meet their customer’ requirements and lose business? What happens when we have an unexpected recession and there is low or minus growth, will the company be able to survive? If the average growth actually does occur at 10% over the next 5 years, there is no guarantee that the growth will be linear. There is the possibility the growth can be 20%, 20% 5%, 3%, and 2% and still average 10% over 5 years. Might the company first fail customers and then fail to survive?
To increase the odds of achieving the goals, and meeting customer service requirements in a timely manner and within budget, the aforementioned process must be changed. Marketing should provide a goal growth percent and also include reasonable high and low possible contingencies. Once sales goals are submitted, operations must establish production goals and determine if and how they can be met. If there is a resource shortfall (space, equipment, staff, speed, IT), one must determine which resources, and then what additional resources and associated costs are required to meet the goals. The company then has a choice whether to provide additional resources, scale back growth plans, or choose a compromise solution.
The company presently manufactures and/or distributes 100,000 units a month and the growth plan is 10% a year for the next five years.
> If however the actual growth rate is 15% per year, in five years the company must be capable of shipping 201,000 units per month.
> And if the actual growth rate is 5%, in five years the company must be capable of shipping only 128,000 units per month.
Operations must therefore determine which processes and systems are required to achieve each of the 3 volumes in the future and then for each calculate:
> New processes and systems required to achieve higher shipping volumes
> How much space (and layout change) is required and at what cost
> The amount of equipment and level of automation is required and at what cost
> What are the new staffing requirements and at what capability and cost
> What IT support, staff, software, and hardware are required and at what cost
The operations staff can then determine required resources and estimated budget costs for all studied scenarios so a growth model can be chosen and management can provide the resources required to achieve growth goals successfully. Very often once the company sees what resources, capabilities and costs are required for each growth level they will choose an achievable compromise such as 7% per year or 12% per year.
At the Strauss Consulting Group we are experts in determining which processes and systems; how much and what type of space and in which layout; total equipment requirements from fully automated to manual; required staffing capabilities and levels; and what IT support, staff, software, and hardware are required and at what cost for all for every growth level and contingency. We then provide exception reports to monitor the growth so one will note changes vs. expectations immediately and modify the plan as required. The result is that no matter what happens one will know what to do, how to do it, when to do it, and at what costs for the 5 key variables and be in total control.