This article examines resource-planning practices that are used to assure the proper timing and availability of resources. The concepts of optimal and maximum operational velocity are explained and the role of resource planning in the maintenance of operational velocity is examined. The importance of capacity planning and inventory management is reviewed along with methods that many organizations use to manage safety stock in order to smooth production flow. How resource planning practices and methods can be applied to service organizations is also examined.
Keywords: Capacity; Functional Strategies; Gap/Glut; Grand Strategy; Material Requirements Planning (MRP); Operational Velocity; Resource Capacity Planning Optimizer; Resource Planning; Safety Stocks; Supply Chains; Support Strategies
The business goals of a company as well as the business goals of the channels in which it is a member, dictate overall corporate strategy. The grand strategy, or master strategy, is a result of an analysis of the environment in which the company operates. The grand strategy is the mechanism by which the separate entities within the firm develop their strategies and operational plans and determine their resource requirements. When a company implements its grand strategy it then has a path to follow and has set out long-term goals and a means to measure to what extent those goals have been achieved.
After the grand strategy has been developed and goals and measurement process of goal achievement have been established, then functional strategies can be developed. Each department in the company develops its functional strategy that guides activities in the department that are all designed to help the company achieve its overall strategy. Functional strategies must be consistent with the grand strategy as well as consistent with one another. The resource planning process assures that the acquisition of resources is planned in a manner that facilities efficient work flow across functions.
Many departments share goals such as making a product available when needed, at the location it is needed and in the quantity it is needed. When the functional strategies of the manufacturing, logistics, sales, and marketing departments are aligned to meet the overall goals of the company then the company is better able to meet customer service demands. These departments and their functional strategies also need to be integrated into the company's supply chain, which includes firms that provide it goods and services as well as its customers to which it supplies goods and services. Thus resource planning goes beyond the activities inside the company and resource needs are highly dependent on sources outside the company (Novack, Dunn & Young, 1993).
Strategies are accomplished through the execution of business processes. Each business process is a collection of activities that combine different inputs to create an output that is of value to the customer. Meeting customer expectations in a timely manner can be challenging if business processes are widely dispersed and inconsistent. Consistent core business processes and data representation are essential to allowing decision makers to respond quickly to the changing market (Singh, 2012).
Businesses generally engage in three main processes: Acquiring and paying for resources, converting resources into goods/services, and acquiring customers, delivering goods and services, and collecting revenues (Klamm & Weidenmier, 2004). Successful implementation of strategies requires that business processes be properly timed and appropriate resources be available when and where they are needed. Both the timing and availability of resources are accomplished through well-managed resource planning.
One of the major objectives of resource planning is for a business to reach and maintain optimal operational velocity. At this point, the business has sufficient speed in delivering products or services to market, while simultaneously meeting all customer expectations in a timely manner, and obtaining a positive revenue stream from each activity. If addressed appropriately, maximization of operational velocity will drive the enterprise to achieve greater market share and revenue as operational efficiencies are instituted (Stephenson & Sage, 2007). Achieving optimal operations velocity requires that the appropriate resources be in the right place at the right time. This requires advanced planning for the procurement of production materials, production capacity including facilities and equipment, and the workforce necessary for production, operations, distribution and sales.
Birshan, Engel, and Sibony (2013) provide some novel strategies for effective resource planning, including creating a corporate-resources map, benchmarking "resource inertia," and reframing budget meetings as resource reallocation sessions, to name three.
In high-tech industries that are highly competitive, a company's ability to manage and adjust capacity as needed is critical for the long-term success of the company. Demand for products can change rapidly and there are many factors that can impact demand. Some companies and products have demand shifts based on seasons while others may be more tied to long-term economic conditions and still others may be influenced by short term economic shifts.
In addition, product life cycles can be very short for some products which means that companies that produce these products are planning for resources at least one if not several models ahead in the future. In such cases where life cycles are short it is critical that a manufacturer not hold excessive inventory of parts or supplies that may not be usable in the next iteration of the product. On the other hand, if parts or supplies can be used in several iterations in the future, it may be prudent to buy parts when demand for them is low and prices are not rapidly rising.
It is also important to carefully plan the introduction of product innovations. If a company introduces an innovation too soon then they may find that customers are not ready for the innovation, which could impact sales. However, if an innovation is introduced too late and the product line lags behind competitors in functionality, then market share could be lost and sales decline.
So-called reverse innovation, in which an innovative product is introduced and adopted first in the developing world before migrating into mature markets, is gaining attention. Pioneered by such companies as GE, Procter & Gamble, and Levi's, the strategy and its successes are described by Natalie Zmuda of Advertising Age (2011).
The Semiconductor Industry
The semiconductor industry faces many capacity and resources management issues that other industries do not. Although profit margins on semiconductor products can be attractive the initial costs of introducing a new product can be very high. The majority of this cost is manufacturing equipment and plants which in the semiconductor can be in the billions of dollars. This means that a semiconductor manufacturer needs to have high enough sales levels to justify investing in new plants. Added to the cost are also recent trends of relatively short life cycles for semiconductor products which mean frequent retooling of plants and equipment.
The Biotech Industry
The biotech industry faces similar challenges to that of the semiconductor industry. Although profit margins are favorable, developing manufacturing capacity is expensive with new facilities costing in the hundreds of millions of dollars. Any company in the biotech field must also have sufficient market share and a healthy customer base in order to sustain sales in volume and over time that allows for a return on investment for new manufacturing technology. Many biotech manufacturers and the companies that use their products have developed long-term supplier and purchaser agreements which helps the manufacturer lock in the long term customer and have a steady cash stream. Such agreements can also help the customer of the biotech manufacturer by assuring supply and locking in a favorable price (Wu, Erkoc & Karabuk, 2005).
Resource Planning Optimization Techniques
Supply chain and resource planning optimization techniques are generally used to improve resource planning and maintain a desired level of profitability (Sourirajan, Ozsen & Uzsoy, 2007). As supply chain modeling methods have improved over time a more accurate forecast the need for raw materials, parts, and supplies. Modern supply chain simulation models can account for substitution of parts, time lags in the delivery of supplies or other delays in manufacturing as well as a wide range other resource planning issues (Gresh, Connors, Fasano & Wittrock, 2007).
When handling the problem of safety stocks sizing and positioning, safety stocks kept to face demand uncertainty are often positioned on pull managed resources, or the resources that are used to produce items. Positioning for safety stocks on push managed items (those items that are produced and sold by a company) can be expensive for a number of reasons. If parts are customized with company logos or brand names cost will certainly be higher. If parts are perishable or fragile in some way breakage or other damage to the parts can easily occur. If demand for a part suddenly goes up and forecast for an additional supply of the same part is not modified upward safety stock could be depleted and production jobs may be delayed.
When order due dates equal the length of time of the manufacturing pipeline, there is no impact on the lower levels of BOMs, since the time allotted for the replenishment orders makes it possible to manufacture the items unavailable because of resource shortages. As a consequence, safety stock sizing and management are two issues that need to be solved together during the resource planning process. In...
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