Planning in the Planning and Budgeting subsystems
Planning is a key factor for effective enterprise operation. Planning is based on demand forecasting, analysis, and estimation of the resources and business development prospects.
Planning involves setting enterprise objectives for a certain period of time, defining how to achieve these objectives and provide resources. It is about developing a set of activities to define a sequence in which the objectives should be achieved considering the enterprise capabilities.
During the planning process a set of plans is created to cover the most important enterprise departments. Planning is one of the most effective ways to cut costs. Besides, planning is a tool for coordination of enterprise department activities.
All planning tools that are available for particular planning level are displayed in table 2.1.
Table 2.1
| No. |
Planning level |
Details |
| 1 |
Enterprise strategy |
|
| 2 |
Strategic planning |
|
| 3 |
Medium-term planning |
|
| 4 |
Short-term planning |
|
| 5 |
Real-time planning (master scheduling) |
|
| 6 |
Operational planning |
|
Using tools of the Planning subsystem, you can forecast your sales, purchases, production and assembly/disassembly by goods and their quantity. Inventory plans contain products, characteristic and quantity which is the main difference from planning in the Budgeting subsystem where plans may be more abstract. It means that planning target indicators are defined in the Budgeting subsystem. Budget is committed for a certain planning period.
In the Budgeting subsystem, you can control sales & operations planning processes which can be used together with planning of sales, purchases or production as a unified enterprise process.
For example, you may develop an annual plan for December 2016 and control its fulfillment in December 2017 in the Budgeting subsystem.
Objectives and planning horizon for particular planning levels are displayed in table 2.2.
Table 2.2
| No. |
Planning level |
Details |
| 1 |
Enterprise strategy |
|
| 2 |
Strategic planning |
|
| 3 |
Medium-term planning |
|
| 4 |
Short-term planning |
|
| 5 |
Real-time planning (master scheduling) |
|
| 6 |
Operational planning |
|
Interconnection of the Planning and Budgeting subsystems is displayed in the diagram.
Source information includes the following:
- Goods movement statistics ─ management registers recording product transfers.
- Real-time plans ─ any created plans may be planning sources.
- Operational plans — shipment orders (sales orders, purchase orders, transfer orders, etc). Goods movement statistics are also based on these plans.
- Budget turnovers
- External data from external sources:
- Files imported from Microsoft Excel
- Any table data on goods and quantity
As a result, you can do the following:
- Create operational plans (orders) based on real-time plans.
- Create other real-time plans.
- Control plan fulfillment that helps you to make management decisions.
- Generate budget turnovers depending on the planning procedure:
- If top-down planning is used, then budgeting data is a planning source.
- If bottom-up planning is used, then planning data is a budgeting source.
Defining entry point of source data for planning
Sales & operations planning is for recording material flows on a quantity basis and a value basis.
Sales & operations planning is a part of the enterprise budget process. Sales & operations planning data (production plans, sales plans, purchase plans, assembly/disassembly plans) may serve as a source for budget generation.
Depending on the initial point of planning data generation, whether it is the Budgeting subsystem or the Planning subsystem, the following budget generation scenarios are provided:
- Top-down planning is fulfilled by strategic plan generation by value (planned enterprise revenue by markets without considering assortment). It means that the enterprise starts its activities using abstract plans (in general, enterprise plan is made for a certain amount of money). If source information is abstract data, then an entry point of planning data is the Budgeting subsystem. Based on a strategic plan, plans are created in the Planning subsystem allocating abstract target to goods and quantity in a real-time plan.
- Bottom-up planning means that goods turnover statistics are collected (products and quantity). Based on these statistics, plans are generated in the Planning subsystem and implementation of these plans is controlled in the future. Orders are generated based on planning data. Final objective of planning is "order generation by plans". The standard is a scheme when detailed planning data (products and quantity) is collected and adapted to cumulative planning in the Budgeting subsystem.
Budget generation scenarios for sales & operations planning are displayed in the diagram.
Planning and Demand fulfillment efficiency
Demand for goods may be divided into the following groups:
- Planned volume of purchases, sales, assembly/disassembly and production. Using sales & operations planning data, you may generate orders for fulfilling demands by these plans (purchase orders, assembly/disassembly orders, production orders and Orders for materials) if it is provided in a planning scenario. For example, fulfilling demands of purchase plans is made by generating purchase orders.
- Shipment order demands (fulfilling the Order against order demands). Demands which appear when planning goods shipment: by sales orders, transfer orders, assembly orders and internal consumption orders. In this case, goods quantity required against the order is provided excluding expected receipts.
- Minimum required balance. Replenishment of stock in the warehouse to ensure continuous operation of sales department. Tools of the Demand fulfillment subsystem help to replenish minimum required stock balance.
The features of the Planning and Demand fulfillment subsystems are displayed in the diagram.
Let's have a look at when tools of the Planning subsystem and tools of the Demand fulfillment subsystem are used.
Prerequisites for using the Planning subsystem:
- The biggest part of demand fulfillment is not Order against order but forecast calculation or expert assessment.
- Long-term cycle of goods/materials delivery.
- Exact delivery time is not set.
- Goods suppliers are not defined.
- Details up to goods and quantity, i.e. not abstract indicators.
- A formula is used to calculate goods quantity to purchase, sell or produce.
- Preliminary (for a period) production planning (assessment of production plan fulfillment). That means planning for a week or longer.
- Forecasting considering goods turnover statistics of previous years.
- Fast-changing similar assortment (assortment management, assortment planning), for instance, fashion products.
Prerequisites for using the Demand fulfillment subsystem:
- Order against order takes the biggest part of demand fulfillment (for example, in most cases shipment orders are a sales source). Goods quantity required against shipment orders will be provided excluding expected receipts.
- Replenishment of minimum required warehouse balance according to consumption statistics and/or goods consumption rate and/or required minimum stock.
- Short cycles of goods/materials delivery (for example, you can plan delivery for the following day, week, month, etc).
- Automatic calculation of goods quantity recommended for order by the application (to provide demand fulfillment against shipment orders and replenish minimum required balance).
- Goods suppliers and delivery time are set (due dates of purchase, transfer, assembly/disassembly, and production) and these due dates are stable.
- Exact order dates (purchase orders, transfer orders, etc.) and dates of upcoming deliveries and shipments.
When making demand fulfillment decisions, you can consider not only actual warehouse balance but also data on expected goods receipts and shipments (planned balance layer).
Demand fulfillment allows you to forecast goods delivery time more precisely. If you need to plan for the following day or week, you can use tools of the Demand fulfillment subsystem.
Planning principles
With the application, you can plan the following business processes:
- Sales
- Production
- Purchases
- Goods assembly and disassembly
- Balance forecasting
To select which plans to create, click Master data and settings ─ Master data and sections ─ Budgeting and planning ─ Planning. In this chapter, we mean interface elements of the Budgeting and planning section.
Planning process may be shown as follows.
Before planning set up Planning scenarios and Plan profiles in the application. Main planning parameters such as planning frequency, planning horizon and plan generation rules are stored there. You can specify plan generation rules in Plan profile or when creating a plan.
Once the settings are specified, you can start creating plans.
The following documents are used for planning:
- Sales plan by products
- Sales plan by categories
- Production plan
- Assembly/disassembly plan
- Purchase plan
- Balance plan
When plans are created, you can analyze their convergence. For these purposes, you can use the Plan balance report. The report shows if our demand plans can be fulfilled using fulfillment plans. For example, if you plan to sell more than purchase, you can see it in the report.
You can organize plan approval process using statuses. The following statuses are available for plans:
- Under development
- On confirmation
- Confirmed
- Canceled
When fulfilling plans, you can analyze their progress using the Fulfillment of sales/ production/purchase plans by departments reports.
When you start planning, it is important to define the following:
- What is available for sales & operations planning.
- Who makes decisions or which plan is preliminary ─ sales, purchases or production.
- Sales, production ─ fulfillment scheme
- Purchases ─ allocation scheme
- By which method goods are supplied/ allocated.
- Which details are necessary for planning (for example, a sales plan may be detailed by a department, a warehouse, etc).
The example of a fulfillment scheme is shown below.
The sales plan displayed in the diagram is preliminary (source document), i.e. decisions are made in a sales department. All fulfillment plans are generated based on a sales plan. You can define which goods you should purchase and which goods you can produce. Based on a plan of manufactured products and semi-finished products, you can get a material plan. Its data is added to purchase plans.
The example of a fulfillment scheme with the feedback for cumulative planning is displayed in the diagram.
Inventory plans may have both positive and negative values and allow you to provide feedback for other plans.
Plans having negative values include negative quantity of product items in plans. Overall plans are adjusted by that. This option is available only for cumulative planning.
There are the following options for goods/materials planning:
- Forecasting on behalf of the whole enterprise (without companies belonging to it).
- Forecasting by volume and value in the selected planning currency.
- Variability of planning assessments by planning scenarios.
- Selection of random planning horizon which can be detailed by time periods.
- Plan generation based on available data.
- Provision of planning data control and protection.
- Available analysis of convergence of planned consumption data and plan demand fulfillment.
- Available variance analysis by enterprise activity results.
During planning process you might create several alternatives of the same plans for which scenarios act as separators.
A scenario is used to store several independent data versions in the infobase. These data versions describe the same time period of enterprise activities. Scenarios provide data variability and plan versioning (keeping separate versions of these scenarios).
You can use the same scenario to create different plans: sales plans by products, sales plans by categories, production plans, purchase plans, assembly/disassembly plans.
Different scenarios may correspond to different strategies and various alternatives of enterprise development. You can create a set of enterprise plans within each scenario.
For example, in late 2017 we get a big order from a new foreign customer. We have no experience working in this country, it is a new market for us. We generate plans for 2018 and want to design the following situations:
- At best, we fulfill the order and enter the new market. We get new customers and increase sales.
- In average-case scenario, we complete the order but do not expand our sales market.
- In worst-case scenario, our order is canceled.
We generate three plan sets for 2018: best-case, average-case, and worst-case. We generate sales plans, production plans and purchase plans within each scenario. We plan sales growth and consider the sales order when creating the best-case plan. Data on the sales order is already stored in the infobase and we can use it when filling in the plan. Then we calculate related production and purchase plans. We do the same for the worst-case scenario. However, we do not plan sales growth and do not consider the order in the worst-case plan. We consider only the sales order in the average-case plan.
You can generate plans of different profiles within the selected scenario. Plan generation rules are defined by a plan profile:
- Filling option (by formula or by sources)
- Detail level (department, warehouse, partner, and agreement)
- Planning method (cumulative or substituting)
The procedure of plan approval and confirmation is based on management of plan statuses.
The following roles are available to approve plans: Purchase plan confirmation, Sales plan confirmation, Production plan confirmation, Assembly/disassembly plan confirmation. Users can confirm the corresponding plans depending on their role.