The Nested Planning Cycle 160516
- 1. The Nested Planning Cycle Carpe Futurum
- 2. The Nested Planning Cycle Strategic Long-Range Plan Annual Plan Rolling Monthly Update Execution Refined from Strategic to Execution “If you don’t know where you’re going, any road will get you there” – Lewis Carroll
- 3. The Nested Planning Cycle Strategic Long-Range Plan Annual Plan Rolling Monthly Update Execution Structured Strategic Planning supports Annual Plan supports Rolling Updates supports Decisions & Execution Many tenets borrowed from Ram Charan, Northwestern University Graduate School of Management (pre-Kellogg)
- 4. Rolling 6 MosRolling 6 MosRolling 6 Mos Strategic Long- Range Plan The Nested Planning Cycle Year 5Year 4Year 3Year 2Year 1 Jan Jan Annual Plan Rolling Forecast Rolling Updates Execution by quarter yearly totals by month
- 5. Rolling 6 MosRolling 6 MosRolling 6 Mos Jan Jan Annual Plan Rolling Forecast Rolling Updates Execution by quarter yearly totals by month The Nested Planning Cycle Strategic Long-Range Plan (SLRP) Strategic Long- Range Plan Year 5Year 4Year 3Year 2Year 1 by quarter yearly totals
- 6. The Nested Planning Cycle Strategic Long-Range Plan (SLRP) • Structured • Done Annually • Multi-Year Horizon (5-7 Years) • Market Analysis by Strategic Business Segment (SBS) • Internal Analysis by Strategic Capability Segment (SCS)
- 7. The Nested Planning Cycle Strategic Long-Range Plan (SLRP) • Market Models • Competitive Analysis • Market Segment Attack/Defense Plan • Capacity Plan • Technology Direction • Capital Requirements • High-level Financials by SBS • Data: Volumes, Pricing, Dates/Deadlines, Financing Output: This is not a Holiday from “Real” Work
- 8. The Nested Planning Cycle Strategic Long-Range Plan (SLRP) • Structured – Ideally, Professionally Facilitated • Tangible Results • SLRP Horizon Typically 5 ++ Years, Practical Considerations: o Product Life Cycles o Leadtime of Capacity Additions • Done Annually – usually ~4-6 months before the Annual Plan
- 9. The Nested Planning Cycle Strategic Long-Range Plan (SLRP) The Firm Strategic Business Units Strategic Capability Units ~ Profit Centers Market Focus Cost Centers Capacity Focus Technology Focus 80% of the SLRP Effort 20% of the SLRP Effort
- 10. Strategic Business Units “The Market Segmentation – Product Definition Dance” • This is a big, important part of the SLRP • What Market Segment(s) are you Targeting? • What is your Product? …your Complete Product? • How is the Product Tailored to Command the Segment and Defend the Segment from Competition? The Nested Planning Cycle Strategic Long-Range Plan (SLRP)
- 11. Strategic Business Units • Market Segment: a group of customers who share desires, needs, and buying patterns • Market Segments are numerous – too numerous • The important (SLRP) process is to Pare to a handful of the most important Market Segments The Nested Planning Cycle Strategic Long-Range Plan (SLRP)
- 12. Strategic Business Units The Nested Planning Cycle Strategic Long-Range Plan (SLRP) Market Segmentation Analysis is an art with many, many Drivers -- some of the more common Drivers: • Quality Needs • Distribution Channels • Service • Price • Geography • Documentation Support • Credit • Customer Size • Brand Image • Consumer Age • Sex of Consumer • Ethnicity of Consumer • Socio-Economics • Training Required
- 13. Strategic Business Units The Nested Planning Cycle Strategic Long-Range Plan (SLRP) What is your Product? …your Complete Product? Engineering creates devices, or structures, or “things” Marketing creates Complete Products: The brewmaster creates the beer, but Marketing creates the product…a six-pack, sold through supermarkets, delivered cold, that connotes certain personality traits of the drinker
- 14. Strategic Business Units Some Complete Product Attributes: • The Device (the “Thing”) • Post-Sale Service • Design Aids • Warranty & Return Policy • Documentation • Delivery • Training • Software • Spare Parts • Financing • Applications Engineering • Upgrade-ability • 3rd-Party Extensions The Nested Planning Cycle Strategic Long-Range Plan (SLRP)
- 15. Strategic Business Units The Primary SLRP SBS function is to Define or Re-Affirm the Market Segments to pursue, and construct Complete Products to exploit these Segments Market Segment Complete Product attribute attribute... The Nested Planning Cycle Strategic Long-Range Plan (SLRP)
- 16. Strategic Business Units Then, the hard work of research, analysis, and data management, by Product- Segment, ensues; Tangible Output is generated: The Nested Planning Cycle Strategic Long-Range Plan (SLRP) • TAM/SOM (Total Available Market / Share of Market) • Competitive Analysis – Products, Strengths & Weaknesses, SOMs • Sales by SLRP Time Period – Quantities and Dollars • Product Life Cycle: Introduction, Penetration, End-of-Life • Investments Estimated (New Product Attributes, especially) • Competitive Entry Barriers Defined or Re-affirmed
- 17. Strategic Business Units The Nested Planning Cycle Strategic Long-Range Plan (SLRP) Year 1 Q1 Q2 Q3 Q4 Year 2 Year 3 Year 4 Year 5 Product – Market Segment: Unit Volume Revenue Investment Product ROI TAM SOM
- 18. Strategic Business Units The Nested Planning Cycle Strategic Long-Range Plan (SLRP) The Market Segmentation -- Product Definition process should answer the question: How will the product achieve a commanding and defensible position in the Segment? What Competitive Market Barriers exist or can be constructed?
- 19. Strategic Capability Units The Nested Planning Cycle Strategic Long-Range Plan (SLRP) 1) With Input summed across the SBS’s, Capacity additions/retirements are defined 2) Product Development and Manufacturing Technologies defined • Capital Requirements • Timetables 3) Rough-Cut Cost Guidance for the SBS’s generated; Margins Analyzed 4) Strategies and Tactics that supersede the individual SBS’s defined and analyzed SCS’s
- 20. Strategic Capability Units The Nested Planning Cycle Strategic Long-Range Plan (SLRP) 1) With Input summed across the SBS’s, Capacity additions/retirements are defined o Data generated for the Site Selection Process o Capacity shortfalls identified o Prioritize Product Support using Strategic or Financial Criteria (margin per constrained unit of resource) – Feedback to SBS’s o Compile a Capital Plan
- 21. Strategic Capability Units The Nested Planning Cycle Strategic Long-Range Plan (SLRP) 2) Product Development and Manufacturing Technologies defined o Automation o New Product Design Technology (e.g., CAD Tools) o Timetables o Capital Plan Compiled
- 22. Strategic Capability Units The Nested Planning Cycle Strategic Long-Range Plan (SLRP) 3) Rough-Cut Cost Guidance for the SBS’s generated o Validate SBS Product Pricing and Margins o Use in/for Product, Capacity, Technology ROIs
- 23. Strategic Capability Units The Nested Planning Cycle Strategic Long-Range Plan (SLRP) 4) Strategies and Tactics that supersede the individual SBS’s defined and analyzed • Corporate-level Strategies • For example, an investment in a European Service Center that is used by all SBS’s in supporting their European accounts • New Product Attributes, as proposed by one or more of the SBS’s need to be assessed; example: extending credit terms
- 24. The Firm The Nested Planning Cycle Strategic Long-Range Plan (SLRP) • Ensure the Aggregate Total makes sense • The CEO & Executive Staff bless-or-kill (or modify) SBS & SCS Strategies… …Sanctioning • High-level Financials generated…and…Value of the Firm • Fodder for Capital/Financing Strategy • SLRP Data Finalized (for the various planning exercises throughout the year)
- 25. Rolling 6 MosRolling 6 MosRolling 6 Mos Strategic Long- Range Plan Year 5Year 4Year 3Year 2Year 1 Rolling Forecast Rolling Updates Execution by quarter yearly totals The Nested Planning Cycle The Annual Plan Jan Jan Annual Plan by month
- 26. The Nested Planning Cycle The Annual Plan • Highly Structured • Done Annually; usually 4-6 months after SLRP • SLRP Year 1 “Drill-Down” Exercise • ~ 15 Month Horizon (i.e., remaining months of current year + 12 months of the Plan Year)
- 27. The Nested Planning Cycle The Annual Plan The Annual Plan’s Purposes and Output: • Goal-setting • Budget determination – Zero-Based Budgeting (ZBB) • Master Schedule Determined; Constraints managed • Materials Purchasing Plans Determined • Project Staffing, Deliverables, Timetables Validated/Reset • Detailed Forecast Financial Statements; Cash Planning • Basis for Incentive Plans • Detailed plans developed for SLRP SCS and SBS Investments
- 28. The Nested Planning Cycle The Annual Plan SLRP Year 1 ”Drill-Down” Exercise Detailed Demand Forecast • Unconstrained – if you don’t ask for it, you know you won’t get it • Inputs from the Field Sales Force, rationalized by Marketing Mngt. • Product quantities and pricing by month Manufacturing Response/Commit – The Master Schedule • Master Schedule determined; Constraints (Product Quantity Shortfalls) resolved using Strategic and/or Financial criteria • Costs and Margins Forecasted
- 29. The Nested Planning Cycle The Annual Plan Detailed Operating Budgets Determined • Headcount • Spending • Project Deliverables and Timelines Validated/Updated Zero-based Budgeting is an Annual Necessity
- 30. The Nested Planning Cycle The Annual Plan What’s a Zero-Based Budget (ZBB)? Simply: No Baseline starting point; no blind % increases All Budget Elements and Amounts are scrutinized and justified anew, for example: • Headcount (of course) • Floor Space • Office Equipment • Travel • Outside Services & Contracts ZBB – “Every Dollar has a Name”
- 31. The Nested Planning Cycle The Annual Plan ZBB + Driver-Based Budgeting (DBB) = Good Combination … DBB? DBB…Identify the fundamentals that Drive Spending, such as: • New Product Introductions drive Advertising Spending • # of Manufacturing Job-Orders drives Production Control headcount • Specific Machine Usage drives Spare Part Consumption
- 32. The Nested Planning Cycle The Annual Plan Annual Plan Project Management • Resource Deployment by Project • Determine/Update What’s Delivered and When J F M A M J J A S O N D Project A Project B Project C Project D Project E Resource XYZ 1 2 2 3 3 2 2 1 1 1 1 2 2 3 3 3 2 1 1 1 4 2 2 “ZBB Line” No Support Support
- 33. Strategic Long- Range Plan Year 5Year 4Year 3Year 2Year 1 Jan Jan Annual Plan Execution by quarter yearly totals by month The Nested Planning Cycle Rolling Monthly Updates Rolling Updates Rolling 6 MosRolling 6 MosRolling 6 Mos Rolling Forecast
- 34. The Nested Planning Cycle Rolling Monthly Updates • Highly Structured • Done Monthly • Update to the Prior Month’s Update and the Annual Plan • ~ 6 Month Horizon (Materials and Labor Leadtimes determine) • Purposes and Output: o Master Schedule; Constraints rationalized o Budget updates – but, NO Zero-based Budgeting o Project Staffing, Deliverables, Timetables Validated/Reset o Detailed Forecast Financial Statements; Cash Planning
- 35. The Nested Planning Cycle Rolling Monthly Updates • Process and Results very similar to the Annual Plan o Unconstrained Demand o Manufacturing Response; Constraints Managed o Detailed Budgets and Headcount Forecasts o Materials Purchasing Plans Revisited o Project Resource Deployment Reviewed/Updated Rolling 6 MosRolling 6 MosRolling 6 MosRolling 6 Mos
- 36. The Nested Planning Cycle Execution Hire, Spend, Commit, Procure as per the Approved, Current Rolling Forecast as Items roll within Leadtime Compare Actuals vs the Rolling Forecast AND the Annual Plan Incentive Programs Payout accordingly Ready, Aim, Fire Plan, Update, Execute
- 37. • Should Your Marketing Manager be Doing Your Cost Accounting? • Combating “Whack-a-Mole” Business Management • How Intel took on the Japanese … and Won! • Do you view the World like an Accountant… or an Economist? • Making a Profit Selling $1 Bills for 99¢ • The Nested Planning Cycle • ERP – Dare to be Mediocre! • 3/5’s of a Mile in 10 Seconds • Does your Company know its Costs? Take the Quick Test • Managerial Finance Series: o Integrated Cost Management o The Cost of Variability o Activity-based Costing o Managerial Modeling of non-Manufacturing Areas o Cost-based Pricing – A Bad Idea o Internal Profit Centers – Another Bad Idea o Job-Order vs Process Costing o Plant-Specific vs Like-Plant Costing o Fully Absorbed vs Direct vs Incremental Costing o Complete Unit Integrity (CUI) o Is Direct Labor Really Direct? o What’s a Joint Cost? o The Cost of Capacity o Inventory Valuation Methods o Zero-based Budgeting & Resource Deployment o Yield Loss or Scrap? Jeff Johnson jeffdjohnson@Comcast.net Most of these presentations were originally created and delivered as part of Intel Corporation’s internal training and employee development program, known as “Intel University.” The author updated them for more general use in 2016. from Jeff Johnson