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Integrating the Value Chain
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The business planning component should be thought of as the brain in the central nervous system of the business. It is processing all the internal and external forces that are playing in context with the cur­rent and future business's total resources. It is providing the game plan for the direction and critical operating tasks that must be achieved for the business to be successful. This plan must be followed or changed in a formal documented way even at the expense of indi­vidual objectives. This is the engine that drives the demand manage­ment process that in turn provides the direction for the supply man­agement process. This middle process of demand management is a missing cog in many business gears today. This whole demand pro­cess, referred as the demand chain, has three main distinct compo­nents. It is an inclusive process that gathers demand that

     adds value, desirable, and should be met

     adds value, desired, but capacity prevents capturing this demand

     does not add value, undesirable, and should not be met.

This last component frequently is disguised as opportunistic sales. It is sometimes rewarded as unplanned sales volume. Unfortunately, since it increases sales it remains in the production plan and takes away supply capability that would be used for future growth opportunities, and/or it is an orphan that has been rejected by your competitor. De­mand chain management, by driving for enhanced business value in­stead of concentrating on traditional total revenue, will differentiate good value versus bad value. An additional attribute will be to inte­grate all the components into a single business plan that establishes interdependent holistic metrics and behaviors that are business-cen­tered instead of individual or functional-centered.

Measuring against the plan is a preferred metric. One must look for ways to take out luck as the business performance is measured. Cur­rency fluctuations, for example, are symptoms of volatility of an economy and not business performance. Competitors' unexpected sup­ply outages are symptoms and are not acceptable as a route for achiev­ing demand goal. Understating anticipated sales in order to achieve above forecast performance likewise is not acceptable. All plans should have a documented set of quantitative assumptions and degree of un­certainty. The business plan should have a variance that can be mea­sured. The objective should be to reduce this variance continuously. The business should measure the actual performance against perfor­mance to the plan and use the variance between the plan and actual as key learning opportunities for positive step changes in the future. This approach begins to enhance the understanding of the customers, mar­kets, products, and the internal supply reliability. These are all critical ingredients in generating higher business value.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 11


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