THE ROLE OF SALES AND MARKETING IN PLANNING AND SCHEDULING

John R. Dougherty and Christopher Gray

OBJECTIVE

A manufacturing or distribution company can get the most out of its planning and scheduling system only if all company functions are actively involved. Sales and Marketing is a key function whose participation is often hard to enlist. This presentation will describe the account­abilities and activities required of Sales and Marketing to optimize the benefits of a planning and scheduling system. It will also highlight the benefits and advantages that such a participation will produce for Sales and Marketing, and the customer.

PERSPECTIVE

MRP II, DRP and Just‑In‑Time implementations are often viewed narrowly (and sometimes negatively) by Sales and Marketing. They are seen as inventory and cost reduction programs which may endanger customer service and flexibility to the marketplace. Sales and Marketing must not only understand that such systems will improve performance to the customer, but also by their active participation, must contribute to and ensure this improvement.

The late Oliver Wight developed a checklist and grading system whereby companies could compare their performance to industry‑wide standards. This is called the MRP II ABCD Checklist. Class A results represent the pinnacle of success.

The results of a survey of 1100 companies concerning their experience with MRP II is published in the OLIVER WIGHT COMPANIES' 1985 newsletter. That survey showed that 85% of the companies enjoyed better performance with an MRP II system. Eighty percent of the companies that consider themselves Class A said that performance was enormously better. The companies surveyed averaged a 16% improvement in customer service, while the Class A companies averaged 28X. Ninety‑eight percent of the Class A companies estimated their yearly benefits from MRP II to be over $100,000. Forty percent estimated these benefits to be over $1 million per year. Sixty‑five percent of the Class A companies enjoyed improved market share. Ninety‑seven percent of them indicated they had better planning/simulation tools to deal with market opportunities. Ninety‑nine percent of them felt they had better control of their business. The Class A companies had a weighted average of over 200% Return‑On‑Investment from implementing MRP II.

Many individual companies who have achieved Class A benefits indicate that improved customer service, lower competitive lead times and increased flexibility to the marketplace, has allowed them to capture additional business, increased sales levels and improved market share. In summary, excellent performance in the area of planning and scheduling has become a powerful, competitive weapon for these‑ companies in servicing their marketplaces.  

SALES AND OPERATIONS PLANNING

Until recently, this vital function was often referred to as PRODUCTION PLANNING. The new title currently being used better indicates the multifunctional scope of this process. This process is essentially one of communication. It involves a monthly review and recalibration of plans, setting the overall level of manufacturing output, sales and the resultant inventories, backlogs and competitive lead times, for major product families. The process involves converting the business plan in dollars, to an equivalent planning unit, such as each, dozens, etc. It ensures that recent past performance is always reviewed and considered in whether future plans should remain the same. Or the future may reflect the continuation of the recent past trend. Or plans could be adjusted to include compensating differences to counterbalance past variations from the plan, thus preserving the original annual plan.

As well as keeping inventories, backlogs and the resulting competitive lead times on a short review cycle, the impact of future changes should also be considered in these monthly meetings. These include sales promotions, price changes, new product introductions, product changes, etc.

Prior to a monthly meeting, middle management in Marketing, Manufacturing, Finance, etc. should review the statistical performances against past plans and then jointly identify potential future problems, and alternative solutions to those problems. The process culminates in a monthly meeting, attended by the General Manager (or President) and the heads of all the major functional areas of the company, who will review performance and make decisions concerning key families, potential problems and suggested alternative strategies. In the end, the company has one totally integrated set of plans to be used by Marketing, Manufacturing, Finance, Engineering, etc., which have been reconciled and committed to by the senior executives of the company. Without this process, a natural divergence of the plans of the various functions may take several months and several crises to identify, thus wasting valuable time and missing the opportunity to adjust plans in a series of small steps, rather than in one major, abrupt reactive change.

Sales and Marketing's role in this vital process includes the participation of the Senior (Vice President or Director) Managers in the monthly review process. It also requires middle level Sales and Marketing management to participate and prepare for the meeting in conjunction with other functions, identifying potential problems and solutions. Initial, active participation in establishing Sales and operations Planning policies including the scheduling of the meeting, its agenda, the product family definitions and the rescheduling guidelines will be required. Then constant monitoring and approval of changes to such policy rules, would also require Sales and Marketing participation.

The benefits that Sales and Marketing will enjoy should include much better managed Finished Goods inventories, backlogs and competitive lead times, and overall improvements 

in customer service levels by product family. Increased profitability and margins, with the potential to more effectively compete on a price basis, will also result. This is done to a stabler, better managed planning process that constantly considers Manufacturing and Distribution capabilities, the costs of changing these in the short‑term, versus the benefits to be gained in the marketplace.  

DEMAND MANAGEMENT

There are two aspects of demand management in which Marketing is traditionally involved. The most visible is maintaining sales forecasts. But an equally important and related function is the management of sales orders, backlog and customer communication. Other sources of demand such as warehouse demand and inter‑plant demand traditionally do not involve Marketing and Sales directly. However, they may necessitate that Marketing break down their sales forecasts by region, warehouse or plant.

Much has been written concerning sales forecasting. The maintenance of sales forecasts by family as an input to the Sales and Operation Planning process is critical. Equally vital is the constant review of the "mix" factors or percentages, used to break down the family forecast into individual end item, option or feature forecasts (usually through the use of a "Planning" or ""Modular"" Bill of Material. This is an important input to the Master Production Scheduling process which will be discussed next. Finally, maintenance of accurate sales forecasts for service or spare parts is also a requirement. It is not the purpose of this paper to delve into a full level of detail on this topic. However, several important points need to be emphasized.

First, there is a difference between a sales forecast and a sales plan. Forecasts tend to be statistically‑based and represent predictions of what may happen based on historical data and Marketing judgment concerning the future. Sales plans, however, represent sales forecasts that are committed to by Sales & Marketing management. They imply that a forecast has been thoroughly analyzed, reviewed and possibly altered. The sales plans imply that Marketing will take whatever steps necessary to achieve these plans. This may include advertising, promotions, management emphasis, sales force training and management, etc.

There are two ways to make a forecast more accurate. The first is to convert it to a sales plan, thereby putting management focus and attention on the commitment of the Sales and Marketing Departments to meet these forecasts. Everyone knows a forecast will always be wrong. However, a sales plan that has been committed to, is generally met, at least at the family level.

The second way to make a forecast more accurate is to present the data in a way that makes the frequency of reviewing the forecast and adjusting it, as manageable as possible. Here some data manipulation, summarization and exception reporting is vital. Typically, computerized systems are utilized. What is key, however, whatever system is chosen, is to ensure that the proper Sales and Marketing attention is going to the critical problems, which are highlighted by exception, on at least a monthly basis. Sales and Marketing management must not be forced to wade through every single line item forecast to find the real problems. In the day‑to‑day world, they simply won't do this very thoroughly or very well.

In addition, the breakdown of a family forecast to specific line item forecasts, and the maintenance of ~these, may require some statistical support to make it as easy as possible for Marketing and Sales management. Occasionally, Planning and Scheduling personnel assume some responsibility for the maintenance of these detailed numbers. Care should be taken to ensure that this division of responsibility for specific tasks, does not diminish Sales & Marketing's commitment to accept the overall responsibility for the accuracy of the forecasts and sales plans. Though it's probably optimal to have their own staff doing some of this "number‑crunching," it is workable to have other departments provide this service for them (because they may be dealing with the numbers on a day‑to‑day basis anyway, for instance, in a Master Scheduling or Distribution Planning function). This is true as long as the ultimate measurement, performance and accountability is emphasized by senior management as belonging to the Marketing and Sales Departments. 

There are additional steps that can be taken by other areas of the company to simplify and streamline the forecasting and planning process. These would include shortening the product lead times, thereby shortening the planning horizons over which Marketing must forecast. They would also include simplifying product options and features, and standardizing on common raw materials and componentry wherever possible. Identifying very low volume products, which will be very difficult to forecast on a weekly or monthly basis, and handling them in some way other than by maintaining a sales forecast, is also an effective way of ensuring that Marketing puts most of their effort and focus on items whose forecasts can be improved. Finally, utilizing the output of major customers' planning systems can substitute for the need for independent sales forecasting by Sales and Marketing

In the area of sales order management, two points are critical. First, any unusual sales orders should be identified and communicated to Distribution, Planning and Manufacturing the moment they are received or certain to be booked. This may be done through computerized exception checking in the Order Entry system (for instance, highlighting any customer order that represents more than a month's forecast, etc.) or by having general guidelines published and understood by all people in Order Entry so that notification can be made verbally or in writing.

The second key point is that any customer order promises made should always reflect the current inventory and scheduling position. In assemble‑ or make‑to‑order environments, this involves the Order Entry function utilizing an "Available‑To‑Promise" tool, which is a direct output of the Master Production Scheduling function. Forecasts, backlogs, inventories and schedules need to be constantly compared to ensure that customers are given the best possible promise, without causing overloads or disruptions in the factory or distribution network. This does not imply that customers are given only what's "left in the schedule." Rather, it's far more productive to identify mismatches between customer requirements and current inventories and schedules at the time of order entry, compared to just entering orders based on a standard lead time, hoping Manufacturing can react and adjust schedules after the fact. In the end, any conflict of priorities should involve Marketing & Sales prioritizing customer needs relative to each other.

Sales and Marketing's role in the Demand Management process could be summarized as active, monthly reviews of family and item forecasts and sales plans. Quick communication of any adjustments to these plans is obviously necessary. The establishment and maintenance of proper guidelines for sales order promising, and the highlighting of "abnormal" customer order demands on a very timely basis should also be Marketing's responsibility. Reconciliation of any mismatches between customer requirements and availability in the schedule should also be done on a daily or as‑needed basis, to ensure that the schedule always matches the backlog, and that customer orders are prioritized based on Marketing's judgment.   

The benefits to the Sales and Marketing functions should include improved customer service performance by line item. This will result from ensuring that the schedules and resulting inventories are always managed based on the most up‑to‑date and correct set of priorities as expressed by the customer order backlog.  

Certainly any Sales and Marketing executive would be excited to achieve such benefits. Believing that such benefits could be achieved in one's own company requires a thorough understanding of the mechanics of an improved planning and scheduling process. Part of this understanding is an exact realization of the role that the Marketing Department needs to play in the justification, implementation and operation of such a process.

The examples cited above apply specifically to MRP II. The experiences are similar for companies that have additionally implemented DRP and Just‑In‑Time. The specific discussions that follow are based on a typical MRP II implementation, which generally has been a prerequisite in a manufacturing company for DRP and Just‑In‑Time. But the specific framework and suggestions that follow would apply equally well for a DRP or Just‑In‑Time implementation. This discussion will focus on four key areas: BUSINESS PLANNING, SALES AND OPERATIONS PLANNING, DEMAND MANAGEMENT AND MASTER PRODUCTION SCHEDULING.

BUSINESS (STRATEGIC) PLANNING

This is a function in which Sales and Marketing executives traditionally take a strong, leadership role. However, the process itself, and the attitudes surrounding it, too often take Manufacturing (Planning and Scheduling) as a given. That is, it is assumed that for whatever strategies are developed, Manufacturing can easily, effectively and profitably mobilize resources to support them. In the short to intermediate term (one to five years), this is hardly ever true.

When this function is done best, it is done on a basis of matching a strategic marketing plan to the resources and strengths of the company. These include not only distribution channels, sales organizations and advertising programs, but also the inherent efficiencies and flexibilities of the manufacturing process, given its current set of capital and manpower resources. Any changes in strategic plans, such as: customer lead times, stock vs. make‑to‑order, the range of customer options, promotions, pricing and new product introductions, should all be done in light of Manufacturing's ability to marshal! resources to support these changes.

Sales and Marketing's role in this important function should be to foster increased participation by Manufacturing personnel and ensure that all strategic plans are made in light of the practical constraints, limitations and timing considerations inherent in the Manufacturing and Distribution processes.

The major benefits to Sales and Marketing are improved performance against objectives, since the Marketing plan is then established in a way to take maximum benefit of the resources available in Manufacturing and Distribution. Optimal, but realistic ranges of flexibility in various areas would also be realized. And finally, wherever there is a mismatch of resources vs. performance required by the strategic plan, early identification of this problem should allow Manufacturing and Distribution to put plans in place to provide improved capabilities in the future. The strategic plans then would ensure the proper time‑phasing of changes in Marketing plans to match the availability of Manufacturing and Distribution support systems.  

MASTER PRODUCTION SCHEDULING

Sales and Marketing's role here is a support or auxiliary one. But their understanding of the process, and involvement in it when necessary, is vital to its success. This process involves the maintenance of daily or weekly schedules, by line item, option, feature, etc. These schedules are validated and smoothed by key resource constraints such as manpower and equipment capacity, vendor capacity, product sequencing, etc. The Master Production Schedule is the "Build Plan" that represents the final, detailed statement of the tactical plan that will best support the strategic objectives of all functions, including Manufacturing, Purchasing, Marketing, Finance, Engineering, etc. It represents a plan that balances the utilization of resources in an efficient and responsible way vs. the satisfaction of anticipated demands from the marketplace.

Key to this process is a formalization of how requested or necessary changes to the schedule are analyzed, approved and implemented. This involves the identification and management of what are often called "Planning Time Fences." The term "fences" is probably not advisable, since it gives a negative connotation to Sales and Marketing management. Essentially, the fences represent boundaries between planning "Time Zones," that are a function of the inherent flexibility built into the currently existing procurement and manufacturing process.

Typically three zones are identified. The first zone is called an "Emergency Zone." Within this near‑term, short time frame, only changes authorized by the President or perhaps the head of Manufacturing and Marketing will be implemented. This is because a change in this time frame will impact performance to other schedules and other customer order commitments, as well as impact profitability, purchasing and manufacturing variances, etc. A second, or "Trading Zone" is often identified. This zone represents an area where schedule changes will be entertained, but only if a relatively equal and opposite schedule change to another customer order or product line schedule, is implemented concurrently, to keep balance on the utilization of Manufacturing and vendor resources. This zone may extend out as far as the cumulative manufacturing and procurement lead time of a product line. It requires approval at a managerial level.  

Finally, a third zone, or "Planning Zone," can be identified wherein more drastic changes to the schedule can be implemented and approved at lower levels in the organization, as long as they are within the overall constraints of the Sales and operations Plan.

The identification of these zones occasionally highlights situations where Manufacturing cannot efficiently respond as often and as flexibly as the marketplace demands. This then highlights the need for establishing other "hedges," which will buffer the plan from constant change, while still enabling the company to satisfy most customer demands. These include maintaining safety stocks at finished goods, subassembly or lower levels. They also include selective item or option "overplanning." This latter technique involves maintaining a small "bubble" in the schedule at a single point in time, that represents some percentage that the schedule is greater than the typical average forecast. This bubble is constantly rolled out into the horizon if not needed. It causes only the longest lead time materials and components to actually be procured and stocked, as a hedge against customer variability in the future.

Sales and Marketing management must take an active role to help identify in which product areas the company needs to make an investment in such safety stock and overplanning techniques. They should also take an active role in authorizing the size of the investment and in establishing guidelines within which the Master Production Scheduler will manage these "hedges" to best support customer demand.

Sales and Marketing's role in the Master Scheduling process includes active participation in the initial approval and maintenance of policy guidelines for the management of change to the schedule as outlined above. Sales and Marketing management, further, need to be very active in their enforcement of the proper analysis and approval levels for requested changes to the schedule. In other words, for "Emergency" changes, Marketing should understand the need to go directly to the President to gain concurrence on such a schedule change, without first trying to "motivate" scheduling personnel to implement the change without higher approval. Sales and Marketing management must also provide the balancing changes to the schedule within the "Trading Zone" to ensure that overall schedule validity is maintained. Enforcing these guidelines takes a lot of the emotion, intimidation, etc. factors out of managing changes to the schedule.

To effectively participate in this process, key members of the Marketing management team (at the middle management level) must have a good basic understanding of the mechanics of the Master Production Scheduling process. Then, when called upon to provide proper guidance and input, they can fully understand the impact of their decisions. They must also understand the manufacturing and procurement process to an extent that enables them to realistically accept schedule change limitations from these functions. They then can prioritize the customer order demands that must be satisfied within the constraints of the schedule.

The benefits to Sales and Marketing by actively participating in this process include the maintenance and management of the optimum flexibility possible within the manufacturing process of a given company. This will lead to the best possible customer credibility based on a timely communication of realistic promises to a given customer. Improved customer service, profitability and flexibility can only lead to the potential of using a more efficient manufacturing process as a competitive tool in the marketplace (whether from a price and/or a lead time viewpoint).

IMPLEMENTATION

Since Sales and Marketing's role in the operation of a factory needs to be structured in an active way as described above, it only naturally follows that Sales and Marketing management need to take an active role in the implementation of a factory's system. The key question is how to convince Sales & Marketing of the need for their involvement in implementation, and subsequently, operation?

The answer comes in three steps. The first step is to gain their interest by quoting the typical benefits enjoyed in other companies, as mentioned earlier in this paper. There is voluminous literature, surveys, etc. that highlight the benefits to Sales and Marketing. Once their interest is gained, Sales and Marketing must then achieve the appropriate level of understanding of the planning and scheduling system, so that they can truly understand their role in it and believe more firmly in the potential benefits for them. This leads to the third step, which is their active commitment to a role in both the implementation and operation of the system. This commitment should also extend to some measurable perform‑ ance improvements, such as customer service improvements, lead time reductions, improved market shares and sales figures based on a more reliable source of supply.

To spark the interest, improve the understanding and finalize the commitment, Sales & Marketing must become educated in the basics of the planning and scheduling process being implemented. This education typically would include attendance in outside classes by senior and middle management. Equally important is active participation in in‑house education and implementation sessions, wherein all functional managers further discuss the concepts and develop a consensus approach to implementing the concepts in their particular business.

During the implementation phase, the senior Marketing executive needs to be an active participant in a Top Management Steering Committee. This committee should meet once or twice a month and review the overall progress of the project and ensure the proper resources are devoted to achieve the implementation. A key member of middle management from the Marketing group should also participate on the Project ream, particularly in the design of the functions described in earlier sections of this paper. This person's participation in weekly Project Team review sessions is vital from the very start of the implementation. In some companies, a key Marketing middle manager is often named the Project Manager. This ensures that the project is seen as a company‑wide project with major benefit accruing to the Marketing Department, as well as to other departments in the company.

The purpose of the implementation process is to spread the understanding of the new approaches to everyone in the organization, in appropriate levels of detail. In the process of spreading this understanding, new philosophies and concepts are compared to current practices and procedures. Out of this comparison, adjustments or new practices and procedures should be evolved, on a consensus basis, in a way that everyone is adjusting how their jobs are done, so that optimum synergy is achieved. The implementation is complete when all new practices, procedures, behaviors, measurements, etc. are clearly identified and understood by everyone involved.

Then the new mode of operating the business, utilizing a more effective, integrated approach to planning and scheduling, can begin.

Manufacturing, Purchasing and Planning personnel typically are ready, willing and able to change how their jobs are done in such an implementation. But the difference between achieving Class B and Class A benefits often comes down to Sales and Marketing management understanding their role in the new Sales and operations Planning, Demand Management and Master Production Scheduling processes. If they understand the potential benefits and fully appreciate the critical role they must play in achieving these benefits, Sales and Marketing executives will be ready to develop and implement a new level of participation in these critical planning and scheduling activities.

SUMMARY

All truly effective planning and scheduling systems improve performance in every area of the company. For this to occur, accountabilities in all functions of the company must be understood and accepted. Interfunctional communication must be improved. A planning process that results in reconciled and joint plans and schedules must be put in place and executed. A formal measurement system must be in place to track everyone's performance against their portion of the plan.

Sales and Marketing are critical functions in this process, since they provide the starting point of the planning and scheduling process ‑‑ the forecasts and customer order demands. They are also vital from the viewpoint of providing the proper customer perspective whenever changes need to be made to plans and schedules based on mismatches of resources to customer demands.

Not only will the jobs of the planners and schedulers become much easier, not only will the efficiencies in Manufacturing and Purchasing improve, but concurrently the service level and performance to the customer does, and must always, improve. This key benefit both justifies Sales and Marketing's active participation in the process and is a result of their participation. Only with a proper level of participation in Planning and Scheduling, can Sales and Marketing optimally leverage its performance and create a trusting and consensus‑based working relationship with Manufacturing, Purchasing, Planning, Engineering and all other functions in the company.