Resource Planning

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

Overview

Business Strategy

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.

Goals

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).

Business Processes

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.

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.

Applications

Managing Capacity & Resources in a Changing World

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).

Safety Stocks

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 particular, the best compromise between two alternative scenarios is to be found. On the one hand, replenishment of order due dates can be set equal to the end item lead times. This makes it possible to keep a reduced amount of safety stocks at the lower levels of BOMs. On the other hand, replenishment order due dates can be set equal to the overall length of the pipeline (Caridi & Cigolini, 2002).

The Supply Chain Approach

The supply chain approach to inventory and parts management is designed to reduce the amount of parts inventory and thus to rely on parts suppliers to have a predictable delivery time. In 1995 in the planning and procurement organizations of the Hewlett-Packard Colorado Springs Division, a supply chain project was launched. The objectives of this resource planning effort were to provide planning and procurement organizations with a methodology for setting the best possible resource planning. This was all based on a cost benefit analysis tied to being able to accurately predict the amount of material to have on hand to meet production needs. The success of the system also relied on the ability of suppliers to meet previously agreed upon delivery schedules for parts and materials.

The fundamental challenge was to be able to determine a relatively accurate amount of various products to meet forecasted customer demand. Demand can certainly fluctuate so the supply chain system needed to have a highly predictable turnaround time on parts orders to meet production schedules that could change very quickly. So any company that is going to attempt to keep inventories of parts as low as a possible will always be at some degree of risk that sales forecast will be predicable and that suppliers can meet expected delivery schedules and if necessary accelerate those schedules to meet fluctuations in demand.

Front-end Overdrive

Manufacturing planners have often attempted to hedge their risk of fluctuating demand and the need for parts to meet production schedules by adding a near-term overdrive effort to their production planning. This was usually done by increasing material requirements above the normally expected level of orders. Thus planners create what they feel is an adequate buffer of materials on hand at a production facility. This was a way to beat the existing systems without making permanent modifications to the normal safety stock system.

Although artificially increasing demand may serve short-term purposes the benefits of the supply chain and the previously calculated and determined deliver time on various parts is not utilized and parts inventories may become excessive and impact the cash flow of the company. Production planners work diligently to meet schedules and often without serious regard to the impact of excessive parts on the long-term profitability of a company. In addition, there is a strong possibility that the parts mix on hand may not take into to account those parts that have longer lead times and when the safety stock system is circumvented the imbalance of parts may cause production delays in the future.

The statistical methods utilized by purchasing departments to develop safety stock calculations are designed to make sure that parts are available for completed products. In many situations there are different limits on order sizes for different suppliers. These limits may be set by suppliers of by the purchasing department in the buying organization. IN some cases there are minimum order quantities of the same part and in other cases there are minimum dollars amounts per order. When the production department is inflating projections for demand and parts orders become disorganized it can cause problems in procurement as well as driving parts costs up (Kruger, 1997).

Issues

Resource Planning in Service Industries

IBM and other service organization planners use a Resource Capacity Planning (RCP) Optimizer to provide managers with a adaptable framework to help model what has become known as the human resource supply chain. This type of system can help forecast and schedule human resources in a service environment as well as do double duty as a part of the invoicing process by creating bills of material (BOMs) for customers to whom which services are provided.

This is similar to the process of invoicing customers for whom which a hard product such as a computer or special manufacturing machine was built. In the manufacturing case the invoice would include design, parts, materials, custom programming, testing, and perhaps installation. In a services environment were specialized human skills are provided on a production, as needed, or other special contracting situation the BOM covers the quantity of skilled personnel and their hours and other expenses required to meet the terms of the contract.

In general, a RCP is deployed in a service organization to address several types of problems including dealing with where there are resource or talent gaps. The RCP can also help to reassign staff when there is an excess of specific types of talents o a project or perhaps even a particular city or region. The primary goal is to make sure that human resources are deployed in a manner that adequately covers contractual obligations across clients or across projects based on expected demand.

Human Resource Considerations

Human resource capacity planners in service organizations rely on the RCP to make decisions on how to address talent shortages, deal with the shortages and decide what to do with personnel that have talent and are abundant in the organization (or at least not in short supply). When there is excess supply of physical goods and materials the added cost, until they are eventually used, is for facility space. However, when there is an excess of human resources that cannot be immediately utilized and placed on a project for which there is billable time, the service organization still faces the cost of salary and benefits, and in some cases, if personnel are not at a customer's site, the company may need to also provide office space and computer resources. This is often much higher than the overhead of storing physical materials. Thus an excess in a service organization is far more costly than an excess of materials in a manufacturing company.

Another major difference between managing material resources and human talent is that in the case of material resources there is a very limited range of what most materials can be used for especially if they are fabricated-to-order parts. In the case of human talent it is entirely possible and very likely that employees of a service organization can have more than none talent. When dealing with information technology, for example, many professionals have built a career by moving through the ranks and the various levels of their profession gaining skills and experience as they go through their career. Thus depending on the parameters and complexity of a contract some personnel may be able to fill more than one talent requirement. This means that the RCP needs to be able to take into account the various talents that all staff have as well as their proficiency level in their different areas of expertise.

The Resource Action Problem

In addition to understanding the need for specific talents and who in a service company can perform those talents well, it is also necessary to be able to assign talent to the highest priority project. The challenge at this phase is to have a matrix that can accurately depict what the highest priority project is.

Due dates on projects is certainly one way to determine which projects get which talent first. However, it is not just due dates that count. The importance of performing a certain function during any particular phase of a project may set the stage for the rest of the project plan to be smoothly executed. If a task or module of work takes only two days but four hundred additional days of human time is required to finish the project, and those days cannot proceed until a module or task is done, then the importance of a talent to that project may outweigh considerations on other projects (Gresh, Connors, Fasano & Wittrock, 2007).

Conclusion

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 resources requirements.

Each of the functional entities within the firm, and in many manufacturing industries within the supply, must develop and then integrate their strategies in a coordinated manner in order to combine their efforts to accomplish the grand strategy. Each of the departments' strategy must be consistent with the overall grand strategy and complement each other to achieve timely task completion and ultimately higher levels of customer service and satisfaction.

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.

Supply chain and resource planning optimization techniques have long been used to model the behavior of manufacturing supply chains in order to allow better resource planning and improve profitability and efficiency (Sourirajan, Ozsen & Uzsoy, 2007). If a model does not actually depict the reality in which the organization works then the flow of resources will not be managed well enough to optimize a company's performance.

Service industries also face complex resource planning challenges and issues. However, these challenges and issues require a different mindset than required for manufacturing physical objects regardless of how complex that object may be. The matrix of human talent is sometimes difficult to inventory and talents, although they can be identified, may not be equal from employee to the next. Thus service organizations not only need to know what their employees can do they need to have an understanding of well they can actually perform a job.

Terms & Concepts

Capacity: The combinations of material flows, production capabilities, and human resources that enables a company to achieve strategies and maintain a competitive ability.

Functional Strategies: Functional strategies take the form of marketing, manufacturing, and logistics strategies which when implemented in a coordinated manner result in the achievement of the grand strategy.

Gap/Glut: Gap is a shortage of resources required to produce a product or deliver a service and glut is an over supply of resources that are not necessary to meet current demands for products or services.

Grand 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 resources requirements.

Material Requirements Planning (MRP): The process of determining resources necessary to fill current and future orders for products or services.

Operational Velocity: The point at which 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.

Resource Planning: The process or planning resources necessary to implement functional support and grand strategies and assures that the acquisition of resources are planned in a manner that facilities efficient work flow across functions.

Safety Stocks: Those items which are needed to assure the production required to meet orders and maintain optimal velocity and efficient use of capacity.

Support Strategies: Those strategies such as accounting, finance, legal, and research and development strategies that are necessary to execute functional strategies.

Bibliography

Birshan, M., Engel, M., & Sibony, O. (2013). Avoiding the quicksand: Ten techniques for more agile corporate resource allocation. McKinsey Quarterly, , 60-63. Retrieved November 13, 2013, from EBSCO Online Database Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=91665810&site=ehost-live

Caridi, M., & Cigolini, R. (2002). Managing safety and strategic stocks to improve materials requirements planning performance. Proceedings of the Institution of Mechanical Engineers — Part B — Engineering Manufacture, 216, 1061-1065. Retrieved November 27, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=7122849&site=ehost-live

Gresh, D., Connors, D., Fasano, J., & Wittrock, R. (2007). Applying supply chain optimization techniques to workforce planning problems. IBM Journal of Research & Development, 51(3/4), 251-261. Retrieved November 27, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=25732942&site=ehost-live

Klamm, B., & Weidenmier, M. (2004). Linking business processes and transaction cycles. Journal of Information Systems, 18, 113-125. Retrieved November 21, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=15672372&site=ehost-live

Kruger, G. (1997). The supply chain approach to planning and procurement management. Hewlett-Packard Journal, 48, 28. Retrieved November 27, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=9703095908&site=ehost-live

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Singh, P. (2012). Management of business processes can help an organization achieve competitive advantage. International Management Review, 8 , 19-26. Retrieved November 13, 2013, from EBSCO Online Database Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=82157928&site=ehost-live

Sourirajan, K., Ozsen, L., & Uzsoy, R. (2007). A single-product network design model with lead time and safety stock considerations. IIE Transactions, 39, 411-424. Retrieved November 22, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=24196057&site=ehost-live

Stephenson, S., & Sage, A. (2007). Architecting for enterprise resource planning. Information Knowledge Systems Management, 6(1/2), 81-121. Retrieved November 21, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=25215504&site=ehost-live

Wu, S., Erkoc, M., & Karabuk, S. (2005). Managing capacity in the high-tech industry: A review of literature. Engineering Economist, 50, 125-158. Retrieved November 27, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=17552396&site=ehost-live

Zmuda, N. (2011). P&G, Levi's, GE innovate by thinking in reverse. Advertising Age, 82 , 2-3. Retrieved November 13, 2013, from EBSCO Online Database Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=62009231&site=ehost-live

Suggested Reading

Cecil, J., Davidson, S., & Muthaiyan, A. (2006). A distributed internet-based framework for manufacturing planning. International Journal of Advanced Manufacturing Technology, 27(5/6), 619-624. Retrieved November 26, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=18995348&site=ehost-live

Chandler Jr., A. (1998). Corporate strategy and structure: Some current considerations. Society, 35, 347-350. Retrieved November 16, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=34434&site=ehost-live

Chiu, S., Shih, C., & Chiu, Y. (2007). A revised cost-benefit algorithm for solving the expediting completion time of end product problem with defective materials in the product structure diagram. Proceedings of the Institution of Mechanical Engineers — Part B — Engineering Manufacture, 221, 489-497. Retrieved November 22, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=25208932&site=ehost-live

Heinzelbecker, K., & Taylor, A. (2005). Collective forethought: A new paradigm in strategy. Futures Research Quarterly, 21, 81-96. Retrieved November 23, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=19865453&site=ehost-live

Hultqvist, D., & Olsson, L. (2006). Optimization of raw material procurement at pulp or paper mills — the influence of weather-related risks. International Journal of Systems Science, 37, 253-269. Retrieved November 22, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=20213357&site=ehost-live

Klemperer, J., Sundararajan, S., & Zimmers Jr., E. (2003). Careful with that warehouse. Industrial Engineer: IE, 35, 40. Retrieved November 27, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=10769813&site=ehost-live

Lee, K., & Ball, R. (2003). Achieving sustainable corporate competitiveness. Greener Management International, , 89-104. Retrieved November 21, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=15408930&site=ehost-live

Pai, P., Chang, P., Wang, S., & Lin, K. (2004). A fuzzy logic-based approach in capacity-planning problems. International Journal of Advanced Manufacturing Technology, 23(11/12), 806-811. Retrieved November 27, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=16717856&site=ehost-live

Tserng, H., Yin, S., & Li, S. (2006). Developing a resource supply chain planning system for construction projects. Journal of Construction Engineering & Management, 132, 393-407. Retrieved November 26, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=20080919&site=ehost-live

Yi, G., Kim, Y., & Lee, E. (2007). Optimal design of multisite batch-storage network under scenario-based demand uncertainty. Chemical Engineering Communications, 194, 1297-1327. Retrieved November 22, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=25508406&site=ehost-live