If you are taking a vacation, you choose the destination and then make flight and hotel reservations and arrange for a rental car. If you show up at the airport or hotel, or rental car counter without reservations, the likelihood of an enjoyable vacation would be greatly diminished, but that is exactly what many businesses do when planning for future growth.
A company has its annual sales meeting, plans future growth (a marketing and sales function) and goes back to business as usual. When companies prepare their growth plans, the plans are often conceived by the executive or marketing teams without consulting with operations management or determining the company’s operational capabilities. The growth plan is memorialized and new goals are set. Left undetermined is whether and how well those goals can be achieved with available resources, or what resources are required beyond those currently available. The growth plan may be a specific target that does not account for contingencies arising from better or worse than anticipated results. As a result, growth goals are not achieved, customers are unhappy, and the company’s market position and profits suffer.
To illustrate, assume a company determines its goal is to grow 10% a year for 5 years. What happens if there are unexpected large increases in sales growth, e.g. growth of 25% in a year? Only providing systems and resources to accommodate 10% growth per year (if even that occurs) assures that at some point the business will fail its customers and lose, not gain business. What happens when there is an unplanned for recession with low or negative growth? Will the company be able to survive? Even if actual growth averages 10% over the next 5 years, there is no guarantee that the growth will be linear. The growth rates could be 20%, 15% 10%, 0%, and 5% and still average 10%. Might the company anger customers and then fail?
To increase the odds of achieving growth goals and meeting customer service requirements in a timely manner and within budget, the planning process must be enhanced. Marketing should provide growth goals which include reasonable high and low contingencies. With sales goals in hand, operations must establish production goals and determine if and how they can be met. Shortfalls (e.g., system capacity, speed, space, equipment, staff, or IT resources) and their costs must be identified. The company then has a choice whether to provide additional resources, scale back growth plans, or choose a compromise solution.
An Example: A company presently manufactures and/or distributes 100,000 units a month and the growth plan is set at 10% a year for the next five years. If the anticipated growth rate is:
- 10% per year, in five years the company must be capable of shipping 161,000 units monthly.
- 15% per year, in five years the company must be capable of shipping 201,000 units monthly.
- 5%, in five years the company must be capable of shipping only 128,000 units per month.
Operations must therefore determine which processes and systems are required to achieve each of the 3 volumes in the future and then calculate for each the requirement and cost for:
- Manufacturing and warehousing space
- Equipment and what level of automation to incorporate
- Additional staffing requirements and their capabilities
- IT support, staff, software, and hardware
Operations can then report required resources and estimated budget for all scenarios and notify management of what’s required to achieve growth goals successfully. With this information in hand, executive management can make informed decisions that increase the probability of being able to meet growth goals and challenges successfully.
Companies that don’t adopt a more inclusive planning process risk missing their growth goals and, worse, significant loss in financial performance and market position. And that’s no vacation.