The main functions of managers involve forecasting and planning, organising, commanding and leading, coordinating and controlling. According to Combe (2014, p. 70), planning is an important part of an organisation that identifies goals and objectives and how they are to be achieved. An objective is an aim that can be measured and achieved within a stated timeframe.
Strategic planning
Planning can be informal or formal. Formal planning defines specific goals that are to be met in a specific time period. They are written down and made available to organization members. Then managers develop specific plans that clearly define what the organization will do to move from where it is to where it wants to be. Furthermore, one important aspect of an organization’s formal planning is strategic planning, which managers do as part of the strategic management process. It is a six-step process that encompasses strategy planning, implementation, and evaluation, as set out by Robbins and DeCenzo and Coulter (2013 pp. 128-130).
Figure 1 – The strategic management process
The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today, stated it David (2007 p. 37) and furthermore added that a company must have a good strategic plan to compete successfully. Top managers have the best perspective to understand fully the ramifications of strategy-formulation decisions; they have the authority to commit the resources necessary for implementation. All strategies are subject to future modification because external and internal factors are constantly changing. (2007 p. 38)
Key elements of the strategy process include formulating strategies. Three main types of strategies
- corporateo growth
o stability
o and renewal - competitive (business)o cost leadership
o differentiation
o focus - functional (Robbins and DeCenzo and Coulter, 2013 pp. 133-136)Three fundamental strategy-evaluation activities are:
- reviewing external and internal factors that are the basis for current strategies,
- measuring performance, and
- taking corrective actions (David, 2007 p. 39)
Diageo’s products are sold to Drinks Distribution companies who in turn supply pubs and restaurants. Their performance ambition is to be one of the best performing, most trusted and respected consumer product companies in the world. The organisation is structured into a market-based business model, applying country-specific strategies to meet consumer and customer needs. (Diageo.com)
Diageo is very aware the market environment is extremely competitive. To offset the impact of competitive forces Diageo has a relentless drive to reduce cost and invest in growth. This focus on costs to ensure survival results in increased workload which requires careful management of staff resources. Diageo invests where there are strategic growth opportunities in emerging and middle markets.
Planning
Combe highlight to help achieve goals, planning is integrated with other functions such as organizing, control, and leading. However, it is important to think of them as integrated functions rather than isolated aspects of management. Planning and control functions are most closely aligned and from what can be identified as the planning process. (2014 pp. 71-72)
Figure 2 – The planning process
In this context Combe explain that planning is an essential part of the control function in organizations as it sets the standards of performance and targets for output. In the first instance, it helps to focus attention on the types of activities that need to be undertaken to achieve the goals and objectives. This, in turn, helps to clarify the extent to which those goals and objectives are realistic, appropriate, and achievable. (2014 p. 75)
Big companies like Diageo make product to forecast. Tom’s role and that of his team is to manage all aspects of the global supply chain based on the available forecast to ensure the right quantity of the right products are brewed at the right time and that all other materials necessary to enable the bottling, packaging, and shipping of the product are available when required. This is global supply chain planning.
Sales Forecast Accuracy and Inventory are two of the most important key performance indicators (KPI’S) for monitoring the success of supply chain planning. Bernard Marr believes that KPIs are vital navigation instruments used by managers to understand whether their business is on a successful voyage or whether it is veering off the prosperous path. The right set of indicators will shine light on performance and highlight areas that need attention. (2014 p. XIII) Sales Forecast Accuracy is a key measure because it relates directly to customer service. It is a measure of how much product was actually sold versus how much product the planning process forecast would be sold over a particular period of time. Clearly, it can be understood that under forecasting the demand will lead to supply shortages and unhappy customers. Diageo aims for a Sales Forecast Accuracy of 70%.
Inventory is an important measure because it is cash tied up in the business. The aim is to have enough inventory to supply demand but equally the lower amount of inventory you have in stock the lower the amount of cash tied up and the lower the risk of product obsolescence. Diageo achieves an Inventory Turnover of 8 to 9 times per year. Gartner, a leading research and advisory company, ranks organisations on Inventory as a percentage of Net Sales Value. Typical values might be 5% to 10% Diageo monitors itself against its competitors and the industry average through this ranking.
These are just two measures from a complete set of measures associated with a Balanced Scorecard or „Management KPI Pack”. In total Diageo uses 11 KPIs to measure its financial and non-financial performance. (Diageo 2017 Annual Report, 2018) These include:
- Financial Measures: eg. Cost per hectolitre of product. There is a constant drive to reduce the Cost of Goods Sold (COGS).
- Customer Measures: which deals with product availability for which Diageo has a target of 95%
- Supply chain measures: Forecast accuracy, Inventory turnover and Inventory as % of net sales.
- Manufacturing KPIs: These are operational measures such as production performance versus plan and line efficiency
- Quality Measures
- Environmental Measures: eg. Hectolitres of Water versus Hectolitres of Product output
- Safety Measures
- Succession planning for key roles
Diageo has 24 markets across the globe and each one has their own set of operational KPIs that they are measured against. Performance is tracked against the Annual Operating Plan (AOP) and each market is labeled using the classic green / amber / red traffic light system depending on how it is performing year-to-date and versus last year.
In setting the KPI’s for each market Diageo takes into consideration the maturity of the market as more mature markets are expected to perform better and the KPI targets will reflect that. Diageo again refers to Gartner here for guidance as Gartner publish figures for market maturity based on three categories termed baseline / mature / progressive. Diageo can use this information to help it understand what level of performance should be expected from a market.
A key challenge for planners and managers is that the KPI numbers need to be real namely based on real data ina s much as possible. Diageo operates a global supply chain managed by it global SAP system. Ideally, all the KPI reporting should be downloadable form SAP without human intervention but in practice it is impossible to completely eliminate the human involvement. Sometimes it’s necessary to understand and interpret the impact of exceptional circumstances and account for this in reporting the KPI’s. To do this reliably managers need to understand how the figures are calculated. They should be able to make some adjustment to the figures to take account of such local variances but ought not to be able to change them too much.
There are a number of skills that managers need to acquire and be able to perform in a modern global environment. Management researcher Robert L. Katz (1974) and others have proposed that managers must possess and use four critical management skills in managing:
o Conceptual skills
o Interpersonal skills
o Technical skills
o Political skills
Tom Ryan as a Senior Manager in global supply chain planning, manages a team of six people working in the supply side of Diageo’s business. Tom communicates, motivates, and delegates people every day and about it has given more information in the leading section.
Diageo uses SAP for warehouse reporting which provides good visibility of inventory levels and orders in transit. One of the most important skills for the SCM manager the conceptual skills becasue Diageo has 10,000 products which it need to be available at the right time in enough quantity. Therefore the SCM manager needs to be able to analyze and act upon the information in the warehouse report.
Conclusion
Based on the interview with Tom Ryan it’s clear that Diageo operates a highly sophisticated and well controlled planning process for its business. The strong emphasis on monitoring KPI’s and the adjustment of forecasts in response to those KPI’s points to a well-managed and efficient planning operation. An example of this is Diageo’s ability to minimise the impact of poor crop yield as a threat in a bad crop year by planning good contingency with its suppliers to compensate for such external environmental factors.