Upon completion of the strategic plan, an operating plan for the upcoming year must be prepared. An operating plan is a schedule of events and responsibilities that details the actions to be taken in order to accomplish the goals and objectives laid out in the strategic plan. The plan ensures everyone knows what needs to get done, coordinates their efforts and keeps close track of progress.

Operation/Branch plans must define the objectives, timeline and resources required to meet the growth objectives of the business unit, department or branch. This level of detail is unnecessary in a strategic plan itself - in fact, it would clutter up the presentation of the long-range vision: the strategic plan focuses on the end game and what your company will look like in five years.

The market, like most markets, has not avoided transition. Business planning is an essential offensive strategy to using market transition in creating competitive advantage.

Market maturity is one factor that drives change in the industry. Normally this maturity puts pressure on every distributor to become cost effective to maintain margins due to persistent price pressures.

Your industry may very well be in the mature phase of the industry's market life cycle. Additionally, web technology continues to educate the consumer daily. Big box competition has gained a solid foothold in the industry creating even more competitive pressure. These are just a few factors that make business/branch planning essential to growth or even survival for many distributors.

Analysis of opportunities is useless if it doesn't degenerate into work. Operational planning, by definition, results in action plans for day-to-day work.

Branch/Operation Planning

The basic process includes five elements:

1. A definition of services to be provided
2. Initiatives that support the end game --- What are the Branch Goals?
3. An examination of available synergy
4. A commitment to timing and sequence of major steps
5. An agreement to measurement criteria and targets

Step 1 - A Definition of Services to be Provided

Criteria:

1. It must be future oriented

2. It must focus on the external environment

3. It must consider local competition, customers and products

4. It must consider branch weaknesses as well as strengths

5. It must match strengths to local market needs

Typical Questions:

1. What is the purpose of your business?

2. What business are you in now?

3. What business should you be in?

4. What are you good at?

5. What have you failed at?

6. What differential advantage do you have over your competitors?

7. What differential advantage do they have over you?

8. What markets do you serve?

Step #2 - What are the branch goals?

Individual branch initiatives that support the end game must be identified. These initiatives not only include budgetary financial goals but they must also include support for all the non financial objectives identified in the end game that have not been deferred.

Step #3 -- An Examination of Available Synergy

Synergy arises when two actions performed jointly produce a greater result than they would if performed independently. When 2 + 2 = 5.

Influencing Factors

1. Optimum scale of operations
2. Expansion methods
3. Negative effects - 2 + 2 = 3
4. Knowledge/expertise transference

List Past Branch Examples of Synergies:

1.

2.

3.

Step 4 - A Commitment to Timing and Sequence of Major Steps

Since resources are always limited, a branch manager must decide what to do first and what to defer. An action planning process must occur for each initiative that supports the end game. Assigned accountability, expected results for each step in the plan and a completion date for each step of the action plan is essential.

Criteria:

1. Implementation is serial in nature

2. Parallel opportunities should be exploited

3. Determine foregone opportunities

Step 5 - An Agreement to Measurement Criteria and Targets

Typical Criteria:

1. Return on investment

2. Risk of losing investment

3. Company growth

4. Contribution to social welfare

5. Stability and security of employment

6. Prestige of the company

7. Future controls

8. Inventory turns

9. Fill rates

10. DSO (Days Sales Outstanding)

11. Cash to cash cycle

• Work = Task Description + Tangible Output + Person Responsible + Due Date ki • The Action Item is a piece of "bite sized" work that is scheduled to be complete prior to a review event.

• Effective creation requires major attention to available resources, e.g. time.

• Accountability = Authority + Responsibility

Business Segmentation

The individual branch location may find that its success in their own market depends upon the business segments they service and their willingness to compete within these segments. This segmentation is often defined by the buying habits and the individual needs of its members. A critical factor in developing the individual branch plan is the understanding and differentiating of activity based on this market segmentation. Understanding local market segmentation starts with profiling your customer base. Demographics and customers "Rules of Engagement are typical criteria.

Demographics

Customers can be profiled based on size which includes total dollars purchased, number of employees, dollars per employee or annual revenue. Location is often a significant factor as it relates to shipping and service costs. Additionally, the type of account such as specialty outlets, Big box, lumberyard or retailer is important.

Rules of Engagement

This helps you determine how easy or difficult it is to do business with a particular customer. Segmentation by this category often affords the opportunity to identify "loser" customers. It is very important to understand exactly what it is going to take to satisfy individual customer needs.

Forecasting

Forecasting is an important part of the planning process as it becomes the platform for the budgeting process. Historical data is essential to predictability but forecasting is exactly what the term suggests, predicting what is going to happen over the course of the next 12 months. This is a critical function of the planning process that is often taken much too lightly. Using the Paredo Rule, 20% of your customers will account for 80% of your business, is a good starting point. That 20% must be looked at closely. True potential must be examined at every account that makes up the 20% The initial forecast starts with the sales representative but it is up to Branch Management or ownership to demand documented reasons for the numbers at each of the accounts that make up 80% of the business. This is not an email communication or a passing conversation; this is a detailed territory review with every sales rep.

This review includes gross margin forecast discussions. A clearly defined action plan aimed at achieving specific results at each customer should be documented.

These action plans should include:

• Clearly defined objectives by product, by segment

• Clearly defined rules and responsibilities of all employees involved in accomplishing the defined objectives

• Identified risks and opportunities

• Specific "out of the ordinary" costs must be identified

• A scorecard for achievement listing key indicators of success should be developed

• Regular monthly plan review meetings must be established

Once the Branch Manager/Owner has reviewed all the forecasts and action plans submitted he must determine if current resources will allow achievement of the plan. In other words, if the plans indicate a 30% growth in the business in a fair certainty then determination of resource allocation becomes significant. The following questions help determine this process:

• Can existing staff handle the increase or will we have to hire additional employees?

• Will current inventory levels support this growth or will we have to significantly increase our inventory investment?

• Will we require an increase in storage space or handling equipment?

• Are there any other capital expenditures necessary to support this increase?

• What other cost increases do we anticipate with this growth rate (i.e. increased service costs, phone, fax and other administrative support costs.)

Characteristics of an Effective Annual Operating Plan

There are three important attributes to a good operating plan:

1. An appropriate level of detail - enough to guide the work, but not so much that it becomes overwhelming, confusing or unnecessarily constrains creativity

2. A format that allows for periodic reports on progress toward the specific goals and objectives

3. A structure that coincides with the strategic plan - the goal statements for the strategic plan and the operating plan are one in the same; the objective statements for the strategic plan and the operating plan will be different

Just as monthly financial statements often present a budget for revenues and expenses and then report actual figures for a given time period, so should operating plans allow for the same type of comparison: the plan declares the "budgeted" work in terms of goals and objectives for each program area and management function, and reports the actual progress on a monthly or, perhaps, quarterly basis. This budget-to-actual report gives a clear reading on how the branch is performing.