An empirical study on reducing planning instability in hierarchical planning systems

Abstract

The aim of this article is to contribute empirically to the theory development on planning instabilities in industrial practice by studying in depth an industrial company which has difficulty in meeting its customer deadlines and faces a significant order backlog. Planners at the various levels of the hierarchical planning system and order chasers on the shop floor end up rescheduling open orders and updating (de facto) lead times very frequently when trying to meet deadlines, but eventually are not able to improve order fulfilment. Only after the introduction of an advanced planning system (APS) and centralisation of planning decisions in one single department, planning results could be improved significantly, accomplishing 97% of customer due dates and reducing order backlog drastically. These kinds of planning instabilities have received considerable attention due to their negative impact on planning performance; however, research has been limited to theoretical (e.g. simulation) settings and has focused on specific ways to overcome instabilities. Our main contribution is an empirical investigation of the underlying mechanism of such planning instabilities, with a particular focus on the impact on stability of human and organisational factors. Our findings clearly suggest that structure and frequency significantly influence stability, but that the underlying mechanisms are more subtle and differentiated than assumed in the modelling literature. A further contribution of the article to theory development is the introduction of the general term ‘planning bullwhip’ for such kind of planning instabilities, by integrating in an aggregate manner the different terminologies that have been coined in extant research.