Planning, planning, planning… In a dynamic and high-paced environment you must be constantly planning. Whether you plan your daily deliveries, your purchases, schedules of employees, or the size, capacity and location of your next distribution center, you must take actions that will affect the cost and efficiency of your operations.

But not all decisions are the same. Some of those decisions may have long-term and high financial impacts, such as deciding the location and capacity of a warehouse. In that context, we will refer to this type of decision as being of strategic nature. Strategic decisions shape your long-run operations, and may not have an immediate impact in your daily operations. If you decide today, for instance, the location and capacity of a billion-dollar investment for a new distribution center to be built within the next couple of years, your operations today will remain essentially unchanged.

When you plan for the mid-term future, we will rather refer to it as tactical planning. This make sense in contexts where some of the decisions that help shape your operations can be projected in time in a somehow robust plan. Think for instance in the problem of deciding the size and capacities of your vehicle fleet to perform deliveries. This action will shape the way you address your daily operations, but is not a decision that you can (nor should) modify on a daily basis. Other remarkable examples of tactical planning concern the decisions of signing supply contracts in advance, or deciding the number of employees that you require to run your operations. For a tactical plan to be successful, it should rely on accurate forecasts of your future operations in the mid-term. Keep in mind, however, that forecasts, even if extremely accurate, are not perfect. What to do when your daily operations do not align with your predictors? This will be the subject of another blog post. Stay tuned!

Finally, we get to the problem of taking decisions within very short time horizons. Whether it involves hourly/daily operational plans decided with some time in advance, or reactive decisions to cope with unexpected fluctuations of your predictors, here we are in a context where a planner needs to take decisions in very short times. We will refer to those decisions as being of operational nature. A remarkable example of operational decision can be found in the process of assigning drivers to requests that a transportation company like Uber, Lyft faces every time that a user creates a new transportation request. Within seconds, a planner must decide how to price such a request, and to what drivers to offer it. This decision should consider multiple factors simultaneously, such as the likelihood of drivers in accepting the requests, the revenue involved in the operations, and the quality of service provided to both types of users (passengers and drivers).

It is of most importance for a decision planner to grasp the differences in the types of decisions involved in any plan. The scope and horizon of those decisions will influence the data required to come up with a plan, the assumptions under which the plan will be valid, and the underlying models useful in practice to provide a meaningful plan.

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