Effects of Doing a Poor Job at Supply Chain Planning

Despite struggling amidst disruption in recent times, not many companies have been able to get their supply chain planning right. 

In fact, there is today a huge “planning gap” within organizations, says Robert Giacobbe, vice president of global supply chain consulting at GEP.

According to a GEP estimate, less than 20% of clients do an effective and consistently productive job at supply chain planning. In this endeavor, best-in-class companies use advanced technology and tools, data analytics and organization-wide methods to eliminate silos within internal and external teams.

The remainder (around 80%) of the clients struggle with ineffective planning programs and tools. As a result, they suffer the ill-effects of lagging service, high costs, customer defections and stranded working capital in their channels.

Although many of the above challenges are misdiagnosed as discrete business problems, these are, in fact, the direct consequences of doing a poor job at supply chain planning. Poor planning can compound problems across the supply chain such as:

• Stock More Inventory Than Needed

Often, due to inaccurate planning and forecasting, businesses tend to maintain more inventory and buffer stock than needed. This, in turn, inflates warehousing, logistics and labor costs. Additionally, poor planning can lead to double handling of inventories, lots of indirect labor to chase shipments and more non-value add work just to locate, direct and move inventories through the supply chain network.

• Hamper Client Relationships

Poor planning can hamper lead times and operational efficiency. The business may lose the ability to consistently hit the lead time targets and this can impact its relationship with important customers.

• Increase Costs

When you don’t get supply chain planning right, you spend a lot more on different functions. In logistics, for example, you may need to pay a premium for expedited shipments. Likewise, you also spend extra on labor and supervisory costs and rely on non-value adding indirect labor such as clerks and material handlers.

• Get Exposed to Risk

Many companies with no backup supply plans found themselves struggling amidst the pandemic-induced supply chain disruptions. Given the growing uncertainty in the business landscape, these companies are likely to get into further trouble if they do not get their planning right. In fact, they may struggle to adapt in the fast-changing market dynamics.

• Stay Behind Competition

Companies that do a poor job at supply chain planning often find themselves trailing behind their competitors. Giacobbe says: “There are very few companies that get supply chain planning right, but those that seem to get it right have a competitive advantage against the 80% or 90% who don’t get it right.”

Also Read

• A Complete Supply Chain Planning Guide
• Importance of Supply Chain Planning

The Takeaway

Done right, supply chain planning can help a business enhance its performance in key areas and achieve strategic goals. It lowers overhead costs, enhances operational efficiency and provides greater return on working capital.

Amid growing uncertainty in the new normal, supply chain planning can provide the necessary shield against risk and safeguard operations. It can also give your business a competitive edge.

In the next part of the series, we will look at the confusing supply chain technology landscape and how a business can effectively navigate it.