Supply Chain Planning: What, Why and How
- The absence of a comprehensive plan can expose a business to risk
- Supply chain planning helps fulfill real-time demand commitments
- It also enhances efficiency and brings down operating costs
Supply chain planning has assumed paramount significance in today’s rapidly changing business environment.
Before we talk about supply chain planning in detail, let’s begin by briefly looking at how the COVID-19 pandemic impacted supply chains globally.
Lack of visibility beyond Tier 1 suppliers meant that many businesses had little idea about what was happening at the other end of the supply chain.
The absence of a backup plan resulted in chaos as businesses witnessed never-before supply chain disruptions for a major part of 2020. As lockdowns and restrictions on the movement of goods and people continued for a prolonged period, supply chain leaders were left stranded.
So, how can supply chain professionals avoid a similar situation in 2021? How can they plan and prepare beforehand for an event of such magnitude?
Let’s find out.
What is supply chain planning?
Supply chain planning is the process of anticipating demand and planning materials and components to meet that demand, along with production, marketing, distribution and sales.
The first part of this definition talks about anticipating the demand for products.
This means that if you have a system that can accurately project demand, half of your job is done and supply chain planning becomes easy.
The objective of planning is to balance supply and demand and ensure that sales revenue opportunities are fully exploited in a timely manner.
Gartner defines supply chain planning as the forward-looking process of coordinating assets to optimize the delivery of goods, services and information from supplier to customer. In addition to synchronizing supply and demand, this process provides what-if scenario analysis capabilities. Plus, it helps a business fulfil real-time demand commitments.
A logical approach in supply chain processes is to first look at the result and then go backwards. This is also true for supply chain planning, which often begins with demand planning.
Members of different teams, such as sales, marketing, and production, meet and estimate demand based on historical data and other parameters.
Demand projection is then passed onto production, logistics and other teams. The purpose of anticipating demand is to maintain optimum inventory and avoid costs associated with maintaining surplus inventory.
Key elements of supply chain planning
For supply chain planning to be implemented successfully, there must be seamless coordination between different teams and processes.
Here are the key elements of supply chain planning.
⚬ Demand planning
As discussed in the earlier part of the blog, demand planning lays the foundation of subsequent supply chain processes.
This involves an assessment of varied data to accurately forecast demand, which can then be used to maintain and store optimum inventory and avoid costs associated with surpluses. Demand planning is done by looking at historical data, projected sales, market conditions and other factors.
Today, demand planning is done with the help of advanced technology.
Powered by artificial intelligence and machine learning capabilities, advanced supply chain management software can predict demand with precision. It can ‘sense’ demand by looking at real-time data, market conditions and events and point-of-sale data.
The use of predictive analytics for demand forecasting has also increased. This helps to better understand consumer behavior, buying patterns and other factors that influence demand.
⚬ Supply planning
The next step is to come up with a supply plan that can synchronize with the demand plan and meet the overall requirements of the business.
The supply plan involves sourcing of raw materials, components and other goods needed for production. The goal is planning supply that can meet the demand for the product in the best possible way.
⚬ Production planning:
This involves resource allocation of employees, material and production capacity. The broad objectives of a production plan are reducing waste and only producing what is required to ensure the availability of optimum inventory. The latter of these is realized with a supply chain plan that increases cross-functional visibility through efficient inventory management.
⚬ Sales and Operations Planning (S&OP)
Often conducted once a month, sales and operations planning essentially brings diverse business teams working with different objectives on the same page. It helps sales and marketing leaders assess and merge their plans with operations.
The all-party meet of different teams aids in the coordination of supply assets and capabilities to meet demand requirements for the short and long term.
In some companies, S&OP is performed as part of a broader process called integrated business planning that incorporates plans of other departments, such as finance and HR, in a single, company-wide plan.
Advantages of supply chain planning
Supply chain planning can help streamline operations, enhance efficiency, avoid delays and bring down operating costs. Done right, planning can reduce costs associated with several processes, including purchasing, production, inventory management and logistics.
Additionally, planning can enhance customer satisfaction by ensuring that products are available at the right place at the right time. Enhanced customer satisfaction, in turn, helps a business build customer loyalty.
In today’s business environment, it is imperative for businesses of all sizes to engage in supply chain planning.
You must have in place a comprehensive plan that can synchronize demand, supply, production, shipping and delivery. Besides, it must also cover risk and include contingency sub-plans for common points of failure.
Without a comprehensive supply chain plan, a business lacks foresight and preparedness to deal effectively with potential ‘what-if’ scenarios.
In the event of an unforeseen event, such as the COVID-19 pandemic, that causes sudden disruption, the business gets exposed to new risks. And without preparation, it cannot respond in a manner that can ensure seamless operations.