What is Supply Chain Planning?

Supply chain planning is a part of supply management that coordinates assets to optimize the delivery of goods, services, and all information flowing from a supplier to a customer while balancing supply and demand.

A supply chain refers to the network between an organization and its suppliers that allows it to manufacture and distribute a particular product to buyers. This network comprises several activities, people, entities, information, and resources. The supply chain represents all the steps taken to get a product or a service from its unprocessed state to a finished one for the consumer. Companies create supply chains to reduce costs and remain relevant and competitive in the business landscape.

Supply Chain Planning Diagram

Supply chain planning refers to the whole process of planning a product from its raw material stage to the final one delivered to the consumer. It is inclusive of supply production and demand planning as well as sales and operations planning.

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How Does Supply Chain Planning Work?

The process of supply planning begins with an approved plan of demands. The plan includes a complete review of all sales, the approved channel- and regional-level forecasts, and customer forecasts. This plan then goes through a demand for a translation step. If supply chain planning software is used, the demand plan is automatically allocated to the location where the demand for that specific client or item relationship is usually fulfilled.

The automated software uses customer orders to create records that identify the ship-from location. This record is used to generate a forecast for that specific location. The software makes it easy to transition the demand from one location to another in parts.

With the translation step complete, the supply plan is next used to create a finished goods master production schedule for each item and by location. The supply plan documents all related attributes of the product being made. It also has data on the numbers available in inventory, how many orders are open, those that are in the pipeline, lead times for manufacturing, minimum order quantities, buffer stocks, and more.

With this detailed supply plan on hand, the user can run a requirements and capacity review to develop an in-depth understanding of the impact of demand and supply plans on resources. Where needed, the plan can be altered to address any issues.

When supply planning is complete, the user can approve the plan and generate a master plan that is pushed into the enterprise resource planning (ERP) for execution. The master plan can also be used in supply chain planning software to run everyday product planning and ordering.

Such a planning suite is placed over a transactional system that enables planning and deals with real-time demand commitments while considering constraints. Some typical modules included are:

  • Availability of products and capability to promise more
  • Operations and sales planning and integrated business planning
  • Collaborative planning
  • Vendor-managed inventory or direct points of sales
  • Event planning
  • Demand and inventory planning
  • Production and factory planning and related schedules
  • Distribution planning
  • Strategic network designing
  • Optimizing inventory strategy
  • Production planning

Supply Chain Planning Strategies and Methods

These are some of the supply chain planning strategies and methods that are employed by organizations to enable a seamless, thorough supply chain:

Data Gathering

Real-time data with precise figures and information allow for deep insights into the supply chain, enabling quick decision-making.

Lean Principles

With a supply management system based on the just-in-time concept, management can reduce inventory costs. Orders are fulfilled faster and overhead costs are reduced. This makes way for a smooth inventory flow.

Heightened Visibility

Every supply chain runs the risk of accidents resulting in waste. With better operational visibility, the amount of inventory loss can be reduced.

Standardization

With an enterprise resource system that enables higher efficiency, the supply chain enhances its revenue streams in the long and short run. With a planning system, identifying software that is easy to understand for the team encourages better collaboration and reduces the chances of future mistakes.

Benefits of Supply Chain Planning

With an effective supply chain planning system in place, a business can enjoy several benefits that can enhance its competitive edge. Some of these benefits may include:

Reduction in Costs

There are several crucial areas where a business can enable reduced costs. Lower costs can result in:

  • Enhanced inventory system.
  • Optimized stocking space for ready products, removing the chances of damage or resource deterioration.
  • Improved system responses to customer needs.
  • Improved relationships between vendors and distributors.

Improved Efficiency

When a business develops the capacity to incorporate supply chains, creative product strategies, and integrated logistics, it puts the organization in a better position to predict demand and take the right actions. This is the biggest benefit. When an organization has a robust supply chain in place, it can deal with a dynamic market and adjust itself accordingly with no constant micro-management or extra analysis.

Increased Output

With an improvement in supply chain systems, communication is also better. This improvement leads to enhanced coordination and collaboration between companies that manage shipments and transportation, including vendors and suppliers.

Better Cooperation

Successful businesses usually have superior communication. With a lack of clear communication, the business’s vendors, distributors, and employees may not be able to understand your plans clearly. Supply chain planning results in better communication between all entities, and this results in better cooperation. Technology has enabled communication channels to be open even in remote working environments or multiple international offices and time zones.

Increased Profits

When businesses open up to high-end technology and implement better collaboration in all areas, efficiency and productivity are improved, leading to higher profit levels.

Enhanced Supply Chain Network

Introducing a mix of lean practices such as stock control or waste reduction helps create a continuous improvement system. Data from multiple areas of business enhances your company's supply chain network.

Reduce Delays

A well-planned communication system can reduce delays in supply chain processes. With every person in the system understanding their role in the business accurately, several production line issues can be mitigated.

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Challenges in Supply Chain Management

There are three common pitfalls to supply chain planning. These issues are usually seen in the supply chain management system in general; they also apply to the sub-categories, such as planning.

  • The first issue is a minimal organizational commitment to planning development. It’s often difficult to get the multiple stakeholders of a business process onto the same platform.
  • Another problem is poor collaborative efforts among various functions, which leads to hurdles in plan creation.
  • When evaluating for supply chain planning, companies tend to look at historical data that is collected from within their systems. However, there is a lot more dynamic data available that can help companies be better prepared and streamline their functioning.

Achieving optimal supply chain planning is not easy, but it is integral to helping a business grow. As with every system, there can be some pitfalls and challenges that will need to be addressed. Smart workarounds can help businesses create the perfect supply chain planning system.