Supply planning is a crucial function in the management of supply chains, as it determines how to best allocate resources and meet customer demand. However, supply planning is also a complex and challenging task, as it involves dealing with uncertainty, volatility, and changing consumer preferences. In this article, we will explore what supply planning is, how it works, why it is important, what are the main challenges, and how to overcome them with innovations and best practices. We will also look at some real-world examples of successful supply planning in different industries.
What is Supply Planning?
Supply planning is the process of determining the optimal quantity and timing of production, distribution, and procurement activities in a supply chain. Supply planning aims to balance the supply and demand of products and services, while minimizing costs, maximizing profits, and ensuring customer satisfaction.
Some of the basic concepts involved in supply planning are:
- Supply plan: A supply plan is a document that specifies the planned production, distribution, and procurement activities for a given period of time, usually a month or a quarter. A supply plan is based on the demand forecast, the available capacity, the inventory levels, and the sourcing strategy.
- Capacity planning: Capacity planning is the process of estimating the amount of resources, such as labor, equipment, and space, that are needed to produce and deliver the products and services. Capacity planning considers the current and future demand, the production efficiency, the lead times, and the constraints.
- Sourcing: Sourcing is the process of selecting and managing the suppliers that provide the raw materials and components for production or finished goods for sale. Sourcing involves evaluating the quality, cost, reliability, and sustainability of the suppliers, as well as negotiating contracts and managing relationships.
- Integration: Integration is the process of coordinating and aligning the supply planning activities with the other functions of the supply chain, such as demand planning, sales and operations planning, logistics, and customer service. Integration ensures that the supply plan is consistent, feasible, and responsive to the market conditions.
The Supply Planning Process
The supply planning process typically consists of the following steps:
- Creating the supply plan: The first step is to create the supply plan based on the demand forecast, the available capacity, the inventory levels, and the sourcing strategy. The supply plan should specify the quantity and timing of production, distribution, and procurement activities for each product, location, and time period. The supply plan should also consider the trade-offs between cost, service, and risk, and prioritize the most important or profitable products and customers.
- Capacity planning: The next step is to verify that the supply plan is feasible and realistic, given the available resources and constraints. This involves estimating the required labor, equipment, and space for each production and distribution activity, and comparing them with the existing or planned capacity. If there is a gap between the demand and the capacity, the supply planner should identify and evaluate the possible options to close the gap, such as increasing or decreasing the capacity, outsourcing, postponing, or canceling some activities, or shifting the demand to other products or locations.
- Sourcing raw materials and components: The third step is to ensure that the supply plan is aligned with the sourcing strategy and the supplier’s capabilities. This involves placing and confirming the orders with the suppliers, based on the supply plan and the lead times. The supply planner should also monitor the supplier performance and delivery status, and communicate any changes or issues to the suppliers and the internal stakeholders.
- Integration with suppliers: The final step is to integrate the supply plan with the suppliers, and establish a collaborative and transparent relationship. This involves sharing the demand forecast, the supply plan, and the inventory levels with the suppliers, and receiving their feedback and confirmation. The supply planner should also coordinate with the suppliers on the production and delivery schedules, and resolve any conflicts or discrepancies. The integration with the suppliers should enable a smooth and efficient flow of materials and information along the supply chain.
Why is Supply Planning Important?
Supply planning is integral to the performance and success of the supply chain. It serves as the crucial link between demand and supply, orchestrating production and distribution activities in alignment with customer demand. By ensuring the availability of the right products at the right time, place, and cost, supply planning meets customer expectations and supports business objectives.
The significance of supply planning lies in its direct impact on customer satisfaction, revenue generation, profitability, and the overall competitiveness of the supply chain. A well-executed supply plan fosters customer loyalty by consistently delivering high-quality products and services in a timely manner. Moreover, it drives efficiency by optimizing resource utilization, minimizing inventory, and mitigating operational risks. Additionally, an effective supply plan enables businesses to adapt swiftly to evolving customer needs and preferences, thereby enhancing their competitive advantage and market share.
Key Challenges of Supply Planning
Supply planning is not an easy task, as it faces several challenges and difficulties, such as
Complexity: Supply planning is a complex process, as it involves multiple products, locations, time periods, and stakeholders. Supply planning also requires dealing with various factors and variables, such as the demand forecast, the capacity, the inventory, the lead times, the costs, the service levels, and the constraints. Supply planning also needs to consider the interdependencies and trade-offs between these factors and variables, and find the optimal balance and solution.
Volatility: Supply planning is a volatile process, as it is subject to frequent and unpredictable changes and uncertainties. The demand forecast can change due to customer behavior, market conditions, seasonality, promotions, or events. The capacity can change too due to equipment breakdowns, labor shortages, maintenance, or disruptions. The inventory can change due to quality issues, damages, losses, or thefts. The lead times can change due to transportation delays, customs, the weather, or accidents. The costs can change due to price fluctuations, exchange rates, tariffs, or taxes. The service levels can change due to customer complaints, returns, cancellations, or refunds. The constraints can change due to the regulations, the policies, the contracts, or the agreements. Supply planning needs to cope with all of these changes and uncertainties, and adjust the plan accordingly.
More demanding consumers: Supply planning is a challenging process, as it has to meet the increasing and diverse expectations and requirements of the consumers. Consumers are more demanding than ever, as they want more variety, more customization, more quality, more speed, more convenience, and more sustainability. Supply planning has to accommodate these demands, and offer more products, more options, more features, more channels, more delivery modes, and more transparency. Supply planning also has to deal with the trade-offs and conflicts between these demands, and prioritize the most important or profitable ones.
Functional silos: Supply planning is a difficult process, as it often suffers from a lack of coordination and collaboration between the different functions of the supply chain. The supply planning function may have different goals, incentives, metrics, and perspectives than the other functions, such as demand planning, sales and operations planning, logistics, and customer service. This may lead to misalignment, inconsistency, or contradiction between the plans and the actions of the different functions. Supply planning may also face resistance, opposition, or interference from the other functions, which may have their own agendas, preferences, or opinions. Supply planning needs to overcome these barriers, and establish a common ground and a shared vision with the other functions.
Regulatory changes: Supply planning is a risky process, as it is exposed to the potential impacts and implications of regulatory changes. The regulatory changes can affect supply planning in various ways, such as imposing new rules, standards, or restrictions on the production, distribution, or procurement activities, requiring new documentation, certification, or verification of the products or the suppliers, or imposing new fees, penalties, or sanctions for non-compliance or violation. Supply planning needs to monitor and anticipate these changes, and comply with them in a timely and effective manner.
Innovations in Supply Planning
Supply planning is an evolving and improving process, as it benefits from innovations and advancements in various areas like Scenario planning, S&OP, logistics, inventory, and distribution planning. Let’s take a look at each of these areas.
Scenario planning
Scenario planning is a technique that involves creating and analyzing multiple possible scenarios or outcomes of the supply planning process, based on different assumptions, parameters, or conditions. Scenario planning helps to evaluate the pros and cons of each scenario and compare them with the current or expected situation. Scenario planning also helps to identify and prepare for the best-case, worst-case, and most likely scenarios, and devise contingency plans or mitigation strategies for each scenario. Intuendi has an advanced scenario-planning assistant, contact us to learn more.
Sales and operations planning (S&OP)
S&OP is a framework that involves integrating and aligning the supply planning function with the other functions of the supply chain, such as demand planning, finance, marketing, and operations. S&OP helps to create a single and consistent plan that reflects the strategic and tactical objectives and priorities of the supply chain. S&OP also helps to coordinate and synchronize the activities of various departments within an organization, ensuring that resources are optimally utilized and business goals are achieved efficiently. This process involves forecasting demand, managing inventory levels, allocating resources effectively, and ultimately improving overall operational performance. By fostering collaboration and communication among different departments, S&OP enables better decision-making and enhances the overall responsiveness of the supply chain to market dynamics and customer demands.
Logistics and distribution planning
Logistics and distribution planning is a technique that involves optimizing the transportation and delivery of products and services from the production sites to the customers. Logistics and distribution planning helps to reduce transportation costs and time, improve service quality and reliability, and increase customer satisfaction and loyalty. Logistics and distribution planning also helps to manage transportation risks and uncertainties, such as traffic, weather, accidents, or disruptions.
Inventory planning and optimization
Inventory planning and optimization is a technique that involves determining the optimal inventory levels and locations for each product and service, based on the demand forecast, the supply plan, the lead times, and the service levels. Inventory planning and optimization helps to minimize inventory costs and risks, such as the holding, ordering, or shortage costs, or the obsolescence, deterioration, or expiration risks. Inventory planning and optimization also helps to maximize the inventory benefits and opportunities, such as availability, responsiveness, or flexibility.
Technologies and tools for supply planning
Supply planning is becoming more advanced, as it leverages and utilizes new technologies and tools to enhance its efficiency and effectiveness. Some of these innovations are:
Artificial intelligence (AI): AI is a technology that involves using machines or software to perform tasks that normally require human intelligence, such as learning, reasoning, or decision-making. AI helps to improve the supply planning process, by providing more accurate and reliable demand forecasts, supply plans, and scenarios, based on the analysis of large and complex data sets, such as historical sales, market trends, customer behavior, or external factors. AI also helps to automate and streamline the supply planning process, by reducing the manual work, errors, and biases, and increasing the speed, consistency, and quality of the supply planning outcomes.
Cloud computing: Cloud computing is a technology that involves using the internet to access and use computing resources, such as servers, storage, software, or applications, that are hosted and managed by a third-party provider. Cloud computing helps to enhance the supply planning process, by providing more scalability, flexibility, and security for the supply planning data and applications, as well as more accessibility, collaboration, and integration for the supply planning users and stakeholders. Cloud computing also helps to reduce the costs and risks of the supply planning process, by eliminating the need for investing, maintaining, or updating the own computing infrastructure or systems.
Internet of things (IoT): IoT is a technology that involves connecting physical objects, such as machines, devices, or sensors, to the internet, and enabling them to collect, exchange, and process data. IoT helps to support the supply planning process, by providing more visibility, traceability, and control over the supply chain activities and assets, such as the production, distribution, or inventory. IoT also helps to optimize the supply planning process, by providing more real-time, accurate, and relevant data and feedback, that can be used to monitor and adjust the supply plan, and improve the performance and results.
Best Practices in Supply Planning
Supply planning is a challenging and complex process, but it can also be improved and enhanced by following some best practices. In this paragraph, we’ll be discussing some of these best practices.
Collaboration with suppliers is a practice that involves establishing and maintaining a close and cooperative relationship with the suppliers, and sharing the information, goals, and plans with them. Collaboration with suppliers helps to improve the supply planning process, by increasing the trust, transparency, and alignment between the supply chain partners, and reducing conflicts, errors, and delays. Collaboration with suppliers also helps to create value and synergy for the supply chain, by leveraging the expertise, capabilities, and resources of the suppliers, and creating win-win solutions and opportunities. Another important supply chain best practice is using technology to improve supply planning. This involves adopting and utilizing the latest and most suitable technologies and tools for the supply planning process, such as AI, cloud computing, or IoT. Using technology to improve supply planning helps to enhance the efficiency and effectiveness of the supply planning process, by providing more data, analysis, automation, and optimization for the supply planning activities and outcomes helping to gain a competitive edge and a market advantage, by enabling faster and more flexible responses to the changing customer needs and preferences.
Implementing demand forecasting is a practice that involves using statistical methods, models, and techniques to estimate the future customer demand for the products and services, based on historical data, market trends, customer behavior, and external factors. Implementing demand forecasting helps to improve the supply planning process, by providing more accurate and reliable input for the supply plan, and reducing the uncertainty and variability of the demand. Implementing demand forecasting also helps to improve customer satisfaction and loyalty, by meeting the customer expectations and requirements, and avoiding stock-outs or excesses.
The final best practice we’ll be addressing is building flexibility into your supply chain. This practice involves designing and managing your supply chain in a way that allows you to adapt and adjust to the changing customer demand and market conditions, without compromising the cost, quality, or service. Building flexibility into your supply chain helps to improve the supply planning process, by providing more options and alternatives for the supply plan, and reducing the risks and costs of the supply chain disruptions, helping in turn to improve customer satisfaction and loyalty, by delivering more variety, customization, and convenience to the customers.
Optimization and Efficiency in Supply Planning
Supply planning is a continuous and dynamic process that requires constant monitoring and adjustment to ensure its optimization and efficiency. To ensure constant optimization it is essential to monitor and adjust the plan frequently in a process that involves tracking and measuring the performance and results of the supply plan, and comparing them with the expected or planned goals and targets. Monitoring and adjusting the plan helps to identify and correct any deviations, errors, or issues in the supply plan, and improve its accuracy and reliability. Monitoring and adjusting the plan also helps to identify and exploit any opportunities, improvements, or innovations in the supply plan, and enhance its value and impact.
Inventory management is a process that involves controlling and optimizing the inventory levels and locations for each product and service, based on the demand forecast, the supply plan, the lead times, and the service levels. Inventory management helps to balance the supply and demand of the products and services while minimizing the inventory costs and risks, and maximizing the inventory benefits and opportunities.
Lessons from Supply Chain Planners
Intuendi has many years of experience helping business and their planners with optimizing their supply chain. Take a look at some of our white papers to read more
Conclusion
Supply planning is a vital and complex function in supply chain management, that determines how to best allocate resources and meet customer demand. Supply planning involves creating and executing the supply plan, based on the demand forecast, the capacity, the inventory, and the sourcing strategy. Supply planning also faces several challenges and difficulties, such as complexities, volatility, more demanding consumers, functional silos, and regulatory changes. Supply planning can be improved and enhanced by following some best practices and innovations, such as collaboration with suppliers, using technology to improve supply planning, implementing demand forecasting, and building flexibility into the supply chain. Supply planning also requires constant monitoring and adjustment, and inventory management, to ensure its optimization and efficiency. Supply planning can also be learned and improved from the lessons and insights of the supply chain planners, who share their experiences and examples in different industries and situations. Supply planning is a crucial and rewarding process, that can increase customer satisfaction, revenues, profitability, and the overall competitiveness of your supply chain. Find out now how Intuendi can help you improve your supply planning.
