March 17, 2022

Know the What, Why, and How of Supply Chain Planning

Know

In this article, we talk about Supply Chain Planning in the most extensive context of supply chain management. Moreover, we look at some basic steps of supply chain management and how supply chain planners plan and execute their operations with more efficiency and ease.

What is Supply Chain Planning?

Before we discuss improving efficiency, streamlining operations, and automation, let's first understand the A B C of supply chain planning. Let's look at the operations of a successful paper company that delivers millions of bundles of paper to its customers across the globe. For the company to run its operations, they need to plan and execute across several verticals, including sourcing raw materials to their manufacturing plant, packaging & warehousing of finished goods, transporting finished goods to distributors, last-mile delivery to the customer, and managing reverse logistics. Each of these verticals is further divided into several sub-operations and collectively referred to as a company's supply chain. To ensure the entire supply chain is being managed and executed efficiently, a company needs to anticipate the supply and demand and accordingly plan its operations across verticals. The process is called supply chain planning and is one of the most crucial aspects of a company's supply chain.

What is demand planning and supply planning?

As the terms suggest, demand planning predicts or forecasts consumer demand for a particular product or service in the market. In simple terms, it is the process of assessment of the current demand in the market based on various methodologies and surveys. The more accurate demand forecasts are, the better it is for the company, as accurate demand forecasts can help companies in efficient demand planning, improving their operational efficiency and revenue margins. On the other hand, supply planning refers to managing a company's inventory based on demand forecasts. In other words, supply planning helps a company manage its inventory and resources to produce the optimum volume of goods & services to match demand. Therefore, accurate demand forecasts are crucial for business as it greatly helps companies in their supply and demand planning making their operations more efficient and improving revenue margins.

What are the steps for supply chain planning?

After establishing the importance of supply chain planning, it is important to understand the steps involved in ensuring efficient management of a company’s supply chain. They include,

Supply & Demand Management

It involves the planning of inflow and outflow of goods and services based on demand while making considerations for financial objectives set out by the company. It ranges from procurement of raw materials to dispatch of finished goods for last-mile delivery and seeks the most efficient way to match supply with demand for their respective products. Furthermore, it includes demand forecasting or accurately assessing the demand for a particular good or service produced by the company, which is crucial for companies to effectively set revenue targets, expand operations, stock inventory, chart inbound & outbound logistics, etc.

Production Planning & Management

Based on supply chain planning, companies and manufacturers have to effectively plan their production or manufacturing operations, including expanding or reducing production activity, allocation of labor & resources for production, purchase or lease of machinery & vehicles, etc.

Operational planning and execution

Operational planning is required to execute objectives set by production planning. In essence, operational planning looks at making the production activity operational. It includes creating timelines, outlining processes, addressing gaps & loopholes in current operations, etc, which aids the process of production of goods & services for the company.

Sales & Logistics Planning

The final aspect of supply chain planning includes the dispatch and transport of the finished goods to the end customer. It involves integrating operations with packaging & warehousing management. In essence, sales & logistics planning looks at how the company delivers finished goods from production units to the end consumer. It also looks at how a company integrates and manages other aspects such as packaging, dispatch, distribution, and last-mile delivery with their overall business operation.

Why is Supply Chain Planning Important?

An efficient business requires the company to follow the most fundamental concept in the market, matching the existing demand in the market with adequate supply. A business thrives when both the supply and demand for their product in the market is at an optimum level. In case there is more supply, we have a case of unsold inventory, which in turn increases the cost of operations through more warehousing requirements whereas, if the demand is more than what the company could supply, it will lead the consumers to seek alternatives in the market, ergo losing revenue. To further understand the importance of supply chain planning, let’s first understand how business operations are affected by unforeseeable disruptions as a result of external factors in the following section.

What does supply planning do?

Efficient supply planning mechanisms are needed for a company to balance the supply and demand. As a result, the role of supply chain planners is heightened as they are responsible for supply chain planning for any company. Furthermore, they also need to factor in disruptions and uncertainties that can arise from external factors beyond their control.

The prime examples of disruption are the Covid-19 pandemic and the massive disruptions it caused to the global value chains and, more recently, the Russia-Ukraine War, which has thrown the Agriculture industry as well as the Oil & Natural Gas industry into chaos, rendering companies in the respective sectors scrambling to streamline their supply chain and figure out alternatives to remain operational.

The process of supply planning and supply chain planners have lately realized the importance of contingency planning in case of disruptions, particularly in the aftermath of the covid-19 pandemic. Some crucial steps include expanding distribution channels, creating alternate manufacturing hubs, improving procurement operations based on demand forecasts, and addressing capacity constraints and material availability. It has allowed companies to future-proof their business operations in the face of any possible disruptions and minimize the impact of the same on their businesses.

Conclusion

Without a doubt, supply chain planning has gained tremendous tracking in the last two years, and businesses are continuously looking for ways to improve their supply and demand planning for their business operations. Data and technology will play an indispensable role in the pursuit of accuracy and transparency in operations. As a result, companies can integrate and adopt supply chain visibility solutions to improve transparency in their business operations for them and their customers. In conclusion, technology has become an indispensable part of doing business today, and it can only make processes more efficient, transparent, and consumer-friendly.

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