In the last few years, major economic, health, and political crises have disrupted supply chain management systems like never before. Activities like shipping were highly impacted which resulted in shortage of raw materials, delay in production, and so on. Although these were some unprecedented events, impact of such events on supply chain can be reduced with better planning. Let’s understand meaning and importance of supply chain planning.
What is supply chain planning and its importance?
Planning in supply chain involves forecasting changes in demand and accordingly making change in procurement of raw material, production and distribution.
For example, if you are a television set manufacturer and you anticipate 30% surge in demand during festive season, you would align your production activities, raw material procurement and distribution accordingly. Similarly, a company also has to formulate a strategy to deal with low demand during lean seasons. Your suppliers need to be taken into confidence as raw material sourcing would be impacted in slack periods. Therefore, planning and forecasting in supply chain management becomes of paramount important.
Planning process in supply chain management
How does planning process in supply chain management work? What are the planning and control methods in supply chain management? Following are the key elements of supply chain management planning.
- Demand planning in supply chain management: Supply chain planning process starts with forecasting demand. All the departments such as strategy, marketing, sales, production, purchase, etc., come together to project demand. This is done on the basis of the available data of previous years, sales projections, market conditions, etc. Now, there are various new age software solutions available to undertake this task. Technologies such artificial intelligence and machine learning are making demand projection easier and accurate.
- Supply management: Managing supply is one of the key elements in planning activities in supply chain management. Once the demand changes are determined, the company now has to formulate a strategy to operations and make the company ready for changing demand. Some of the key steps here include balancing inflow and outflow, ensuring sufficient supply of raw material, raw material procurement planning, resources planning, and so on. Inventory management is also one of the critical aspects of supply chain planning.
- Production planning in supply chain management: Once the company decides how to meet the changing demand, then, the production team has to allocate resources, schedule production, determine production capacity, etc. To achieve this, one has to do a reverse calculation. For example, if the hike in demand in expected in the month of November, the company needs work at least six months in advance. One needs to determine how many extra units are to be produced, how long it will take to achieve this number, accordingly how many manhours are involved, etc., need to be accurately calculated. Depending on the involved manhours, you need to decide om when you should begin production for increased demand. Based on the calculation, it can be month in advance or three months or may be more.
- Operations planning: Once you ensure that production levels of sufficient units can be managed, you need to focus on operations planning. You need ensure sales and distribution of the products happen smoothly. Additionally, ready goods need to reach in time to faraway market locations too. You need to align your sales, marketing, and logistics management systems too for smoother operations.
Advantages of planning activities in supply chain management
- The planning streamlines operation of various functions and departments in time and help avoid last minute rush.
- As you can foresee demand, you can project probable hurdles and challenges too. Hence, you are better prepared for the ‘what if’ events and these can be eliminated smoothly.
- It enhances productivity and eliminates delay.
- With planning in advance, you can involve your suppliers too and place the order for required raw material. This helps you supplier fulfil your order for raw material in time.
- Since you are avoiding last minute rush, you still have time in hand to deal with unforeseen events.
- Production planning helps to maintain quality of products, which further leads to customer satisfaction.
In this respect, it is importance to understand that there is clear difference between supply chain and logistics, each with their own responsibilities. While supply chain deals with end-to-end procurement, purchase, storage and delivery, logistics is a part of supply chain and manages warehousing, transportation, and delivery as a part of order fulfilment. A comprehensive supply chain planning process therefore includes logistics and transportation to the last detail including inbound and outbound logistics, last mile delivery, reverse logistics, order tracking and more.
Closing remarks: Tips in supply chain planning
- It is best use new age supply chain digital solutions to help you project demand well in advance. Internet of Things (IoT) solutions can help you in getting useful insights.
- Along with supply chain planning, you also need to plan your finances accordingly.
- There are various other factors that influence demand for example influence, natural calamities, etc. Hence, real-time demand prediction tools can help you realign business with changing needs.