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Supply chain management is a technique where a product is delivered to the consumer after curating it from raw material. The method is vital to any company simply because the happier the customers, the more comfortable and profitable the business will be. This technique comprises activities like supply chain planning, demand planning, supply management, etc. This article talks about the planning bit, which helps a manufacturer meet their consumer demands with efficiency and thereby maximize profits.
Intrigued to know more? Here is a piece for you that explains the basics of supply chain planning, its steps, benefits, and much more.
What is Supply Chain Planning?
Supply chain planning or SCP is a procedure that involves demand anticipation of commodities, planning for their components and materials, followed by the production of the product, its marketing, dispersal, and sale. A supply chain planning process helps the manufacturers manage critical business elements like materials, waste elimination, etc.
The Process Involved in Supply Chain Planning
Supply chain planning involves a series of steps which helps achieve optimum revenue. It includes:
Supply management is built on areas like capacity planning, inventory planning, etc. Supply planning helps figure out the accurate avenue for fulfilling the demand plan requirements.
The objective of supply management is simple: to bridge the gap and balance out demand and supply in a way that benefits the enterprise.
Demand planning, planning for trade promotion, and merchandise planning are the three core components of demand management. Demand forecasts to ensure that commodities can be delivered reliably is the process of demand planning. This method further improves revenue forecast accuracy and makes sure that inventory levels are in-tune with the crests and troughs of demand.
Trade promotion planning is a technique of marketing that aims to increase the demand for products in the market through promotional methods such as demonstrations, display fixtures, discounted pricing, etc. Merchandise planning is a technique that aims to maximize ROI or Return on Investment.
This process is related to the actual production of goods, the manufacturing procedure, etc. The manufacturers decide on how to allocate the available resources properly among the workers so that production can be optimized.
This is where the manufacturers get involved with warehouse management and planning for integrated operations. The manufacturers chalk out the strategy by considering critical factors like demand coordination, product marketing, actual sales, etc. The producers plan ahead to ensure that final consumer demand is met effectively.
This process addresses various needs for developing scientific and operational activities so that the supply chain functions smoothly. The manufacturers decide on what operation types are required and ensure that they stay profitable while meeting the consumer demands.
Why Do Manufacturers Need an Effective Supply Chain Plan?
For any manufacturer, two assets overpower others – money and time. To improve the production capacity and efficiency of the supply chain, manufacturers need to reduce costs to boost the revenue margins. However, most manufacturers miss out on deeper insights due to a lack of clarity in their supply chain.
The procedure helps in planning every operational activity, in the absence of which a manufacturer lacks proper foresight. Thus, they miss out on the coverage of potential mishaps. These mishaps can include anything from machine breakdown, shortage of materials, employee absence, irregularities in weather, and so on. A supply chain planning will help a manufacturer cushion these mishaps and formulate proper contingency plans.
Strategies for Effective Supply Chain Planning
Supply chains have become complex over time, and to respond to the demand-driven world, manufacturers need to adopt newer strategies. Here are a few techniques for effective supply chain planning:
Adopting demand-driven planning based on real-time insights
With supply chain planning becoming more intertwined with digital tools, demand predicting capabilities are becoming more mature than before. This type of strategy has tools that forecast demand precisely and further ensure that every possible risk factor (natural calamities, absence of employees, etc.) is taken into account. Thus, this strategy helps the producers push their revenue as they can tweak the product prices as per the situation.
Integrated execution paired with rapid planning
When paired with rapid and intelligent planning, Integrated production provides for an agile supply chain. This strategy, which is sensitive to the varying customer needs, considers the market fluctuations and changing opportunities to plan out potential alternatives.
Supply chain alignment with business goals
Another strategy is to align the business goals with operations and integrated sales. This strategy makes sure that every process operating in the company, like finance, operations, etc., is running smoothly and in parallel, thereby creating a healthy supply chain plan. This strategy also ensures that the operating procedures are in-tune with the company’s financial goals.
Choosing appropriate product design and keeping the focus on product management
This strategy focuses on product-aligned decisions that directly impact the innovation and profit levels of the firm. Effective collaboration is the key to innovation, and thus it is only possible if products are assembled at the appropriate cost, time, and place.
Supply chain plan coupled with sustainability
Sustainability has become a top priority in every business form, and having a spotlight on it provides a renewed focus to supply chain plans. This strategy includes developing long-term goals that help attain sustainability, like improving the company’s energy usage, reducing the enterprise’s carbon footprint, focusing on recycling, etc. Planning teams can also use technologies that highlight reducing fuel consumption, transport wastages, etc.
Benefits of a Well-Orchestrated Supply Chain Plan
Efficient planning for supply chain management creates the maximum difference between a thriving business and its disruption. Thus its benefits are:
Bridges the gap between demand and supply
Aligning demand and supply is the key objective of an effective supply chain plan. Traditionally, this was done by analyzing historical data, but there are multiple factors at work in the modern world. This makes demand prediction difficult and thus requires proper supply chain planning. Such a technique looks at real-time data, considers market conditions and multiple other external factors, and forecasts the demand accurately.
Reduces the cost of warehouse facility and inventory
Since demand is aligned with supply, planning simplifies the management of inventory. There is neither stockout nor overstocks and thus reducing maintenance and warehouse costs.
Builds customer loyalty
With the help of supply chain planning, producers can ensure that the commodities reach the customers within the promised time. Furthermore, it helps the producers to keep sufficient stock so that they can meet sudden demand surges. Thus, with more customer satisfaction, there is more customer loyalty.
Proper planning helps in covering the market risks and neutralizing their impacts. Today, risk management has gone well beyond cost-cutting and enhanced operation efficiency, and thus a supply chain plan cushions the risks with proper strategies.
Superior resource allocation
With proper planning well ahead, the manufacturers can make informed, data-driven decisions regarding a shortage of resources or excess resources.
The Power of AI-Driven Supply Chain Planning
In the modern world of supply chain planning, speed is of utmost importance, and human-induced errors have to be reduced. This is the primary reason why AI-driven supply chain planning is gaining momentum, which offers meaningful innovation in the field of logistics and supply chains. Artificial intelligence benefits supply chain planning by properly managing inventory, reducing the overall cost of the supply chain, improving customer service, removing the potential bottlenecks, etc. Thus, the power of AI in supply chain plan is:
- Implementing AI in supply chain and logistics lowers operating costs and saves time.
- Running customer services, warehousing, and inventory management are error-free for an extended timespan.
- Customer services can be further enhanced by using a Chatbot feature, which can provide functions like notifying about new commodities, proposing similar products, etc.
- AI boosts productivity in the supply chain designing process because it can analyze performance and simultaneously predict potential problems.
- Grouping multiple elements based on their similarity is another feature of AI, which decreases the transport network redundancy.
Supply Chain Planning vs. Supply Chain Execution
The entire software for supply chain management is dissected into two pivotal components: planning and execution. While the former includes activities like demand forecasts, ensuring cost-effective functioning, ensuring supply, etc., the latter involves activities like ensuring plans are completed, and orders are purchased and stocked, keeping the inventory up-to-date, etc.
The primary distinction between the two is in the planning horizon of the manufacturer, or rather the time frame required for decision making. Applications for supply chain planning support those processes which look forward to years or months. Applications for supply chain execution, however, look forward to smaller time buckets, either on a daily or hourly basis.
Supply Chain Planning Elements
The effectiveness and efficiency of a supply chain plan impact a business immensely, as it boosts business productivity and the firm’s profitability. For any supply chain plan to function appropriately, essential elements are undoubtedly at play. These are – integration, operation, purchasing, and distribution.
Purchasing the various services or components is the first element. Also termed procurement, this element ensures that correct items are purchased in the exact quantities per need and at a minimal cost. This element helps producers identify if they need to outsource the services or are self-sufficient. It further determines who is the supplier of the components and services and includes keeping track of various suppliers, demand cycles, participating producers, etc.
After procuring raw materials, services, assemblies, etc, the enterprise now has to mold them and produce commodities which the customer needs. Proper demand management and inventory control improvements are what constitute operation elements. This element makes sure that the gap between demand and supply is covered and all types of wastes are removed from the production system.
Distribution is the third element of supply chain planning, including activities like logistics or transportation, CRM or customer relationship management, and warehousing. The logistics component manages goods transportation across the entire supply chain, and the warehousing element offers storage facilities for putting down goods temporarily. The CRM helps you smoothen customer interactions and push up sales prospects.
Integration is the final element, which brings together the firm’s critical pillars, like sales, finance, operation, accounting, etc. It starts at the phase of strategic planning and helps to neutralize unforeseen bottlenecks like shortages, human-induced errors, hoarding products or understocking, etc.
Steps to Supply Chain Planning Success
There are seven basic steps to make your supply chain planning a success. These are:
- Synchronize the planning and execution bit of supply chain management. Synchronize how often data is updated and the time bucket for the firm.
- Manage the data systematically so that consistent information is available throughout the planning and organization of the supply chain.
- Form a cooperative relationship with your suppliers and customers alike, ensuring that you can adjust increased sales or orders with ease.
- Crosscheck the demand planning data for flaws, like any bias or errors in forecasting.
- Instead of focusing on the sales orders of your firm, focus more on the data during actual transactions.
- Monitor the product’s life cycle closely and look for scopes of improvement.
- Understand customer behavior by creating scopes of balanced improvement.
Supply Chain Planning Trends
Even the constant use of technology for improving the planning of supply chains has limited effectiveness nowadays for demand prediction. Predictive analysis is what companies are now focusing on to better understand their customer behavior. It has thus become the need of the hour, which helps learn what factors affect demand and how. Advanced analytics help organizations mitigate their hurdles through agile management and proper planning of the supply chains.
Although AI is currently taking supply chain planning by storm, certain factors can affect supply chain planning in the near future. One such factor is machines becoming more intelligent, and AI has not yet reached its full potential in the field of supply chain planning and the future can create $5 trillion worth of business value by the year 2025. Similarly, another factor that can affect supply chain planning’s future is a shift in the market demography and changing patterns of consumer behavior. It is predicted that by 2025, multiple supply chains might shift to regional, national, or even local suppliers and consumers rather than tending to the global crowd.
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Supply chain planning is a technique to anticipate demand, followed by planning the components accordingly to meet such demands. This further includes the production of commodities, their marketing, sales, and distribution.
The basics of supply chain management are formed by supply management, demand management, production planning, sales planning, and operation planning.
Inventory planning is a process that helps the companies decide on the correct stock amount they need to buy along with their order frequency. Thus, inventory planning helps in pushing down the costs that will otherwise go to hoarding items.
Inventories can be of the following types:
- Raw materials
- MRO or Maintenance, Repair, and Operating
- WIP or Work In Progress
- Inventory for finished goods
A supply chain can have the following seven functional areas:
- Demand planning
- Inventory management
- Customer service
Proper demand planning is what makes supply planning and management successful. It helps to chalk out the exact quantities that a firm anticipates selling.