Inventory-based businesses are complex operations that need to successfully navigate the transportation, storage, and delivery of goods. For these multifaceted businesses to function properly, this entire system needs to be optimized, organized, and efficient. For that, we look to the process of supply chain planning, which is a sprawling strategy designed to effectively manage the flow of goods, information, and even finances across an entire supply chain network.
Why does supply chain planning matter, and does it really make a difference in the way an operation functions? To thrive in today’s supply chain ecosystem, withstand economic challenges, and quickly respond to changing consumer demands, businesses need to turn to supply chain planning. These systems, processes, and tools help supply chain businesses best plan for their futures, optimize their operations and provide the optimal experience to their customers.
This article gives you a comprehensive overview of supply chain planning, including tips for mastering it in your own organization.
Supply chain planning is an expansive concept, which involves developing and deploying strategies and procedures to effectively manage the way goods, information, and finances move across the entire supply chain network. It involves the meticulous coordination of distinctaspects of a supply chain business, including demand forecasting, procurement, production scheduling, inventory management, logistics, and distribution, for example.
Inventory-based businesses turn to supply chain planning to improve and optimize their performance and create better processes. It’s also essential for helping businesses withstand disruptions and become more resilient to challenges.
Improving performance is paramount for inventory-based businesses, and makes a significant difference in business outcomes. For example, data shows that $163 billion worth of surplus stock ends up as waste. If a supply chain business is optimized and there’s less surplus stock, that waste can be vastly reduced, therefore leading to fewer financial losses.
Additionally, research has found that only 21% of supply chain leaders believe their supply chain management process is “highly resilient” to disruptions, while further research shows that “disruptions in supply chain operations are set to stay.” These disruptions are due to things such as “geopolitical conflicts, inflationary pressures, and the recessionary environment, climate change weather events, or other issues yet to emerge.”
What this demonstrates is that businesses in the supply chain need to strengthen their supply chain planning for two main reasons: to improve their business today, and to best prepare it for the future.
Supply chain planning is a broad term for the processes that govern the entire process of manufacturing and delivering goods, starting from suppliers and ending with customers. Because of this, the components of supply chain planning can differ from business to business, depending on where it exists in the supply chain.
However, there are some components of supply chain planning which are typically universal. These can include:
Inventory management and planning involves monitoring inventory, and taking actions that improve inventory efficiency and reduce operational costs. This might include monitoring inventory for stockouts and excess, identifying dead inventory, meeting service levels, tracking inventory expiration dates, and inventory balancing.
This aspect of supply chain planning focuses on determining the optimal inventory levels, replenishment cycles, and safety stock thresholds to prevent stockouts while avoiding excessive inventory carrying costs. This can be done by using inventory analytics to gain real-time perspective into what’s happening with your inventory.
Demand forecasting is a critical component of effective supply chain planning. It involves the systematic forecasting of customer demand for a product and uses historical data, market trends, and consumer behavior to inform the forecasts.
When it comes to supply chain planning, demand forecasting needs to take different forecast hierarchies into account, along with special events (such as promotions or other types of unusual demand) and latest items.
Proper demand forecasting enables businesses to align production, inventory, and distribution strategies, minimizing the risk of overstocking or understocking and ensuring that the right products are available at the right place and time.
Supply planning is the management of the actual production and procurement of the inventory you stock. It involves allocating resources, scheduling production processes, and managing the entire supplier network, among other things.
Effective supply planning is a crucial part of supply chain management because it can optimize production efficiency, reduce lead times, and mitigate the risks of supply shortages.
Sales & Operations Planning (also stylized at S&OP) is a planning process that integrates demand, supply and financial planning. It is the coordination of these different aspects of an organization and is designed to help leaders align their business units and make informed decisions.
What does S&OP typically look like on the ground? It is typically a process that is conducted monthly, which involves forecasting, supply planning, and demand planning, as well as an executive review process. It usually culminates with executives and leaders from different business units meeting to work through scenarios, make choices, and address any issues.
Supply chain planning plays an integral role in a successful inventory-based business, because it governs all the different aspects of the business, and aligns things such as supply, demand, revenue, and operations. Because of the scope of supply chain planning, it can be complicated to execute, without some best practices in place.
Here are some things to keep in mind when executing supply chain planning:
Having the proper supply chain technology in place is essential for executing this process properly. When you’re using a supply chain planning suite, for example, you’ll have access to advanced forecasting tools, inventory analytics, and supplier tracking features, which give you real-time visibility into your operations.
These tools are also critical for supply chain planning because they don’t just supply you with raw data: they also give you insights. Immediately, you’ll quickly know what you’re going to sell, what you need to buy, and what you’re out of, so you can make rapid fire decisions that help your business thrive.
As you can see, supply chain planning involves all the business units within a supply chain business. Because of this, excellent collaboration and communication are vital. Firstly, establish strong and collaborative partnerships with all suppliers, distributors, and key stakeholders to foster an environment of effective communication and information sharing.
Also, because cross-functional collaboration is essential, be sure to align all internal business units. Establish communication and data-sharing protocols, be sure that there’s a culture of open communication within your organization, and be sure to address any communication silos or deficiencies. These can often be present between functions such as sales and operations, for example.
Supply chain planning is rooted in demand forecasting, so if your demand forecasting is falling short, your supply chain planning will follow suit. Make sure you’re using demand forecasting systems that support the level of visibility and accuracy you need. For example, you should be able to utilize different forecast hierarchies, and your forecasts should be able to take special events into account.
Supply chain planning relies on an abundance of accurate, up-to-date data. For example, if you want to shorten your delivery times, you’ll need to understand the speed at which certain inventory is moving from individual suppliers. If you want to reduce the amount of stockouts you have, you’ll need to have real-time insights into your inventory.
If there are gaps in your visibility, or you have questions that hinder your ability to effectively execute supply chain planning, then you might need to improve your data gathering systems. If this is the case, you can turn to technology-based inventory solutions, which can provide you with all the data and insights you need.
The supply chain is both shaped by market dynamics and is operating in its ecosystem. The two go together, and because of this, supply chain decision-makers need to keep a watchful eye on the market.
Constantly monitor market conditions, relevant news making events, and updates which might drive customer behavior. You can also watch KPIs for indicators of how market dynamics are impacting your business. Insights into inventory turnover, order fulfillment rates, and lead times can help you understand how your business is being impacted by the market, and what changes you need to make to stay efficient.
You can also utilize predictive analytics and scenario planning to quickly adapt to sudden changes in demand, supply disruptions, or market fluctuations.
Supply chain planning is the core of any inventory-based business, and it can enhance how that business operates today, while also helping it achieve its biggest future goals. For that to happen, inventory-based businesses need to be using robust technologies, which give you the clear data and insights needed for this process.
StockIQ is a comprehensive supply chain planning suite, targeted at manufacturers and distributors, which offers you all the features you need for supply chain planning. This next-generation supply chain planning product provides you with the answers you need to execute supply chain planning and optimize your operations.
Find out how StockIQ supports powerful supply chain planning by contacting us today.