As businesses strive to balance meeting customer demand with optimizing costs, managing inventory and ensuring on-time delivery, the role of supply planning becomes increasingly critical. In the complex world of modern, interconnected supply chains, it goes beyond forecasting demand and placing orders. Supply planning is a key component for balancing multiple functions — material requirements planning, procurement, production or shop floor operations, and logistics — with demand.
There are three key outputs that you need to achieve from a successful supply planning process:
- A production plan that helps you determine what to produce and where to produce it.
- A purchase plan that helps you determine what raw materials or finished goods you need to purchase from all your vendors (and which vendors to buy from if you have more than one) to satisfy your contracts in a cost-effective manner.
- A transfer plan that determines how products are transferred between different nodes in your supply chain network for production, fulfillment or storage.
In this blog, we’ll explore some best practices that can elevate your supply planning efforts and create a more responsive and efficient modern supply chain.
Get Your Demand Forecast and Inventory Management Right
The supply plan is generated to satisfy the demand forecast and to maintain inventory targets for made-to-stock items. So if your demand planning is bad, so is your supply plan. (For helpful tips on making a better demand forecast, check out our demand planning best practices blog.) Inventory target level — a consensus on how much to build and what to build based on your business goals — is important to supply planning. Inventory targets are set based on desired customer service level, and they have an impact on capital because storing inventory requires storage facility space. The key is to use business objectives to find the right balance of service level and capital consumption.
Collaborate Closely With Suppliers
Part of the supply plan is creating a forecast for what you expect from your suppliers — but they’re operating under their own planning and operational constraints. Establishing a closed loop feedback system with your suppliers helps you respond to disruptions in an agile manner. For example, if there’s a supplier disruption that’s going to delay shipment of a key component for a few days or a week, you need to adjust your production plan accordingly. Multi-enterprise planning with your suppliers means you have constant feedback about what’s realistic in terms of what they can deliver, and you can refine your supply plan based on the supplier’s constraints.
Manage Risk
Gone are the days when relying on historical data alone is sufficient for successful supply chain planning. Fortunately, with the evolution of supply planning software and artificial intelligence, you can tap into a broad spectrum of data types to anticipate disruptions and manage risk. For example, you can use leading indicator data —like evolving tariffs and port traffic data that show accurate lead time and where it is most advantageous to source components — to account for these conditions in your plan. The modern world has a myriad of disruptions — from global pandemics to geopolitical unrest — so incorporating as many sources of data as possible into your model is essential to making your supply plan as resilient as possible.
Make a Digital Twin That Starts Out More Like a Close Cousin
A key component of modern supply planning is creating a digital twin of your current processes — a virtual model that mimics the realities, constraints and business functionalities of your supply chain, including procurement, inventory storage, safety stock, distribution and so on. The digital twin integrates data from all these sources to simulate and predict how your supply chain will behave in different scenarios. It lets you test strategies, improve efficiency and enhance overall supply chain resilience without affecting your actual operations. However, the digitization process takes time. It’s better to take a crawl-walk-run approach. Start by creating a model that best represents your business and continually make tweaks to get the outputs you need over time.
Remember It’s a Team Effort
If the process sounds complex, that’s because it is. That is why supply chain planning software is a must today, even for smaller businesses. Software goes hand-in-hand with an overarching process that determines what data is being fed in, the quality of the data and how it can be improved, the different functionalities of your operation that are being modeled and optimized, and how you are interpreting and using the output. As the process evolves and you build more trust in the output, it becomes increasingly autonomous. But remember — it’s a team effort. Someone in your organization still needs to own the entire supply chain planning There are also contributors throughout the organization at every step regularly contributing data and input on a continual basis, constantly enhancing data and system integration. So, training your team effectively — not only on the software but on the entire process — is foundational to creating a well-oiled supply planning machine.
This blog is part of a series examining best practices to refine your processes and develop a more reliable, more robust supply chain. You can use the following links to review other blogs in the series: demand planning, financial planning, scheduling, inventory planning and supply chain sustainability.
