Demand Planning

The start point of the supply chain planning is the demand planning. In this article we are going to discuss the definition of demand planning, its importance to business, and what are processes involved in demand planning.

Demand planning is the first phase of the supply chain planning process. We can identify the demand planning as the process of predicting market demand to make sure that it will be delivered on time and achieve customer satisfaction. Effective process should result in revenue forecasts improvements, profitability enhancements, and inventory alignment with troughs and peaks in demand. This means to have sufficient inventory to meet demand without having any surplus. There are many factors that might affect the demand such as global economic crisis events, natural disasters, and severe weather.

The importance of demand planning comes from the market environment. Since the market can change on a dime, demand plans need to be changed accordingly. If demand plans cannot be in sync quickly, that may cause several issues for a business, i.e. insufficient stocks, dissatisfied customers, inventory obsoleted in warehouses, and wasted capital investments. Demand planners should focus on market data and take it into consideration along with historical sales data.

Demand planning process consists of the following elements and steps,

·         Statistical forecasting: crucial to demand planning by the use of historical data supported forecasts to evade over or shortage stocks and guarantee customer’s satisfaction. Supply chain forecasts are made by means of advanced statistical models. Each model needs to be tested for its accuracy, assumptions, outliers, and rejections.

·         Trade promotion management: running of marketing tactics especially in retail industry that cause in-store demand such as discounts, promotions, and in-store giveaways. This help companies to be obvious from competitors by promotional activities.

·         Product portfolio management: the overseeing of the product life cycle from introduction till decline. This to understand the attachment rate of how each product is affecting other ones’ demand and select the optimum product mix that maximizes the profitability and market share.

Since demand planning process is crucial to supply chain system, it needs to be controlled and enhanced all the time. These improvements take place by using methods such as metrics, which provide gauge readings for current status. Demand planning metrics for example, and not as a limitation,

·         Forecast versus actual: this metric is concerned about comparing the actual data with the plan. It is reported on regular basis to key stakeholders to keep attention on the targets and actual performance; as well as empower proactive approach and decision making. This metric is presented as bar chart showing the actual versus the plan. This metric demonstrate to what extent the monthly forecast is accurate.

·         Pareto analysis of customers: using Pareto principle, top 20% customers make 80% of the sales. This metric is responsible for closely watching the buying actions of these top customers and report any deviations to be considered by sales team.

·         Demand variation warning indicators: this metric is accountable for finding any indicators that might lead to demand variations causing stock out or over stocking scenarios. This will help to make proactive decision to prevent side effects of demand variation.

Supply Chain Planning

The first area in supply chain operations reference model is planning. In order to have a desired output from supply chain model, we need to have an effective plan. In this article we are going to discuss what are the supply chain planning, its processes and steps, and finally the integration with controlling procedures.

Supply chain planning is the process of creating forward-looking procedures for smoothly delivery of raw materials, information, and finished products from suppliers to customers in a given period with limited resources. Simply, it is a tool to balance supply with demand to catch profitable sales opportunities at the lowest possible cost. Supply chain planning has no single process to complete, there is a collection of interrelated processes, i.e. demand planning, sales and operations planning (S&OP), materials requirements planning (MRP), master production planning, capacity planning, scheduling and distribution planning.

The first level of supply chain planning is known as strategic planning and is concerned with strategic supplier and raw materials selection and strategic sales plan and what is the purpose and goals of the business at the end. This includes considering market strategy, physical distribution structure, and the suitable production system. The second level of supply chain planning is known as master planning level that includes calculating of materials and capacity requirements for production and how will the final products be distributed till the end customers. The third level of supply chain planning is the executive level. It is concerned with issuing purchase orders for needed raw materials, and when received the production will be scheduled according to the available capacity; and then after production how to store it till transporting to customer and fulfilling their demand.

Supply chain planning goes through multiple steps starting by demand forecasting. Demand forecasting analyses the old data of business and discover patterns in demand that make it easily to predict the future demand of the market and act accordingly. Then, the demand forecast is transferred to sales and operations plan to check the feasibility and profitability of the forecasting and make any changes if necessary. After finalizing sales and operations plan (S&OP), master production schedule (MPS) for the incoming period and according to this capacity plan will be structured. The next step is to run materials requirements planning (MRP) to check the raw materials availability and if there is any need to replenish the stock according to the inventory level on the planned dates.

The supply chain planning is meaningless without supply chain controlling. The controlling process is concerned about checking if the desired result of the plan is achieved or not. Key performance indicators (KPIs) are one of controlling tools for the supply chain planning. Supply chain controlling process is providing any needed guidance for any updates or changes on the plan to be updated according to the current situation to keep achieving business’s supply chain goals.

Supply Chain Operations Reference Model

In our last article we have introduced the term supply chain, its elements, and types of lows. Also we have addressed the importance of having a supply chain model in any business. In this article, we are going to discuss a brief overview of supply chain operations reference (acronym SCOR Model).

Supply chain operations reference model can be described as a management tool defines the mandatory business processes, and how to improve them, to satisfy a customer’s demands. SCOR model was first established in 1996 by some world leading organizations and was recognized by the Supply Chain Council. SCOR model was introduced as the standard strategy, process improvement, and performance management investigative instruments for supply chain management to be adopted across the industry.

Supply chain operations reference model’s structure focuses on five areas of the supply chain: plan, source, make, deliver, and return. Along the supply chain, these areas are continuously repeating for all supply chain entities starting from the supplier’s supplier to the customer’s customer. Explaining SCOR model’s structure areas in details,

·         Plan: including supply and demand planning and balancing between organization’s limited resources and customers’ requirements. Also, selecting standards to measure the supply chain efficiency and provide ways to improve. Furthermore, aligning supply chain plan with the organization’s financial plan to achieve maximum profit.  

·         Source: including the acquisition of raw materials, goods, and services needed to meet planned and actual customer’s demand. Besides, it includes the full process of procurement, vendor management, and material management.

·         Make: including the production process of transforming raw materials into finished product to meet planned and actual customer’s demand. Moreover, it includes determination of production environment, i.e. make to stock, make to order, or engineered to order, process types, equipment and facilities

·         Deliver: including the full cycle of providing the finished products to customer as per planned demand. Additionally, this includes order management, warehousing, distribution, and transportation management.

·         Return: including the returns from customer for any reason, i.e. defective products, and returned containers and packages. Furthermore including the business rules management and regulatory requirements.

The SCOR model has recognized to assist companies to detect its supply chain problems. It is a multi-level analysis that goes into many levels of details. It explains how many times the five areas of supply chain operations reference model are continuously repeating between entities of supply chain. Every area gains its importance from being critical in the process of delivering the resources from level to level.

Supply Chain

In recent years the term supply chain has been widely used. It became an essential knowledge for any new hire regardless of his main qualification. In this article, we are going to introduce in short the definition of the supply chain, its components, and a real life example.

In 80's of the last century, supply chain was introduced in financial times’ interview with Oscar Gomes. Since then several definitions of supply chain have been ascended. Supply chain can be described as a network of people, processes, resources, and technologies in a business that work collectively to produce products and services for an end user. It is a worldwide network used to carry final products and services from raw materials to final consumers through a planned flow of information, physical distribution, and cash.

Simplest form of  supply chain consists of three main parties, i.e. supplier, manufacturer, and customer. When supply chain becomes more complex, it can consist of many suppliers, many manufacturers and many customers. Even one element can be considered as a multi performer, i.e. customer can be either an end consumer or the manufacturer who make a process on a semi finished item purchased from other supplier. Each entity adds value to the chain, hence, supply chain can be considered a value chain for any business.

There is four main flows in the supply chain,

·         Primary product flow: the downstream flow of products from supplier to customer.

·         Cash flow: the upstream flow of funds from end consumer to supplier.

·         Information flow: the upstream and downstream flow of data between entities of supply chain, i.e. sales orders, purchase orders, and invoices.

·         Reverse product flow: the upstream flow of defect products that are not accepted by end customer due to several reasons, i.e. poor quality, product not matching with specifications, or recycling.

Supply chain management is the science of planning, organizing, leading, and controlling all functions related to the supply chain such as customer services, sourcing, production, warehousing, transportation, and after sales support. All those functions are participating in the flow of goods and services from its origin till reaching the final consumer. Being unsuccessful in one function will cause other functions to fail to perform its tasks.

Every industry has its own supply chain model which every company needs to consider for surviving the competition. Not any business can survive the market without considering the importance of its own supply chain. Businesses should apprehend its supply chain model before launching new product to avoid problems that might affect their market share and their own products, i.e. lead time, safety stock and forecast accuracy. Supply chain operations reference model is a management tool defines the mandatory business processes and how to improve them to satisfy a customer’s demands. We are going to discuss it in more details in another article.