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.