The Importance and Key Elements of Supply Chain Planning
Supply chain planning is a process that plans the journey of a material or product from the raw material stage until it gets to the ultimate consumer. It helps a company to anticipate the demand for its products. Supply chain planning aims to balance demand and supply to maximize revenue generation. It covers multiple processes, including supply planning, demand planning, production planning, distribution planning, operations, and sales planning.
Why is supply chain planning important?
Supply chain planning can help a company optimize its manufacturing and product delivery processes. If done well, it can help lower the company’s product costs, help manage the relationships with suppliers, increase efficiencies and increase sales. Other advantages of successful planning include:
- Better data collection: Precise and real-time data can enhance decision-making and assist with time-sensitive processes, including just-in-time manufacturing.
- Improved customer satisfaction: Companies can improve their profit margins by tracking product demand and customer sentiment.
- Reduced operational delays:Supply chain planning clarifies the roles and responsibilities of all the parties involved and has the potential to eliminate delivery delays, late shipments and avoid redundant processes.
- Improved inventory management: Updated inventory data can lead to lower overhead costs and lean production processes.
- Enhanced output: It can improve a company’s ability to increase its production capacity, often resulting in a better quality product.
- Improved operational efficiency and execution: Accurate production and demand plans help companies act proactively to improve operational capacity by identifying inefficiencies, such as excess inventory and raw material waste. Addressing these inefficiencies makes companies more agile and responsive to customer demands.
- Enhanced product life-cycle management: Demand planning helps align product development and consumer demand.
Key elements of supply chain planning
The typical process includes the following key elements:
- Sales and operations planning takes place to match the customer demand and the manufacturer’s supply. During this process, the sales department collaborates with the operations departments (for example, marketing, procurement, and manufacturing) to develop a single production plan. The team gathers information, including recent forecasts, sales, inventory data, to build the production plan using the manufacturing and distribution capacity. The team reconciles the demand and production plans with the identified resource constraints (including finances) before presenting their plan to the executives to get their input and approval.
- Material requirements planning calculates and plans the raw materials and components a company needs to manufacture the products identified in the production plan. This process requires taking inventory of product materials and parts and creating plans to buy materials that are not in stock but needed for manufacturing.
- Production planning covers the details of the manufacturing products, such as the number and types of products, the materials and other components needed, and the parties and machinery involved in the manufacturing process.
- Event management is another element of supply chain planning. It involves advanced planning and scheduling, optimizing other factors that could affect supply, such as materials, plant capacity, and supply. It considers the scheduling of materials and other resources to determine the production capacity of a specific unit. Where the company identifies bottlenecks and delays, it can develop contingency plans to mitigate the impact of these items on the company’s profit margin.
- Developing a pricing strategy is critical to allow the company to set an optimal price for its products. Price plays a vital role in balancing supply and demand. For example, if a company lowers its prices, it can stimulate sales during a low-demand period. Such a strategy may be helpful to help a company cover its fixed production costs in low-demand periods.