A glimpse behind the scenes of

Supply Chain Planning

Supply Chain has probably never been more prominent in common conversations than in the last few years. Mostly popping up when the delivery dates to our newly ordered furniture, smart phones or cars keep being postponed ad infinitum. Many of those delays and current economic circumstances shed some new light on the overall complexity hidden in Supply Chain. Pictures of harbors littered with containers and sea routes flooded with ships all over the globe have had many people thinking of where to place their orders and what for. No longer are we guaranteed the luxury of planning fixer-uppers, building houses, or completing other projects in a set time frame. All of us are affected in one way or another - however let us have a look at what it means to be caught up in such a exciting environment on a daily basis.

Supply Chain Planning could be described as the very heart within any supply chain organization. It is where actions have direct impact on servicing customers and shareholders and even on organic growth and sustainability of the company. The current world-wild challenges in supply, as well as in forecasting, require dedicated professionals, who are willing to think outside the box, be bold and strive to win the day for the customer. Communication and aligning with key stakeholders throughout the whole chain is an essential part to keep a steady flow of goods, information and of course the almighty dollar. There is tremendous value to be added by each link of the chain. The Planning team is quite in the middle, between what is needed on the market (Customer Service side) and what is possible to make (Production Planning capacity).

In recent months and years planning activities and requirements for the job have evolved. Placing more emphasis on flexibility and creativity to deal with any roadblocks at hand. With global constraints on raw materials and transportation capacity, the prioritization of markets, customers or products have become more crucial than ever. In order to ensure the right customers, receive the right products with the most reliable delivery times, the Supply Chain teams need to perform near miracles.

To demonstrate the complexity of even a simple supply chain, let us imagine following scenario:

Due to a global chip shortage in the technology sector, the business and market leads need to decide how much of the limited raw material should be allocated to the production of cars, smart TV’s or the latest Xbox. These decisions carry a lot of weight, especially in larger, more complex supply chains which often maneuver like the Titanic. Turning the ship around and setting for a new course is expensive, but even more so, takes a long time. Once, however, the decision is taken and priorities are set, there are many more factors to be considered:

How many of the prioritized products are expected to be sold over the course of the next 12 months? Where will we expect to sell them and how much per region?

An answer may be provided from Market Intelligence Analysts, Demand Planners and Managers, Portfolio Managers and Sales Departments. These functions will have to agree on a demand plan and forecast, which the wider organization will commit to. Let’s assume we have a good demand forecast for the next 12 months, indicating quite steady monthly sales.

The next crucial point to clarify is, what is the capacity at our disposal within the production plants or maybe 3^rd-party vendors? Is there a need to secure more than one source of supply?

Production Planners or Sourcing Managers respectfully will be able to cover capacity questions, whereas Supply Chain Managers are taking on a very strategic role, looking into securing long-term service and efficiency.

Once the capacity to produce the goods is confirmed, the organization needs yet another plan – a Supply Plan. This is where the Planning Team comes into play, staying aligned on all previously mentioned aspects. As next step the team needs to validate different stock keeping strategies.

Whether the goods are being shipped directly from the production plant to the customer or being stored in a warehouse and delivered from there, has a huge impact on cost efficiency for the organization and on the lead time for the customer. These decisions often happen in tight collaboration with Supply Chain Managers or Lean Value Stream Managers.

As in this example there is a forecast for the next 12 months, the Planning team decides to keep a certain level of stock in a central warehouse closest to the region with the most demand.

But how much of inventory is good enough to ensure the customer needs can be satisfied at all times?

One would think that just enough Safety Stock could guarantee for 100% reliable service. Mostly however, it is a terrible idea to only bank on carrying a massive amount of stock. Too much inventory will be very harmful on the companies free cashflow conversion and ultimately be less attractive for shareholders to be invested. Now more than ever! All this needs to be taken into consideration within Supply Planning.

Assuming the ideal levels of inventory have been identified, the team now needs to work on the overall efficiency. This needs to happen in conjunction with the Production Planning team, as they will be interested to run their machines in the most cost-efficient way possible. There are certain quantities to be produced per production run, that economically, make the most sense. These are often referred to as lots or batches. These lots will become the minimum order quantity and as such help determine the order frequency of the Supply Planning team to fill the warehouse at just the right level. Another aspect that needs to be factored in, is how fast and reliable can the production team get their hands on the raw materials to produce and assemble the final product?

All the fine-tuning on the supply is accomplished in close collaboration between the functions mentioned above, with the Supply Planning team at the core. The shared mission is to ultimately serve the customer. Issues and roadblocks within any of the links in the supply chain, need to be tackled swiftly, as they affect the next link in line. For the sake of simplicity in this example, other essential logistic functions such as Warehousing, Transportation, Engineering etc. have been left out.

Now that we have had a glimpse behind the curtains, let us spice up the scenario and multiply it by geo-political tensions, a pandemic, worldwide constrained access to raw material and transportation and a vast uncertainty of the markets. Truly, it has never been more exciting to work in Supply Chain Planning.

Your order should arrive anytime soon now…