What is Supply Chain Planning?

What is Supply Chain Planning?

Optilon Crew

What is Supply Chain planning? The definition of Supply Chain planning is a forward-looking process of coordinating assets to optimize the delivery of goods, services and information from supplier to customer, balancing supply and demand. A Supply Chain planning suite sits on top of a transaction system/system of records (ERP) to provide planning, what-if scenario analysis capabilities and real-time demand commitments, considering constraints. It is an enabler for truly data-driven Supply Chain planning.

Why is there a need for Supply Chain planning?
There is a market of growing demand volatility and higher service expectations. Many organizations find themselves caught in a cycle of inaccurate forecasts, excess and obsolete inventory and “firefighting”. There are simply too many exceptions causing constant expediting. But it is also leading to out of stocks and lost sales. At the end it could mean missing out on the service levels the customers expect.

With a technological solution that orchestrates all your planning variables using advanced algorithms and self-learning AI technology, you should be able to specify the service levels and relax knowing you’ll reach the service levels your customers expect at the lowest possible cost and working capital.

The different terminologies

Typical modules in an end to end Supply Chain solution could be:

Demand planning and sensing
Demand sensing is a concept for capturing and modelling various big data demand signals into intelligence to foresee short-term sales demand patterns and demand changes to proactively adapt your supply chain planning.

In practical terms it means employing a single, selfadaptive method that models uncertainty for all items–slow and fast movers. The probability-based forecasting approach automatically generates a range of possible inventory levels for each SKU-Location with high and low limits—just like a weather forecast.

Allocation and replenishment
Replenishment works on the basis of re-ordering the same goods as stock levels reduce. Inventory is replaced on a recurring basis. Allocation works on the basis of assessing how many units are likely to be sold over a given period and hence an overall allocation of goods is determined.

In practical terms it means replenishing optimal inventory mix at each node to guarantee the planned service level in a multi-echelon network at the lowest possible cost. It also defines the right mix of requirements to feed production and other upstream processes (such as Purchasing). It automatically creates constrained replenishment proposals and addresses limited capacity constraints by rough cut capacity planning, which allows the optimal mix to be pre-built for seasonal demand.

Inventory Optimization
Inventory optimization is the practice of having the right inventory to meet your target service levels while tying up a minimum amount of capital in inventory. To achieve this, you need to account for both supply and demand volatility.

In practical terms we could say, that through probability forecasting you have the possibility with technology to identify a range of demand outcomes and the probability of each of those outcomes occurring. This information is used to calculate the optimal inventory targets. It then identifies a different service and inventory target for each SKU/Location. The result is service levels and replenishment policies matched appropriately to each item-location in your SKU portfolio. You achieve target service levels and retain customers while minimizing inventory and other costs.

Production planning
Production planning is the planning of production and manufacturing modules in a company or industry. It utilizes the resource allocation of activities of employees, materials and production capacity in order to serve different customers.

S&OP/IBP (Sales and Operations Planning/Integrated Business Planning)
S&OP bridges the disconnect between the Business Plan (top-down) and Operational Plan (bottom-up), creating preconditions to transfer Business strategy down to the shop-floor. The link between the plans is built by translating BP targets (financial) to operational targets over a time horizon of 3-24 months.​

​With technology you can run an S&OP process; automize input data collection, add a strong forecast engine, enable what-if scenarios, steer and keep track of workflow and taken decisions. If done well it generates value in driving process efficiency and decision quality.

The “end to end Supply Chain planning solution” – Your cockpit
Digitalizing the planning process also means connecting it end to end, so to say. What does that actually mean? It is sort of like a cockpit.

It is a holistic solution that basically projects demand and supply plans forward. It simulates through a digital twin. It covers an end to end supply chain decision making process of various levels of granularity and time horizons combined with intelligence. For a manufacturer, that might span from source to make to deliver. It empowers Supply Chain managers to take the right decision and make them more accountable for business decisions – it improves agile decision making.

It provides an opportunity to collect data from several sources into a single environment, producing a reliable and centralized “single” truth data set that both finance and operations can work with. It is possible to model the financial ramifications of specific operational changes

It helps resolve exceptions. Resolving exceptions can mean running various planning scenarios. Running scenarios should be done in a seamless manner, meaning that it should not include jumping between multiple systems. Scenario impacts on service and finance should ripple up through the systems and be readily visible.

A supply chain cockpit makes implications visible. Event management is important, but it is not enough. As an example, knowing that an inbound shipment for a factory is not going to arrive on time, has all sorts of implications for what can be made and what should be made. To answer those questions, one needs to be able to view the impacts on planning. Exceptions have customer service and financial implications.

It is a collaboration platform. Resolving an exception can require working with other people both in and out of the organization. The discussion of participants, and their decision on what will be done, who will do it, and when, needs to be documented in the system. Ideally, the cockpit needs to provide visibility not to just about what is happening, but what could happen that would adversely affect the organization. In other words, it must elevate supply chain risks.It utilizes predictive analytics to predict the impact of an event on the Supply Chain.

Optimized execution. Planners work more with analyzing and discussing improvements for the entire system rather than setting local parameters in trying to meet local KPI’s. At the same time, it shortens the timeline and ensures that Business execution and operations are immediately linked with strategy.


Read our whitepaper about Supply Chain Planning

In the fresh light of the Covid-19 disruption, many business leaders are looking for ways to mitigate risks and control of cash flow by bridging strategy and operations and creating a foundation for resolving demand and supply imbalances. In terms of competitiveness we typically see that bridging this gap and start working with planning of the Supply Chain from an end to end perspective could mean: 20-50% Inventory reduction, 75-90% Reduced workload, and 98-99,8% Stable Customer Service Level over time.

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