Supply planning involves managing and planning all aspects of a company’s inventory supply in order to effectively and efficiently meet customer demand. Supply planning is a key part of supply chain management, and determines how a company can best fulfill the requirements of the demand plan, as part of the overarching S&OP (Sales and Operations Planning) process.
Supply planning is a complex process and different organizations may define the necessary steps in different ways, or emphasize certain aspects more heavily than other companies do. However, generally the supply planning process will involve some form of the following:
Before a supply plan can be created, the demand plan created and approved previously must be carefully examined. The demand plan may be created by a Demand Planner in some organizations, or it may be created by the Supply Planner or Supply Chain Manager, who will also then create the supply plan. Once the demand plan is vetted and approved, the person or team responsible for creating the supply plan can utilize the data and projections of the demand plan to formulate the requirements of the supply plan.
Once the projected demand is determined, the supply planner will review current inventory to calculate how much of the expected demand can be satisfied with existing stock. Of course, the goal is to achieve equilibrium between demand and supply, but it’s unrealistic to expect that there will be no need for maintaining any extra inventory. When demand can be immediately satisfied by existing inventory, that inventory must then be replaced to meet the incoming demand. A thorough inventory review helps determine the level of product inventory necessary to meet demand in a timely fashion.
Obviously you can’t produce products without the materials and components to make them. Or, for retailers, without a reliable source of products to sell. So, effective supply planning involves all steps in the procurement process, from locating raw materials, components, or products, to identifying vendors or suppliers, to negotiating pricing and contracts, to setting delivery quotas and timelines, and following up on all deadlines. Supplier/vendor management is a key component of supply planning.
Supply planners will need to assess whether the company has the available capacity to create sufficient supply to meet the projected demand. Constraints or limitations on capacity need to be analyzed and resolved if possible. Any necessary production will need to be scheduled. If external manufacturing or product outsourcing is utilized, the supply planner needs to account for that process. Intelligent supply planning software is a huge help for supply planners dealing with multifaceted issues touching multiple entities within and outside of the company.
Supply planners typically oversee inventory management, though there may be subordinates or specialists who focus solely on inventory issues and logistics. The supply plan needs to account for any inventory problems, needs, or factors that can impact supply.
Problems with order fulfillment or product distribution can impact supply, such as in the case of delivery bottlenecks, excessive returns, or other logistical issues. The supply plan needs to address any of these factors and include options for remediation.
Demand and supply are often in flux, and both internal and external factors can impact available supply. An effective supply planner will regularly monitor the prepared supply plan, note areas of discrepancy or needed changes, and adjust the plan where necessary. The supply planner will also maintain company transparency and facilitate necessary communication of all progress and adjustments with company leaders.
Supply planning is extremely complex even when all contributing factors are in place and things are going as predicted. However, there are often significant challenges in supply planning that need to be accounted for. Here are just a few.
Capacity constraints. Having a greater customer demand than a company is capable of meeting is often a dream for young organizations, but it can be a serious problem. Manufacturing/production speed may be limited by machinery, layout, available space, or other factors. Inventory space may be inadequate as demand grows beyond expectations, or may be excessively expensive if supply outstrips expected demand. Supply planners need to balance these factors in order to maximize efficiency and minimize needless expenses.
Material/component availability. Limitations in key materials or components needed for production, or in complete products needed by retailers, have an obvious impact on the potential supply available. This can be due to excessive demand, inadequate raw material production, primary-resource transportation issues, or other factors. If you can’t get the raw materials/components you need or products to sell, you can’t meet demand.
Labor issues. This can be difficulties such as strikes that may affect the availability of production line workers, delivery vehicle drivers, or other key personnel, or it may be as simple as an inadequate number of workers willing to perform the necessary tasks to maintain supply. Management shakeups or poor organizational/executive leadership can have a large impact on a company’s existing and potential labor force, as well.
Spikes in demand. On the surface this would seem to be a good thing, as more customers are clamoring for your product, which on the surface means greater profits. However, unpredictable factors like a product “going viral” can severely impact supply planning and create serious problems for a company scrambling to meet that demand. If supply planners are unable to effectively meet customer demand within a reasonable timeframe, the window of opportunity may be closed and customers may choose to go with a competitor’s offerings. Then, when the supply eventually catches up or exceeds the spike in demand (which can evaporate quickly), a company can be left with huge amounts of excess inventory, which it may then have to sell at a loss.
Regulatory/legal issues or changes. In nearly every market, regulatory issues can become a significant factor and can influence available supply. Raw materials might be banned or restricted, components from one region of the world could become unavailable due to political issues, and products can be taken off the market entirely. All can drastically impact potential supply.
Functional isolation or poor data integration. Supply planning touches multiple areas of a company and many external entities as well. If these people, teams, or entities are functionally isolated or don’t effectively share accurate, up-to-date data relating to supply issues, the available supply can be negatively impacted. An effective supply planner will work to streamline communication and data-sharing between teams and entities, internally and externally.
Global/social events. We have all seen the huge and long-lasting disruptions to supply chains caused by pandemics, wars, social unrest, economic turmoil, and even extreme weather or natural disasters. These can impact all of the above factors that influence supply planning. Prices of components, materials, transportation, or labor can skyrocket beyond projected models. Workers may become unavailable due to social upheaval or a pandemic. Customers may be prevented from visiting retailers to purchase products. Delivery and/or component fulfillment can bottleneck.
Lower production costs. Supply planning optimizes the process for procurement of materials and components, where predictable (and hopefully large) orders for these materials satisfies regular suppliers and keeps materials costs lower as a result. Accurately planning production runs to maintain the ideal amount of supply reduces wasted time, labor, and materials during production as well.
Lower inventory costs. An excess of product is not a good thing, as it requires expensive warehouse space, transportation, and may require selling overstock at a discount. Accurate supply planning allows more efficient use of resources and space, and keeps inventory/warehousing costs lower.
Improved sales/fulfillment process. When the sales team has confidence that supply can quickly meet demand, all aspects of the sales process are improved and streamlined. The sales force can sell as much as possible, and orders can be filled with efficiency.
Better relationships with suppliers. We touched on this above, but in many industries the supplier can be either a bottleneck or a hugely helpful partner, and a volatile relationship with a supplier is never a good thing. Effective supply planning helps suppliers know what’s expected of them, when they can plan to meet orders, stabilize cash flow, and maintain a more productive partnership with a business.
Happier customers/repeat sales. Of course, the end goal of effective demand and supply planning is to create an excellent customer experience. This results in good word-of-mouth, online reviews, industry reputation, repeat customers, and greater profits.
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