Step-by-Step Guide to Implementing Best-in-Class Supply Chain Planning
Step-by-Step Guide to Implementing Best-in-Class Supply Chain PlanningEfficient supply chains are built on the strong pillars of effective supply chain planning (SCP). Supply Chain Planning helps translate business projections in dollar values to quantities in units for the supply chain, forming a crucial part of effective supply chain management. It connects demand, supply, capacity, production, inventory, material planning, and many other functions within the supply chain and allows companies to fulfill customer requirements without excess costs or delays. Best-in-class supply chain planning creates a cohesive end-to-end process where all elements unite effortlessly.
This step-by-step guidebook discusses the elements of contemporary supply chain planning and their integration into a profitable sales and operations planning (S&OP) process in detail. It also discusses how modern planning systems are changing supply chain effectiveness.
Step 1: Start with a Solid Foundation with Demand Planning
The journey of supply chain planning starts with creating a solid demand plan through demand planning. Demand planning is a process that involves forecasting future customer demand as accurately as possible based on historical sales, marketing, and sales inputs or the overall growth projections from the brand or finance. This is the first step in the planning cycle, creating the projection for the next 12-18 months. Demand planning tries to quantify what the business plans to sell.
Various factors influence demand, including market conditions, consumer behavior, and historical data, which are crucial for accurate demand planning. Forecasting is done at the SKU level but can be discussed and aligned at category, country, and several other levels. The team is usually called the demand planning team, and the person who creates the forecast is the demand planner.
While generating the demand forecast is straightforward, getting high demand forecasting accuracy is a major hurdle. Companies struggle to hit even 75-80% accuracy at the overall country/portfolio level. So, how do you get demand planning right?
- Use Historical Data: Analyze past sales data, seasonal trends, and market dynamics to identify patterns.
- Leverage Technology: Improve accuracy with advanced forecasting tools powered by AI and machine learning. AI can factor in real-time signals like market changes or competitor actions.
- Collaborate with Teams: Sales, marketing, and product teams often have critical inputs — upcoming promotions, product launches, or potential shifts — that impact demand.
- Scenario Planning: Create multiple demand scenarios (best case, worst case, and realistic) to prepare for any curveballs.
Accurate demand planning avoids stockouts (angry customers) and excess inventory (wasted resources). It aligns production and inventory levels to match market needs while keeping costs in check.
Step 2: Align Demand Planning with Supply Planning
Since the company knows what it wants to sell through demand forecasts, the next step is to prepare a supply plan to satisfy that forecast through effective supply planning.
Supply planning is all about ensuring the proper items are made or procured and offered at the proper time, place, and amount. It can be accomplished centrally or at the local or plant level.
Supply planners closely align with the demand planners to ensure that they quickly pick up any changes in demand. Some of the key supply planning activities are:
- Net Requirement Planning: Calculate what we need (forecast), what we have (inventory on hand), and hence, what needs to be produced.
- Capacity Planning: Work with the production planners to assess production capabilities to meet demand efficiently.
- Supplier Coordination: Work with suppliers to ensure timely availability of materials.
Demand and supply plans are closely connected through a robust Sales and Operations Planning (S&OP) process. S&OP brings both teams together to match the supply with demand. We will discuss this in detail shortly.
Step 3: Master Production Scheduling (MPS)
The Master Production Schedule (MPS) bridges demand planning and actual production, ensuring that supply chain processes are streamlined and efficient. It translates forecasted demand into a detailed production schedule, ensuring the right products are made at the right time. MPS are usually in weekly buckets for a 4-12-week horizon. They are further broken down into daily buckets when getting into production planning.
Key steps in MPS are:
- Prioritize Products: Identify high-demand and high-priority products to allocate production resources effectively.
- Align with Capacity: Ensure that production schedules align with available resources like machines, labor, and materials.
- Monitor and Adjust: Regularly update the MPS based on real-time changes in demand or production constraints.
An accurate MPS prevents overproduction, reduces lead times, and ensures on-time delivery. It is also the starting point for downstream planning processes like MRP and capacity planning.
Step 4: Run Material Requirements Planning (MRP)
After getting the MPS output, the next step in the planning cycle is to run the Material Requirements Planning (MRP). MRP runs must consider various internal and external factors, such as labor force issues, natural disasters, and market influences, to ensure accurate planning. The MRP runs determine the materials and components required to meet production schedules. The MRP planners work closely with the supply planners, production planners, and procurement departments. Visibility from the procurement team helps them verify that the production can be planned per the schedule.
Key components of MRP runs include:
- Bill of Materials (BOM) Explosion: List of raw materials, parts, and subassemblies required to produce a product. This is also called the product recipe.
- Inventory Status: Current inventory levels of raw materials and finished goods.
- Lead Times: The time required to procure materials or manufacture components.
How MRP Works:
- Break down the MPS into material requirements based on BOMs.
- Calculate material quantities needed, considering current inventory levels.
- Determine the timing of material orders based on lead times.
- Generate purchase and production orders for suppliers and internal teams.
Step 5: Perform Capacity Planning (RCCP and CRP)
After the MPS and MRP runs, capacity planning ensures that production resources — machines, labor, and work centers — can meet the production schedules, forming a critical part of the supply chain management process. This involves both Rough Cut Capacity Planning (RCCP) and detailed Capacity Requirements Planning (CRP). The RCCP is linked with the MPS, and CRP is used for daily production planning.
The difference between the two is that RCCP provides a high-level view of capacity against the MPS. RCCP focuses on critical resources such as machines and key production lines.
- Identify production bottlenecks early.
- Assess whether current resources are sufficient to meet demand.
- Make capacity adjustments like overtime, outsourcing, or equipment upgrades.
Whereas CRP is more granular:
CRP dives deeper, calculating detailed resource requirements for each work center, machine, and labor group. It considers lead times, production times, and resource utilization rates.
Step 6: Optimize Inventory Management for Balance and Efficiency
Inventory is a necessary evil for every business. It helps cushion against variabilities, but poor management can drain resources. Using advanced supply chain planning software can significantly improve inventory management by providing real-time data and predictive analytics. Too much stock leads to high holding costs, while too little stock results in lost sales and frustrated customers.
Inventory planners’ job is to maintain the optimum inventory balance. For this, the most common way is to use the King’s Formula for Safety Stock calculation. This provides the projected safety stock, which is directly proportional to the square root of the variability. Inventory planners also use ABC Analysis to prioritize inventory based on value to focus efforts where they matter most.
The Goal is Simple:
Strike the right balance — ensure availability without excess. The right inventory strategy improves cash flow, reduces waste, and enhances service levels.
Step 7: Integrate Everything with S&OP (Sales and Operations Planning)
Once MPS, MRP, and capacity planning are aligned, it all culminates in a comprehensive S&OP process. S&OP is a form of integrated business planning that ensures alignment between demand, supply, and business goals. S&OP is the glue that binds all planning activities together, ensuring alignment between demand, supply, and business goals.
Steps to build a strong S&OP process:
- Demand Review: Validate forecasts and update demand plans based on the latest market insights.
- Supply Review: Assess production, inventory, and supplier capacities to meet the demand.
- Financial Alignment: Ensure that the plan aligns with financial goals, budgets, and cost constraints.
- Executive Review: Senior leadership reviews and approves the final plan, ensuring strategic alignment.
- Performance Tracking: Monitor results against the plan, measure KPIs, and implement improvements.
Why S&OP is essential:
- Aligns cross-functional teams (sales, supply chain, finance, and operations) toward a single goal.
- Improves decision-making through visibility and collaboration.
- Increases responsiveness to disruptions and market changes.
Step 8: Leverage Advanced Planning Solutions for End-to-End Optimization
While once effective, traditional supply chain planning methods struggle to keep pace with today’s volatile, complex markets, making supply chain planning technology essential. Advanced planning solutions from leading providers like Blue Yonder, o9, Kinaxis, and SAP IBP now enable organizations to orchestrate end-to-end supply chain operations with unprecedented agility and intelligence. Modern planning systems integrate various supply chain systems to provide real-time visibility and enhance decision-making.
Modern, AI-driven planning platforms deliver:
- Predictive and Prescriptive Analytics
Modern planning systems use advanced machine learning algorithms to assess huge data sets, including demand patterns, market signals, and supplier performance indicators. Based on this information, planners can predict demand and determine the best production and inventory allocation plans. By utilizing predictive and prescriptive analytics, organizations can confidently and rapidly pivot to meet changing customer requirements.
- Unified, Real-Time Visibility
Modern platforms consolidate data across the enterprise ERP, WMS, or TMS into a single, cloud-based environment. The planners gain from this unified model by having real-time visibility into inventory positions, capacity limitations, supplier lead times, and market changes. Continuous synchronization across functions and geographies helps teams dissolve silos and come to one version of the truth.
- Scenario Planning and Digital Twins
Advanced platforms let you create digital twins of your end-to-end supply chain, simulating “what-if” scenarios before making strategic decisions. Need to test a new supplier’s impact on lead times or evaluate how a capacity shortfall affects customer service levels? Tools like SAP IBP and Kinaxis RapidResponse allow planners to weigh trade-offs, perform stress tests, and choose the path that best supports corporate objectives.
- Seamless Collaboration and Workflow Automation
Cloud services encourage closer integration among internal teams and external partners. Integrated collaboration, workflow automation features, and embedded analytics ensure that everybody from procurement to logistics follows the same playbook. This boosts responsiveness, decreases manual intervention, and allows a proactive instead of reactive approach to disruption events.
These planning platforms provide organizations with the agility, insight, and accuracy required to navigate uncertainty. Resilient, end-to-end planning consistently obtains enhanced service levels, cost efficiencies, and competitive advantage.
Step 9: Monitor, Refine, and Optimize Continuously
Supply chain planning is not a one-time exercise — it’s a continuous improvement process. Once your plan is in place, track performance, measure results, and refine processes to ensure ongoing success.
Key KPIs to track:
- Forecast Accuracy
- On-Time Delivery (OTD)
- Inventory Turnover
- Resource Utilization
- Cost-to-Serve
Review your supply chain planning processes regularly, identify gaps, and implement improvements to stay ahead of the competition.
Step 10: Logistics and Supplier Management: A Supporting Role
While logistics and supplier management are not strictly part of supply chain planning, they are critical enablers. Without effective logistics, your inventory won’t move as planned, and materials won’t arrive on time without reliable suppliers.
- Logistics Management: Focuses on the efficient movement of goods through optimized transportation, warehousing, and delivery strategies.
- Supplier Management: Ensures suppliers deliver quality materials on time, supporting the production and planning process.
Both functions support supply chain planning by enhancing agility, reducing lead times, and improving reliability.
Building Future-Ready Planning Systems with Holocene
Building a robust supply chain planning process takes some time and strategic thinking, but the payoffs are exponential. This is because the planning sets the context for the rest of the functions like Make-and-Deliver to follow.
Modern planning systems featuring collaborative planning, AI, real-time visibility, and digital collaborative tools are the true differentiators of today. These technologies ease planning and help businesses anticipate and respond to disruptions.
Holocene focuses on creating and using cutting-edge supply chain planning solutions that meet your business objectives. Our team brings together deep knowledge with the newest technology to:
- Increase demand forecasting as well as supply planning precision.
- Add AI and real-time visibility to your processes using advanced tools.
- Develop a future-proof supply chain that allows cost savings, tenacity, and efficiency.
We're dedicated to working alongside you to attain supply chain excellence, not merely planning. Let's reconsider your supply chain collectively. Reach out to discover how Holocene can help.
Step-by-Step Guide to Implementing Best-in-Class Supply Chain Planning
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