Supply chain planning covers a product’s entire lifecycle. It does everything — from forecasting the amount and timing of a product or service to tracking resources needed to satisfy the forecasted demand.

The planning of a supply chain involves several steps, such as

Predicting and preparing for customer demand,
coordinating supply chain operations,
determining material needs,
scheduling production, and
aligning sales with overall business goals.

The supply planning process involves determining how much product to produce or purchase and when to do so, ensuring that raw materials and finished goods are available as needed.

Over the years, as supply chain maturity and management focus increased, these steps became defined processes as the planning sub-activities that we will address next.

The end goal in supply chain planning is to have the right items in the right quantities at the right time, place, and lowest price. If achieved, this goal gives businesses a competitive edge by improving customer satisfaction, cultivating brand loyalty, and gaining competitive differentiation.

This article delves into the strategic significance of supply chain planning, explaining its key elements and their profound impact on businesses. Let’s explore this crucial aspect of business operations.

5 Components of Supply Chain Planning

Supply chain planning encompasses several aspects, ranging from demand forecasting to procurement and the production planning process, inventory management, and logistics from suppliers to customers. It helps align supply chain activities with business goals while lowering costs and meeting customer service expectations.

Supply chain planning is typically broken down into 5 key stages:

Demand Planning
Supply Planning
Production Planning
Inventory Planning
Sales and Operations Planning (S&OP)

Let’s explore these stages in detail. So let’s get started.

Demand Planning

Demand planning is the foundation of supply chain planning. Here, the shift takes place from what sales and marketing want to sell to how and when to produce it. Demand planning is science mixed with statistics and art, and the result affects production, procurement, and inventory coverage decisions.

Demand planning aims to predict future customer demand for products at the SKU level. For this, it relies on historical sales data, market trends, and external factors such as seasonality and economic conditions. But as we mentioned, it is a mix of science, statistics, and art; there are a great many qualitative inputs and controls that go into demand planning. Hence, the role of the demand planner in any company is critical.

Accurate demand planning helps businesses meet their Annual Operating Plans (AOP), reduce the risk of inventory imbalances (like stockouts or overstock), and streamline supply planning and logistics processes. Consequently, many enterprises are combining statistical forecasting tools with advanced technologies such as AI and machine learning to enhance their demand forecasts.

There are several points that the demand planner should take into consideration for ensuring demand accuracy:

Use Multiple Data Sources: In addition to sales history, demand planners must incorporate external data points, such as the latest market trends and economic indicators, competitor actions, and even social media sentiments, to refine demand forecasts.
Collaborate with Sales and Marketing Teams: Sales and marketing should co-own demand plans. Regular communication with those teams can help provide critical insights, such as upcoming new products, promotions, or phase-out plans that may affect demand. All this can be formally channeled through the pre-S&OP and S&OP discussions, which we will discuss in detail later.
Investing in AI/ML Forecasting Tools: Machine learning models can analyze large datasets and detect patterns that may not be obvious through manual analysis. Several AI/ML-led tools are available in the market to help improve forecast accuracy. These tools also help to understand the impact of special promos on demand from the previous cycles. Such information becomes super helpful when planning new promos, showcasing the potential for technological innovation in supply chain planning.

Supply Planning

Once demand plans are created and finalized, Supply planning is the next step. It focuses on meeting this demand by determining how much product to produce or purchase and when to do so. Supply planning encompasses procurement and production planning and aims to ensure that raw materials and finished goods are available just as when they are needed. This helps in meeting demand without tying up excessive capital in inventory.

Effective supply planning balances inventory, service, and cost constraints. Costs can include procurement, production, and logistics costs. Just like demand planning plays a critical role, the complexities of balancing costs, service, and inventory make the role of a Supply Planner equally crucial. In industries with steady demand, continuous production can be implemented to maintain a constant flow of goods, reducing waiting times and increasing efficiency.

Like a demand planner, there are several points that the supply planner should take into consideration:

Vendor Collaboration: A significant part of ensuring seamless supplies is collaborating with suppliers in real time. Depending on how many suppliers you have to deal with, digital portals or supply chain collaboration platforms can be great options. These portals enable real-time visibility into supplier capacities and lead times, making information sharing much more effortless. This highlights the importance of strong partnerships in supply chain planning.
Use Optimization Techniques: Techniques such as safety stock, economic order quantity (EOQ), and reorder point (ROP) optimization help maintain the proper inventory and save the company a lot of cash flow.

Production Planning

The next step is Production planning. Recognizing common production planning mistakes is crucial to avoid pitfalls during the production process. Examples include overestimating capacity, underestimating lead times, and failing to account for equipment maintenance. It involves creating a production schedule that determines what to produce, when to produce it, and in what quantities. Production planning aims to maximize the plant’s efficiency while meeting demand and maintaining high-quality standards.

Effective production planning ensures that the production process is optimized, minimizing lead times and reducing bottlenecks. Hence, the production planner has multiple critical responsibilities to manage.

Here are the points that the production planner should take into consideration:

Implement Lean Manufacturing: Now, this may sound clichéd, but the value potential of this step is outstanding. Production planners should work closely with manufacturing teams to implement lean manufacturing practices in the supply chain. These lean practices can include waste reduction, process streamlining, and focusing on the real value-adding activities that improve production efficiency. Effective production processes are essential for tracking performance, managing resources, and ensuring timely delivery of products.
Create Business Continuity Plans (BCP): The production planner should create backup production plans. BCP helps to address potential disruptions, such as machine breakdowns, labor shortages, or supply delays. These plans should always be ready and act as plan Bs to ensure continuity in production. By effectively managing these potential disruptions, the production planner can ensure that production remains on track, even in challenging circumstances. Production scheduling software can simplify complex scheduling tasks, allowing businesses to enhance their manufacturing efficiency and respond swiftly to changes.

Inventory Planning

Supply chain planning involves inventory planning as a continuous process. It involves establishing the optimal levels of inventory for raw materials, work-in-progress (WIP), and finished goods (cycle, pipeline, and safety stocks) to satisfy demand with reduced carrying costs. The inventory planner also must ensure that inventory distribution works well in multi-echelon situations. Proper inventory planning prevents companies from over- or under-stocking, which can result in lost sales or increased holding costs. More importantly, the right inventory management eliminates inventory obsoletion and write-off costs for the company.

Inventory planning is critical in industries with volatile demand or products with short shelf life, such as electronics, food, pharmaceutical, or fashion. Hence, the inventory planner is crucial and involves juggling multiple priorities.

Here are the points that the inventory planner should keep in focus:

Adopt ABC Analysis: Classify inventory based on value and importance to the business. A items are valuable and should be tightly controlled; B items are moderately important and require balanced oversight — more control than C items but less stringent than A items; C items are cheaper and can be ordered in bulk.
Implement Just-In-Time (JIT) & MEIO: JIT inventory management reduces excess inventory by ordering materials only as needed for production, minimizing storage costs and the risk of obsolescence. MEIO ensures the service is maximized with optimum inventory coverage across multiple echelons.
Monitor Inventory Turnover Rates: Regularly track inventory turnover to ensure that products are moving efficiently through the supply chain and adjust procurement or production schedules accordingly.

Sales and Operations Planning (S&OP)

This is where all the other steps culminate in a supply chain. Sales and Operations Planning (S&OP) is a multi-functional process. It tracks a company's demand and supply plans against its financial and business objectives. S&OP unites various teams — sales, finance, production, marketing, and supply chain. The outcome of the S&OP is aimed at producing a balanced plan for demand and supply. S&OP managers ensure that all the teams have a single number to follow. They also closely track the YTD (year-to-date) performance and the run rate required for ROY (rest of the year).

An S&OP Manager has great responsibilities and must ensure the following:

Monthly S&OP Meetings: Regularly hold S&OP meetings to review forecasts, supply plans, and inventory levels. The focus should be to review the plans and any challenges in the next 12-month horizon.
Include Scenario Planning: Include scenario analysis in the S&OP process to assess the impact of different demand or supply scenarios on the business and develop contingency plans.
Gather & Highlight Risks to the Leadership: The S&OP manager should view the supply chain from all angles, communicate risks and opportunities to business leadership, and indicate support needed.

Build A Sophisticated Supply Chain with Holocene

Supply chain planning is the foundation of modern-day supply chains that ensure business success during tough times. It unifies supply chain capabilities, balances resources, anticipates what to expect in the near future, and allows companies to meet client needs cost-effectively. Using advanced supply chain planning tools and building end-to-end visibility helps companies build a resilient, agile, and responsive supply chain.

At Holocene, we understand Supply Chain Planning inside and out, and how to exceed our clients' expectations. We offer customized supply chain planning solutions for your business, and our technologies enable real-time visibility, predictive analytics, and integrated planning. With the right experts and tools, we optimize supply chains and make them the winning proposition for the company.

Contact us today to see how we can transform your supply chain planning and unleash new efficiency, agility, and growth levels.