At their core, supply chains are a thrilling dance of ever-changing dynamics, constantly at the mercy of both internal and external events. Indeed, a single disruption can send shockwaves rippling straight to your customers’ doorstep, while also spawning a cascade of unintended effects throughout the supply chain. So that is precisely why supply chain planning is such a crucial game-changer!
This is where the vital role of supply chain planning comes into play. By steering clear of haphazard supply chain operations, planning paves the way for smooth solutions and risk reduction for companies. So let’s dive into the realm of strategic and tactical supply chain planning. Specifically, we will explore planning for demand, supply, production, integrated business planning, risk mitigation, and strategic network design.
“The line between disorder and order lies in logistics…”
Sun Tzu
What Is Supply Chain Planning and The Different Levels Of Planning?
Supply chain planning is an ongoing process that occurs at all levels of a supply chain organization. See below for a definition of supply chain planning and an explanation of the different levels of planning that occur within a supply chain operation.
What Is Supply Chain Planning (SCP)?
I like this definition:
“It is a method of forecasting product supply needs based on expected customer demand. The process starts with raw materials and ends with delivery to the customer. SCP optimizes the way companies prepare to meet and exceed expectations.”
Levels Of Supply Chain Planning.
Supply chain planning is a continuous process that happens at the strategic, tactical, and operations levels.
- Strategic Planning. This is the highest level of planning with a planning horizon of 3 to 10 years. Here executives are making decisions on things like business acquisitions, need for a new distribution center, and planning for a major increase of revenue.
- Tactical Planning. Planning at the tactical level usually spans 6 months to a year. Additionally, drivers of this type of planning are things like a new semi-annual forecast, new policy to reduce inventory, or selecting a major supplier and so on.
- Operational Planning. These are the day-to-day and weekly activities to meet short-term operational goals. In particular, operational planning is focused on making adjustments and taking specific actions to assure operational activities stay on track and create the greatest value.
See ExploreSCM’s Planning In Supply Chain Management for a more detailed discussion of the different levels of supply chain planning. Now, let’s explore the 6 types of supply chain planning.
“If you don’t know where you are going, any path will get you there”
Lewis Carroll, Alice in Wonderland
1. Customer Demand Planning: Powered By Predictive Analytics And Modelling.
Customer demand planning is a crucial aspect of supply chain planning. By analyzing data and data modeling using predictive analytics, companies can better understand customer needs and forecast demand more accurately. With the right tools and analysis, companies can gain insights into customer behavior, seasonal trends, and other factors that impact demand. Hence, the end result of demand planning is that planners have quantified the expected demand of each product and service. Specifically, key data sets include:
- Historical Sales Data. Collect this data from past transactions. For example, point-of-sales (POC) systems. Also, using predictive analysis, this data can be modeled using time-series analysis or regression models to identify trends and seasonality in customer demand.
- Internal Trends. Here you need to look internally within your organization. For example, new product launches or changes in sales channels. So once you collect the data, you can model using statistical techniques such as regression analysis to identify the impact of internal trends on customer demand.
- External Trends. Here you need to look at external factors that can change demand. For example, this can be such things as economic indicators or industry trends. So this data can come from various sources, including government reports, industry publications, and market research firms. Then you can use data model techniques such as time-series analysis or econometric modeling to predict changes in customer demand based on external factors.
- Events and Promotions. A variety of product-related events and sales promotions can have a significant impact on customer demand. This data also needs to be incorporated into you predictive modeling to create a demand forecast.
See GMDH’s 4 Crucial Elements of Demand Planning for 2023 for more information of demand planning analytics.
“All models are wrong; however, some are useful.”
George Box
2. Supply Planning Analytics: Predict Supplies Needed And Plan Supply Strategy.
Supply planning involves predicting the supply needed to fulfill customer expectations. Specifically, supply includes the sourcing of raw materials, components, and other goods needed for production. Additionally, many eCommerce operations are retailers with no production processing. In this case, what needs to be sourced is the final product from manufacturers.
So for supply planning, your team has to have a good understanding of inventory levels, production capacity, and supplier lead times. By accurately predicting supply needs, companies can avoid stockouts, excess inventory, and other supply chain disruptions. To detail, see below for the key data sets and analytics that you need for supply planning.
a. Supply Requirements Analysis.
Supply requirements analysis is an essential to businesses accurately determining the amount of materials and resources needed to meet demand. So by utilizing historical data, and forecasting models, supply requirements analysis allows organizations to optimize their procurement processes and avoid shortages or excess inventory. Also, this analysis ensures that the right quantities of supplies are ordered at the right time, promoting cost efficiency and increased customer satisfaction.
b. Analytics To Determine Sourcing Strategy.
Implementing a data-driven sourcing strategy is crucial for optimizing supply chain management. By leveraging analytics, companies can identify the most reliable suppliers and negotiate competitive pricing agreements while minimizing risk exposure. Also, advanced analytical tools enable organizations to evaluate factors such as lead times, supplier performance, cost structures, and market conditions to develop a strategic sourcing plan. For more details, see SC Tech Insights’ The Strategic Sourcing Process And Data Analysis.
“Planning is everything. The plan is nothing.”
DWIGHT D. EISENHOWER
c. Analytics To Determine Inventory Management Strategy.
An effective inventory management strategy is essential for maintaining optimal stock levels and satisfying customer demand. Additionally, supply planning analytics provide valuable insights into inventory trends such seasonality, product life cycles, and regional market demand. Finally, these insights help companies to forecast future inventory needs more accurately, reducing stockouts and excess stock holding costs. For more details, see SC Tech Insights’ Better Warehouse And Inventory Analysis.
“Without data you’re just another person with an opinion.”
Deming
3. Production Planning: Determine Operational Resources Needed.
Production planning is the process of determining the operational resources needed to meet customer demand. Specifically, this includes capacity planning, scheduling production, and allocating resources such as labor, materials, equipment and facilities. Also, most production operations are either batch, job, or continuous flow operations. The end result of this process is a production plan. Of course, supply chain operations and manufacturing are usually separate organizations. Thus, supply chain operations do not create production plans. On the other hand, a scaled down production plan is sometimes needed for kitting or large value added operations within a supply chain..
Also, supply chain operations do need to have contingency plans to mitigate anything that can slow or stop production processing. Additionally with the right data analytics tools and software, businesses can create a production plan that reduces waste and only produces what is required. For more details on production planning, see ERPNext’s What is production planning and how to do it? A comprehensive guide.
“Everyone has the heart of a champion on game day. It’s the heart you have during the weeks, months, and years of preparation that actually makes a difference.”
John Raymond
4. Integrated Business Planning (IBP): Synchronize Planning As Well As Finalize Both Metrics And Budget.
Integrated Business Planning (IBP) is an important part of supply chain planning. Also, IBP is very similar to Sales and Operations Planning (S&OP) except IBP is more focused at the organization’s executive level and more long term. Further, both of these collaborative types of planning involve both finalizing and synchronizing planning, metrics, and budgets across all business functions and departments. Also, this cross-functional process aligns sales forecasts with production plans to balance supply and demand. As a result, sales, production, inventory, and new product development plans as well as a financial plan are finalized.
Traditionally, medium and large businesses have used Enterprise Resource Planning (ERP) systems like SAP to facilitate coordination as well as data modeling and “what if” analysis. Also, by breaking down silos and improving communication across the organization, businesses can achieve a comprehensive view of future supply chain operation. This allows for better decision-making in finalizing supply chain plans. The goal of both IBP and S&OP planning is that through collaboration the company can perform better predictive analysis to grow the business and manage risk.
“If you want to kill any idea, get a committee working on it.”
Charles Kettering
5. Risk And Event Supply Chain Planning: How To Mitigate Unplanned Or Superordinary Events.
Risk and event supply chain planning involves developing strategies to mitigate unplanned or extraordinary events. This can include natural disasters, supply chain disruptions, or changes in customer demand. By proactively identifying potential risks and developing contingency plans, businesses can reduce the impact of these events on their supply chain operations.
Further, planners need to analyze every link in the supply chain to identify bottlenecks, breakdowns, and delays. Also if you are making any changes to the supply chain such as a new supplier or major software update, you need to be prepared for unintended consequences. Lastly, to mitigate these risks you can either be proactive and add redundancy into your supply chain or have contingency plans in place. Also for more on managing supply chain risks, see Unvarnished Facts’ Risk Mitigation For Supply Chains: How To Best Identify, Make Assessment, Overcome.
“Everybody has a plan until they get punched in the mouth.”
Mike Tyson
6. Strategic Network Design: Supply Chain Planning To Optimize Operations
Strategic network design is an important component of supply chain planning. This involves optimizing the supply chain network to maximize efficiency and minimize costs. By leveraging data analytics tools, companies can analyze their supply chain operations and identify opportunities for improvement. This may include consolidating suppliers, changing transportation methods, or optimizing inventory levels. See below, for explanation of when network design is needed, what data planners need to collect, and data analytics required.
a. When Is Strategic Network Design Needed?
In smaller companies, strategic network design is usually done on an ad hoc basis. By comparison, network design for a large national or multinational company is a continuous process. Also, below are typical event that would trigger a network design project.
- A major business expansion, such as an acquisition
- A change in business strategy, such as targeting new market opportunities
- The change of the business with the passage of time
- Responding to competitive pressures
b. Data Collection.
Network design projects require a significant amount of data. Typical data required includes operational and historical data. To detail, below are the types of data needed for supply chain network design analysis.
- Products and customer information
- Product flows and volumes including seasonality
- Customer order files
- Inbound and outbound shipments
- Intra-network facility shipments and routings
- Transportation routing, modes, rates, service levels, policies, and costs
- Facility information including assets, operations, capacities, and costs
- Inventory policies, levels, and requirements
- Customer service requirements
- Policies (sourcing, transportation, inventory, and customer service)
- P&L for supply chain operations
c. Network Design Analytics.
As network analysis is very data intensive and is usually project based, this type of work is usually done by supply chain consultants that have experience in your industry. Whereas if you are a large company and have the expertise, you also can rely on network analysis software to assist you in what changes to make to your supply chain network.
Also, see TompkinsInc’s What Is Supply Chain Network Design And Why It Is Important? for more detailed discussion of supply chain network design.
For more discussion on supply chain planning, see GEP’s Supply Chain Planning: What, Why, And How, Netsuite’s Supply Chain Planning, and G2’s Supply Chain Planning.
“It’s critical that we drive digitization of supply chains, because without it, there will be no transparency; and without transparency, there will be no accountability.”
Christian Lanng
Now in this article, I have focused primarily on planning at the strategic and tactical level. For more information on the types of data analytics that supply chain managers need at the operational and tactical level, see Data Analysis Examples To Best Overcome The Challenge Of Supply Chains. Also, in this article, I introduce Ralph, a savvy supply chain manager who demonstrates the power of supply chain analytics. Additionally, more data analytics topics discussed include sourcing, warehousing, inventory management, order fulfillment, customer service, and customer delivery analysis.
Greetings! As an independent supply chain tech expert with 30+ years of hands-on experience, I take great pleasure in providing actionable insights to logistics leaders. My background includes implementing 100s of innovative solutions using emerging technologies and a data-centric development approach. I have also provided business intelligence (BI) solutions for 1,000s of shippers. For more about me, click here.