What is supply chain planning?
Supply chain planning (SCP) 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. The supply chain planning process requires a lot of organization, data, and space for change and adaptability.
Companies use supply chain planning software to automate and optimize supply chain processes and predict supply and demand. These supply chain planning systems can also manage loading and delivery schedules and customize plans to their own needs, all in one software platform.
Supply chain planning solutions provide tools for:
- Inventory management
- Demand management
- Distribution planning
- Production scheduling
- Replenishment planning
- Network design
- Event planning
Supply chain planning tools are often integrated with supply chain visibility software to aid in the planning process and monitor different supply chain factors even closer.
Supply chain planning elements
There are many elements to supply chain planning. Each has its unique purpose in the grand scheme of the supply chain planning process. These elements also rely on each other to remain effective.
- Demand planning is when historical data and statistics are used to predict future customer demand. It is the building block that sets the expectations for the rest of the supply chain planning process.
- Supply planning takes the information gained from demand planning to predict how much supply is needed to fulfill expectations. This includes analyzing available resources and inventory.
- Inventory management is the organization of a company’s inventory system. Once the inventory needs are defined in supply planning, companies can optimize how they organize materials for optimal production.
- Materials management is a method that calculates and orders the raw materials needed to create the product.
- Production planning is the process of preparing to create the product. It manages resources allocation, employee workload, warehouse capacity, and more.
- Event management creates preemptive emergency and backup plans for potential production bottlenecks and delays.
- Price planning is the strategy of setting prices according to changes in supply and demand.
- Sales and operations planning is a business-wide strategy that focuses on organizing all of the above processes, sales, marketing, and overall operations. In this stage, companies will review all elements of the supply chain planning process, analyze success metrics, and budget plan for the future.
Types of supply chain planning
There are three different types of supply chain planning methods. Companies often use all three types to create a full, well-rounded supply chain plan that prepares for supply and demand from all angles.
- Strategic planning focuses on the big picture of supply chain planning. It emphasizes long-term processes and the decisions that create the framework for the entire supply chain. This includes the product portfolio, purchasing materials, and supplier management.
- Tactical planning concentrates on the smaller, more specific aspects of supply chain planning. It focuses on cost reduction, inventory management, warehouse management, and risk prevention.
- Operational planning works on the day-to-day processes and decision-making within the supply chain.
Benefits of supply chain planning
There are many benefits to creating a solid supply chain plan. Each benefit highlights supply chain planning’s ability to improve operation efficiency, save time and money, and create a strong internal and external supply chain experience.
- Optimize overall production. Supply chain planning helps control stock and reduce waste. Streamlining those two processes and introducing a solid and clear plan will create a well-oiled production machine.
- Reduce production waste costs. Supply chain planning gives companies the insight they need to make only what is required. Waste is a top contributor to operation costs, and minimizing it opens up the budget for creating products that will actually be sold.
- Avoid delays. Because supply chain planning aims to create a product supply that matches customer demand, companies can expect fewer production delays.
- Improve communication. A clear plan ensures that everyone in the supply chain is on the same page.
- Improve customer satisfaction. With fewer delays come customers who are happy they received their items. Supply chain planning accommodates changing customer needs, so whenever someone wants a product, they get it.
- Maintain brand reputation. Customers are more likely to speak positively about a company when they’re happy. Continuing to offer good products efficiently will help a company maintain a positive reputation and entice new and returning customers.
Supply chain planning best practices
There are a few things companies should keep in mind as they work through the supply chain planning process. These best practices will help ensure the end result is successful.
- Use the most updated analytics. Prepping for the future is only effective if the data used to make those predictions is up to date. In supply chain planning, all information used to determine future supply chain needs must be as updated and accurate as possible.
- Build strong relationships. The best way to ensure everyone is on the same page is to create substantial connections with supply chain members. This includes all employees, leadership, stakeholders, and customers. All these groups should also be considered when developing the supply chain plans.
- Stay flexible. Although supply chain planning is about preparing for anything, there’s always room for error. Companies should create backup plans and emergency procedures in the event that something doesn’t go as planned.
- Keep communication flowing. Companies need to communicate exactly what is agreed upon in the supply chain plans. Neglecting this may cause errors in production and confusion amongst employees and other members of the supply chain.
- Conduct business forecasting. Planning for the supply chain is easier if a company has taken extra steps to prepare for overall business success. Business forecasting is the process of creating predictions to predict future company needs. Together, business forecasting and supply chain planning can create a company plan that is ready at all avenues.
- Never stop planning. Supply chain planning never truly ends. Plans are always needed and customer expectations are constantly changing. Companies should anticipate the need to create supply chain plans as often as possible.
Supply chain planning vs. supply chain execution
Supply chain planning is the “before” of the supply chain process. It focuses on preparing for everything to come once production begins and shipping and delivery is conducted. This includes demand, supply, inventory, production, sales, and marketing planning.
Supply chain execution is the “during” of the supply chain process. It takes supply chain plans and brings them to life. Once supply chain planning is over, companies commence the planned procedures and begin executing all the necessary strategies to adjust production, inventory, and storage systems based on the predicted customer demand.
Alexandra Vazquez
Alexandra Vazquez is a Senior Content Marketing Specialist at G2. She received her Business Administration degree from Florida International University and is a published playwright. Alexandra's expertise lies in writing for the Supply Chain and Commerce personas, with articles focusing on topics such as demand planning, inventory management, consumer behavior, and business forecasting. In her spare time, she enjoys collecting board games, playing karaoke, and watching trashy reality TV.
