Supply chain planning is a vital process that helps businesses manage the flow of goods and services from suppliers to customers. Effective supply chain planning is essential for companies to stay competitive, manage costs, and meet customer needs. There are several critical factors that businesses must consider when planning their supply chain, including customer demand, lead times, production capacity, supplier reliability, transportation costs and constraints, inventory management, and supply chain risks.
Table of Content
- 1 Critical Factors Considered in Supply Chain Planning
Critical Factors Considered in Supply Chain Planning
Certain critical factors could affect the supply chain planning of any organization to a great extent.
- Uncertainty in External Environmental Factors
- Information Technology
- Supply Chain Relationships
- Value Addition
- Supply Chain Management (SCM) Performance
- Business Management
- Customer Satisfaction
- Opportunities and Risk Identification
Uncertainty in External Environmental Factors
This involves uncertainties associated with external environmental factors. The external environment of an organization is divided into several components, such as political, economic, socio-culture, technological, market, and supplier. An organization does not have any direct control over these external factors. Thus, if changes are favorable, they may support the supply chain planning of the organization. However, unfavorable conditions may negatively impact overall supply chain planning.
Today, technology and telecommunications enable all participants in the supply chain to interact with each other freely and speedily. The use of IT enables manufacturers, retailers, and customers to minimize lead time and reduce paperwork and other unnecessary activities. Certain tools, such as Electronic Data Interchange (EDI) and Enterprise Resource Planning (ERP) are being increasingly applied to make the supply chain more efficient.
This includes two sub-factors, which are:
- Communication: EDI is used in purchase orders, procurement, order status queries, and follow-up. Electronic Funds Transfer (EFT) enables the transfer of funds between trading partners. Local Area Network (LAN) or Wide Area Network (WAN) is also used.
- Planning Tools: Some commonly used planning tools are Materials Requirement Planning (MRP), Manufacturing Resources Planning (MRP II) and Enterprise Resource Planning (ERP). Moreover, certain tools, such as Data Warehousing (DW), Vendor Managed Inventory (VMI) and Customer Relationship Management (CRM) are also used.
Supply Chain Relationships
The relationships between the participants of a supply chain are of high importance. This leads to a better level of understanding between the customers and the suppliers. Developing partnerships with suppliers helps the company to obtain higher levels of service from them. This also leads to better information sharing between them.
It can be defined as the steps in manufacturing or service which are used to add value to the product or service for the customer. The main aspects of value addition are flexibility, quality, and improved production systems. Flexibility is needed to respond quickly to changing customer demands and adapt to changing market dynamics. Quality is the key parameter for the acceptance of the product. Production systems focus on reducing activity time and making processes more efficient.
Supply Chain Management (SCM) Performance
This is the level of operational excellence desired to achieve superior customer experience. Measurability and consistency are important indicators of SCM performance. The specific parameters for measuring performance include throughput efficiency, inventory levels, cost, and level of service. Effective administration includes improvement in logistics, better knowledge about the supplier markets, enhanced level of supplier performance, and low-cost material sourcing.
This comprises planning, organizing, monitoring, and controlling all factors that influence the achievement of the business goal. Rapid changes in demand, markets, and technology force organizations to improve their competitiveness. Organizations need to focus on their process strategy, marketing strategy, etc. They are expected to provide better quality products at lower costs.
The perception of the customer may vary from one manufacturer to another. The customer may give more value to timely delivery or cost. The manufacturers aim to deliver the best product or service to the customer to achieve maximum customer satisfaction.
Opportunities and Risk Identification
This helps manufacturers to design or re-design the supply chain accordingly.