What is Supply Chain Planning? Planning, Timing, Measuring Strategy Performance

What is Supply Chain Planning?

Supply chain planning is a basic organizational function concerning the formulation of one or more thorough plans to achieve the best balance of requirements or demands with the existing resources. The planning process (1) recognizes the goals or purposes to be achieved, (2) formulates strategies to attain them, (3) arranges or creates the means essential, and (4) implements, directs and monitors all steps in their proper sequence.

In today’s demand-driven market, it is critical for manufacturers to optimize and integrate sales and logistics and incorporate such data into the production schedule in a timely manner.

Supply Chain Planning

These are important steps of Supply Chain Planning which given below:

Levels of Planning

1. Levels of Planning
2. Major Planning Areas
3. Customer Service Goals
4. Facility Location Strategy
5. Inventory Decisions
6. Transportation Strategy

Supply chain planning efforts to answer the questions of what, when and how and it occurs at three levels; strategic, tactical, and operational. The main difference between them is the time interval for planning. Strategic planning is considered long-range; where the time interval is more than one year.

Tactical planning includes an intermediate time interval, usually less than an year. Operational planning is limited judgment making, with decision regularly made on the hourly or the daily basis.

Major Planning Areas

Logistic planning beats four main problems areas; customer service levels, facility location, inventory decisions, and transportation decisions as shown in figure. Hope for setting a preferred consumer service level, logistic planning may be stated to as a triangle of logistic decision making.

These problem areas are interlinked and should be planned as a unit, even though it is traditional to plan them individually. Each has a significant influence on system design.

Customer Service Goals

More than any other factor, the level of logistics, consumer examine imparts noticeably effects to system design. Poor levels of service permit centralized inventories at few locations and the use of economical forms of shipping. High service levels usually need the opposite.

Facility Location Strategy

The geographic location of the shocking points and their sourcing points generates an outline for the supply chain plans. Fitting the number, location, and size of the services and allocating the market demand to them knowing the path through which these products are focused to the market.

The correct span for the facility site problem is to include all product movements and linked costs as they take place from the plant, vendor, or port locations through the intermediate stocking points, and on to consumer locations.

Allocating consumer demand to be served directly from plants, vendors, or ports, or directly it through chosen stocking points, affects total distribution costs.

Inventory Decisions

Inventory decisions refer to the mode in which inventories are control. Assigning inventories to the stocking points in opposition to pulling them into stocking points through inventory refill rules signify two strategies.

Discriminating location of many items in the product line in plant, regional, or field warehouse or managing inventory levels by many approaches of perpetual inventory control are others.

Transportation Strategy

Transport decisions can include mode selection, shipment size, and routing and scheduling. These decisions are affected by the closeness of warehouses to consumers and plants, which, in turn, affects warehouse location. Inventory levels are also responding to transport decisions through consignment size.

Consumer service levels, facility location, inventory, and transportation are main planning areas because of the influence that decisions in these fields have on the firm’s profitability, cash flow, and return on investment. All decision area is interlinked and transport strategy should be planned with at least some deliberation of the trade-off effect.

Timing of Planning

1. Demand
2. Customer Service
3. Product Characteristics
4. Logistics Costs
5. Pricing Policy

Demand

Both the stage of demand and its geographic dispersal very much affects the configuration of logistic networks. It frequently experiences unequal progress or rejection of demand in one area of the country compared to others.

Although only extension or reduction at present facilities may be essential, considerable shifting of demand patterns may want that new warehouses or plants be located in rapidly growing areas while facilities in slow growth or declining markets need to be closed.

Such disproportionate growth of only a few percentage points a year often is sufficient to justify network re-planning.

Customer Service

Consumer service broadly comprises inventory accessibility, pace of delivery, and order filling speed and correctness. The costs linked with these factors amplify at a higher rate as the consumer service level is raised. Therefore, distribution costs will be reasonably delicate to the level of consumer service provided, particularly if it is already high.

Reformulating the logistics strategy is usually needed when service levels are changed due to competitive forces, policy revision, or arbitrary service goals different from those on which the logistic strategy originally was based.

Product Characteristics

Logistics costs are responsive to such uniqueness as product weight, volume, value, and risk. In the logistic channel, these features can be changed through package design or finished state of the product during consignment and storage. For example, shipping a product in a knocked-down form can considerably affect the weight-bulk ratio of the product and the related transportation and storage rates.

Because changing a product’s features can considerably change one cost factor in the logistic mix with little change to the others, this creates a new cost balance point for the logistic system.

Logistics Costs

The costs that a company incurs for bodily supply and physical distribution often knows how often its logistics system should be re-planned. All others factors being same, a company manufacturing high valued goods (such as machine tools or computers); with logistics costs being a minute part of total costs, will probable give little concentration to the optimality of logistic strategy.

Pricing Policy

Changes in the pricing policy under which things are purchased or sold will influence strategy, mainly because it states accountability for certain logistics actions. A supplier that switches from factory price(transportation costs not included) to a delivered price will usually relieve the buying company of the responsibility for imparting or arranging for the inbound transportation.

Similarly price policy influence the transfer of title to goods and the accountability for the transportation in the distribution channel as well.

When changes have occurred in one or several of these areas, re-planning the logistics strategies should be considered. Next let us consider some of the logistics principles and concepts that are useful for the strategy formulation.

Measuring Strategy Performance

These are three measures strategy performance given below:

1. Cash Flow
2. Savings
3. Return on Investment

Cash Flow

Cash Flow is the currency that a strategy generates. For example, if the strategy is to cut the amount of inventory in supply channel, then the money released from the inventory carried as an asset is turned into cash. This cash can then be used to pay wages or dividends, or can be invested in other areas of the business.

Savings

Savings refer to the change in all relevant costs associated with the strategy. These savings contribute to period profits of the business. A strategy that changes the number and sites of the warehouses in a logistics network will affect transportation, inventory carrying, warehousing, and production/purchase costs.

Return on Investment

Return on investment is the ratio of the annual savings from the strategy to the investment needed by the strategy. It specifies the efficiency with which capital is being used. Good strategies should show a return greater than or equal to the expected return on a company’s projects.