What is supply chain planning?
According to Gartner, supply chain planning (SCP) is “the forward-looking process of coordinating assets to optimize the delivery of goods, services and information from supplier to customer, balancing supply and demand.”¹
The supply chain planning process involves several stages and related activities that are closely linked. These include estimating the level of demand for the product, determining how much inventory will be required to meet demand, and how the product will be manufactured, marketed, distributed and sold.
The overall goal of the supply chain planning process is to balance supply and demand for products to enable the company to capitalize on revenue opportunities in a timely manner and at the lowest possible cost.
1. Gartner Glossary. Supply Chain Planning (SCP), as of November 2, 2023. https://www.gartner.com/en/information-technology/glossary/scp-supply-chain-planning
Why is supply chain planning important?
Supply chain planning is an essential business practice that makes it possible for companies to get their products to market in a timely manner, so they can meet customer demand and achieve their revenue and other business goals.
Supply chain complexity and global volatility challenge business-as-usual
As the global supply chains continue to grow more complex and interconnected, effective planning is more important than ever. Unforeseen events in any part of the world can cause high levels of disruption that are beyond the control of any single company. On the supply side, factors such as geopolitical unrest and natural disasters can create a high level of volatility that has the potential to severely disrupt supply chains.
For example, factory closures caused by disruptions during the COVID-19 pandemic led to shortages in many materials and goods that companies around the world depended on to get their products to market. This resulted in product delays and shortages, dissatisfied customers and lost revenue for companies in many different sectors.
Numerous other factors can increase or decrease demand for a product, which can also be disruptive to supply chains. Consumers can change their purchasing behaviour dramatically in a short period of time, which can create dramatic demand spikes for a particular product. These spikes can be triggered by many different events, such as a government tax cut, a natural disaster or even viral videos on social media.
Effective planning de-risks the supply chain
For companies that lack the right combination of people, processes and technology to conduct supply chain planning activities effectively, the consequences of disruption and volatility can be severe. These include lost revenue, dissatisfied customers, shipping delays, shortages, and higher costs.
On the other hand, companies that have developed mature supply chain planning capabilities, are much better prepared to deal with disruption. There are numerous benefits, including:
- increased productivity
- improved collaboration
- reduced costs
- greater agility and resiliency
- improved product quality
- better customer satisfaction
What are the elements of the supply chain planning process?
Supply chain planning implementations may vary from one company to the next, but there is broad agreement among supply chain professionals on the core functions and activities involved in the planning process. These core functions include demand planning, supply planning, inventory planning, and sales and operations planning (S&OP). Plus, an overarching control tower function that gives planners and leaders a real-time view into the planning process from end to end.
For some companies, the supply chain planning process is linear, with the completion of one set of planning activities triggering the beginning of the next. However, companies with more mature supply chain planning practices view the overall planning process as continuous or circular. In practice, multiple individuals or teams are working on the different functional areas of SCP concurrently and the various stages in the process are continuously updated, optimized and re-aligned in response to new data and other inputs.
Demand planning involves forecasting future demand for a product as accurately as possible based on a wide range of inputs. These include a statistical analysis of past sales, modeling to predict future sales, and input from suppliers, partners, stakeholders and others. The resulting demand forecast is used to fine-tune company output to best meet the needs of customers.
Supply planning is the process of determining how the company will meet the demand for products or services detailed in the demand plan, while also achieving the critical operational and financial objectives of the business.
Inventory planning involves determining how much inventory – whether raw materials, work-in-progress, or finished goods – will be required to meet the demand for the company’s products captured in the demand forecast. Key activities during this stage are determining the right quantity and timing of inventory as well as a minimum acceptable level of inventory.
Sales and operations planning
Sales and operations planning (S&OP) is a cross-functional activity within the company that is led by Operations, and brings together representatives from Sales, Marketing, Finance, Engineering, Procurement, and Manufacturing at regular intervals. S&OP focuses on satisfying corporate objectives, such as revenue and margin goals, by predicting demand and subsequently ensuring adequate supply. The goal of S&OP is to meet a forecast with a planning horizon of between 6 and 24 months.
The control tower in supply chain planning is a software system that gives planners across the different functional areas a real-time view of operational data. Control tower software typically includes one or more dashboards which provide insights into key supply chain metrics. Armed with the data provided by the control tower, planners have the visibility they need to make timely decisions, manage risks effectively, capitalize on opportunities, and take corrective action quickly to deal with any critical issues.
In their own words: Lessons from supply chain planners
What tools are available to help with supply chain planning?
Companies use a wide variety of tools to help them perform the many complex tasks that go into the supply chain planning processes across the different functional planning areas, including demand planning, supply planning, inventory planning, and sales and operations planning (S&OP).
Non-purpose-built planning tools
Historically, organizations of all sizes have used non-purpose-built tools like Microsoft Excel to perform key supply chain planning activities. While Excel is extremely flexible and many supply chain professionals have experience using it, it has some significant limitations that make it less than ideal for supply chain planning.
For example, using Excel as a planning tool often results in information siloes, as each group in the planning value chain creates its own set of spreadsheets with its own planning data. These information siloes make it challenging to share up-to-date information among groups responsible for the other activities that make up the planning process, which in turn results in more manual effort to capture the required data inputs. These manual interventions often results in delays in the end-to-end process.
For example, supply planners may need to wait for demand planners to complete their demand forecast before they can begin creating the supply plan. And because Excel does not allow for automation across the planning functions, updating spreadsheets manually is more labor-intensive, inefficient and error prone. While Excel or similar tools may be sufficient for the planning activities required for less complex supply chains, large organizations with complex supply chains will require more advanced planning tools.
Specialized supply chain planning solutions
Unlike generic tools like Excel, purpose-built supply chain planning solutions are designed to automate, simplify and optimize the end-to-end supply chain planning process, across all the different core functions. These solutions unite all elements of supply chain planning, including demand, supply, capacity, inventory, S&OP and control tower, to ensure the organization is aligned around a single source of truth.
Because these types of purpose-built solutions provide tools and capabilities specifically designed to meet the needs of supply chain planners, they offer several key advantages over generic software solutions. These include improved collaboration across functions, increased visibility and shortened planning cycles, along with the ability to assess the impact of many different planning scenarios.
What are some of the emerging trends in supply chain planning?
Supply chain planning continues to evolve and planners are continuously looking for new methods and technology innovations that can help simplify the process, improve accuracy and reduce costs. Some of the key trends in SCP include sustainability, artificial intelligence and machine learning, digital transformation and supply chain resiliency.
With so many companies taking steps to mitigate the impact of their operations on climate change, supply chain sustainability is becoming a top priority. As a result, a growing focus of the supply chain planning process is to find ways of achieving profitability through measures that also benefit the environment. These may include reducing CO2 emissions, removing waste and building a circular economy.
Artificial intelligence and machine learning
As artificial intelligence (AI) and machine learning (ML) technologies gain momentum, companies are looking for ways to harness these capabilities to improve profitability and productivity by automating routine processes, giving planners time to focus on the problems that really matter. For example, companies are relying on ML and always-on analytics to recommend the best ways to balance supply and demand, so planners can review and act sooner. AI can be used to track and predict possible supply chain disruptions based on inputs and correlations across multiple data sources, including weather forecasts, news and even social media. These insights can be factored into the planning process to improve response times and keep customers satisfied.
Many companies are undertaking sweeping digital transformations across all areas of the business. Recognizing the power of supply chain planning to enhance the customer experience, reduce risk, and increase profitability, senior executives are investing in modernizing their supply chain planning and execution capabilities. Today, these transformations are happening on faster timelines, so companies can recognize return on investment in weeks then scale to meet other business demands as needed.
Another trend in supply chain planning involves a paradigm shift to “resilient planning” to deal with constant volatility and disruption. As pressures on the global supply chain increase, supply chains must be ready to respond at the pace of change. Outdated tools that preserve silos, slow collaboration and minimize visibility are increasingly seen as a risk to resilience.