What is Supply Chain Planning? and How Does It Work

What is Supply Chain Planning

What is Supply Chain Planning?

Supply Chain Planning is part of supply management that coordinates assets to optimize delivery of goods and services from a supplier. This balances supply and demand.

A supply chain is a link between an organization’s suppliers that allows it to manufacture and distribute a product to its customers. This network includes many activities, people, entities, and information. The supply chain is the collection of all steps required to move a product or service from an unprocessed state to one that can be sold to the consumer. Supply chains are created by companies to cut costs and stay competitive in the market.

Supply chain planning refers to the entire planning of a product’s supply chain, starting with its raw material stage and ending with its delivery to the customer. It includes both supply production and demand planning, as well as sales operations and planning.

Also read: Top 10 Supply Chain Risks and How to Manage Them

How does Supply Chain Planning Work?

An approved plan of demand is the first step in supply planning. This plan covers a review of all sales and the approval channel- and regional-level forecasts. It also includes customer forecasts. The plan is then subject to a demanding step for translation. Supply chain planning software automatically routes the demand plan to the place where the client/item relationship is most satisfied.

Automated software creates records that identify ship-from locations using customer orders. This record is used for generating a forecast for the specific location. It is easy to transfer the demand from one place to another using the software.

Once the translation is complete, the supply schedule is used to create a master production schedule for finished goods by item and location. The supply plan details all attributes related to the product being manufactured. The supply plan also contains information on inventory numbers, open orders, the number of orders in the pipeline, lead time for manufacturing, minimum order quantities, and buffer stocks.

The user can use this supply plan to run a capacity and requirements review to gain a deeper understanding of the effects of demand on resources and supply plans on it. The plan can be modified if necessary to address any problems.

Once supply planning is completed, the user can sign off on the plan and create a master plan. This master plan is then pushed into enterprise resource planning (ERP), for execution. To manage product planning and order, the master plan can be used in supply chain management software.

This planning suite is placed on top of a transactional system which allows for planning and dealing with real-time demand commitments while taking into account constraints. These modules are some examples.

  • Product availability and ability to deliver more
  • Operation and sales planning, and integrated business planning
  • Collaborative planning
  • Direct points of sale or inventory managed by vendors
  • Event planning
  • Planning for demand and inventory
  • Production planning and associated schedules
  • Distribution planning
  • Strategic network designing
  • Optimizing your inventory strategy
  • Production planning

Supply Chain Planning Strategies & Methods

These are just a few of the supply chain planning methods and strategies that organizations use to ensure a smooth, comprehensive supply chain.

Data collection

Real-time data with precise figures, and information allow for deep insight into the supply chain to enable quick decision-making.

Lean Principles

Management can lower inventory costs by using a supply management system that is based on the “just-in-time” concept. Orders can be fulfilled quicker and overhead costs are decreased. This allows for smooth inventory flow.

Increased Visibility

Every supply chain is at risk of having accidents that lead to waste. You can reduce inventory loss by improving operational visibility.


An enterprise resource system that allows for greater efficiency, the supply chain increases its revenue streams over the long- and short-term. A planning system that makes it easy for everyone to use encourages collaboration and lowers the chance of making mistakes in the future.

Also read: Distributed Order Management: What Is It, Characteristics & Benefits

Benefits of Supply Chain Planning

A business that has a well-designed supply chain planning system can reap many benefits that will help it increase its competitive advantage. These benefits include:

Reduced costs

A business can reduce costs in several key areas. You can achieve:

  • Inventory system with enhanced capabilities.
  • Optimized stocking spaces for ready products to reduce the risk of resource deterioration or damage.
  • System response to customers needs to be improved
  • Better relationships between distributors and vendors

Improved Efficiency

A business that can integrate supply chains, creative product strategies, and integrated logistics into its operations will be better able to forecast demand and take the correct actions. This is the greatest benefit. A strong supply chain allows an organization to adapt to a changing market without the need for constant micro-management.

Increased Output

Communication is improved when supply chain systems are improved. This improves communication and coordination between companies involved in shipping and transportation management, as well as vendors and suppliers.

Better Cooperation

Superior communication is a key ingredient of successful businesses. Without clear communication, vendors, distributors, and employees might not understand your plans. Better communication between all parties in supply chain planning leads to better cooperation. The internet has made it possible to communicate even with distance or in multiple time zones and offices around the world.

Profits Increased

Businesses that embrace high-end technology and collaborate in all areas of business can improve efficiency and productivity, which leads to higher profits.

Enhanced Supply Chain Network

A mix of lean practices, such as stock control and waste reduction, can be used to create an improved system. Your company’s supply chain network can be enhanced by data from different business areas.

Reduce delays

A well-planned communication system will reduce delays in supply chain processes. Many production line problems can be avoided if everyone in the system understands their role.

Supply Chain Management Challenges

Three common pitfalls in supply-chain planning include: These problems are most prevalent in supply-chain management systems, but they also apply in sub-categories such as planning.

  • A minimal commitment from the organization to planning development is the first problem. It can be difficult to bring together all stakeholders in a business process on the same platform.
  • Poor collaboration among different functions can also cause problems in the creation of plans.
  • Companies tend to focus on historical data from their systems when evaluating supply chain planning. Companies can use dynamic data to improve their efficiency and be better prepared.

It is difficult to achieve optimal supply chain planning, but it is essential for a company’s growth. There will be pitfalls and problems as with any system. Businesses can find smart solutions to help them create the ideal supply chain planning system.

You May Also Like

About the Author: The Next Trends

Leave a Reply

Your email address will not be published.