Supply chain planning is a bit like conducting an orchestra. All the parts must play in sync, and you have to have your eyes everywhere at once. If the string section doesn’t show up, well, the music just won’t be the same.
What is supply chain planning?
Supply chain planning is the process of coordinating and optimizing the flow of goods, services, and information from raw materials to your final customer. It involves anticipating and balancing supply and demand to ensure that the right products are available at the right time and in the right place. Effective supply chain planning ensures that you can fulfill the demand you foresee while reducing costs, minimizing disruptions, and enhancing customer satisfaction.
Supply chain planning:
The process of coordinating and optimizing the flow of goods, services, and information from raw materials to your final customer. It involves anticipating and balancing supply and demand to ensure that the right products are available at the right time and in the right place.
Supply chain planning is all about helping businesses balance the “Three Vs”: Volume, Variety, and Volatility.
Modern supply chain planning combines advanced forecasting techniques, real-time data analysis, and strategic resource management to balance volume, variety, and volatility.
When you can accurately anticipate demand changes and optimize your operational processes, you can proactively plan for new ways to increase efficiency, reduce costs, and improve customer satisfaction, despite the complexities of modern supply chain challenges. This enables the supply chain to respond rather than react because you have a plan in place — ensuring stability and adaptability in a dynamic market environment.
How does supply chain planning work?
Organizations have pioneered many different approaches to supply chain planning. Here are some of the most common methodologies:
Just-in-time inventory management
Popularized by Toyota, the just-in-time (JIT) inventory management method prioritizes the reduction of excess inventory by acquiring materials and producing products only as needed for immediate use or fulfillment.
Pros: JIT inventory management can minimize storage fees and reduce waste. For example, a restaurant chain may employ JIT methodologies in order to avoid excess stock, prevent food waste, and maximize thin margins.
Cons: This method may leave companies vulnerable to supply chain disruptions or sudden increases in demand, as they won’t have buffer inventory on hand to weather stockouts. JIT inventory management also requires constant and precise communication and demand forecasting, as well as highly reliable suppliers.
Lean manufacturing
Similar to JIT inventory management, lean manufacturing also aims to minimize waste within the manufacturing process while maximizing productivity by eliminating non-value-added activities such as unnecessary transportation, product defects, or untapped innovation. However, it places a particular emphasis on the benefits these efficiencies bring to the customer as much as to the business.
Pros: A well-oiled, lean manufacturing approach can result in higher-quality products, lower costs, and better customer experiences. These customer benefits are possible because lean manufacturing can lower production costs, improve product consistency, and speed up lead times.
Cons: Lean manufacturing’s overemphasis on efficiency can hinder flexibility and make it difficult for companies to respond to market changes or fluctuations in customer demand.
Demand forecasting
Demand forecasting is the process of predicting future customer demand using historical data, market analysis, and statistical tools. Demand forecasting is a crucial part of any modern supply chain planning process.
Pros: Demand forecasting enhances inventory management, reduces the risk of scarce or excess inventory, and informs production planning based on a company’s own data.
Cons: Relying on demand forecasting alone for supply chain planning could expose your company to the risks associated with inaccurate forecasting. For example, because traditional demand forecasting relies heavily on historical data, it is unlikely to predict unexpected disruptions, changing market trends, or sudden swings in customer demand.
Vendor-managed inventory
Vendor-managed inventory is a collaborative approach where suppliers manage the inventory levels of their products at the customer’s location. For example, a brand that sells its products through Amazon may keep inventory in Amazon warehouses across the country and rely on Amazon to manage and report on inventory levels.
Pros: Allowing vendors to directly manage inventory can streamline inventory replenishment, reduce out-of-stock events, and foster trusting relationships between your company and your suppliers. It can also contribute to customer satisfaction by making products available faster and cheaper.
Cons: Vendor-managed inventory requires you to give up control over inventory levels and can lead to potential conflicts with suppliers if things go wrong.
Safety stock
Companies maintain “safety stock” when they hold extra inventory as a buffer against both fluctuating demand and material supply. Maintaining safety stock can reduce the risk of low inventory or stockouts. Striking the optimal level of safety stock requires precise forecasting and a deep understanding of variability within your supply chain.
Pros: Safety stock helps to ensure adequate supply, even in the event of a supply chain disruption or sharp burst in demand. This helps businesses keep pace with customer expectations and keep satisfaction high.
Cons: Maintaining safety stock requires space — which means storage fees. Holding on to excess inventory can add up and cut into overall company margins if not managed properly.
Materials requirement planning (MRP)
Materials requirement planning (MRP) is an approach to inventory management based on calculating the base materials and components needed to manufacture products. It ensures adequate inventory to meet production schedules while minimizing holding fees. MRP can be complex and is best suited for businesses with accurate, real-time data and easy-to-integrate systems.
Pros: MRP aims to ensure the right materials are available when and where they are needed for production. This can reduce inventory levels and improve production planning.
Cons: MRP requires constant monitoring to keep inventory levels optimal and production on schedule. Inaccurate data or forecasting errors can lead to material shortages or overages, which can disrupt production and increase inventory costs.
Key components of modern supply chain planning
Modern, effective supply chain planning begins with the first sales planning call with leadership and ends with customers placing orders.
At the end of the day, successful supply chain planning will accurately predict buyer demand, prioritize in-demand and profitable products, manage production efficiently, and set a reasonable price.
Supply chain planning involves multiple steps, including Sales and Operations Planning, Production Planning, Demand Forecasting, Inventory Management, Supplier Management, and Network Design.
Sales and operations planning
All supply chain planning starts with sales and operations planning (S&OP). This is where sales and production teams sit down and devise a plan for how the company will balance volume, volatility, and variety to effectively meet market demand. S&OP is the heartbeat of an organization and ensures all teams are aligned on how they will work together to help the company meet overall goals. It integrates other key steps of supply chain planning — such as demand forecasting, production planning, etc. — to create a unified plan for executive leadership approval.
Production planning
Production planning determines the types and amounts of products a company will produce, along with the schedule on which they’ll produce them. It coordinates the production process to ensure that the right products are made at the right time to meet customer demand.
Demand forecasting
Demand forecasting uses historical data, market trends, and statistical models to predict future customer demand. It is an essential method for helping supply chain planners estimate the amount of product the company needs to produce to meet demand — even as demand fluctuates due to factors like seasonality. Accurate demand forecasting is crucial to avoiding over- or under-production, reducing inventory and storage costs, and ensuring overall customer satisfaction.
Inventory management
Inventory management governs the storage, handling, and tracking of inventory levels to ensure that products are available when needed without holding — and paying for — excess stock. It ensures that the right amount of inventory is available to meet demand while optimizing storage space, reducing costs, and minimizing waste.
Supplier management
Supplier management maintains and strengthens relationships with suppliers to ensure a reliable supply of material needed for production. It includes selecting suppliers, negotiating contracts, and monitoring supplier performance. It may also involve identifying and prioritizing key suppliers to help companies meet ESG and DEI objectives.
Network design
Network design involves planning the logistical infrastructure of the supply chain, taking into account the geographic locations of production facilities, warehouses, and distribution centers, as well as the necessary transportation of materials and goods among them.
Network design is the nitty-gritty, nuts-and-bolts of supply chain planning. It focuses on reducing transportation costs, minimizing delivery times, and ensuring that materials and products are in the right place at the right time to meet overall business objectives and customer demand.
Why an updated approach to supply chain planning is important
In today’s fast-paced and interconnected world, effective and efficient supply chain planning processes are more crucial than ever. An updated approach to supply chain planning offers numerous benefits that can significantly enhance a company’s operations and competitive edge. Here are some of the key benefits of modern supply chain planning:
- Keeping pace with customer demand
Our world has become more connected and fast-paced through social media and e-commerce. Supply chain planning helps you keep pace with changing customer preferences and market trends, allowing for accurate and proactive responses to demand fluctuations.
- Planning for disruptions
The growing impacts of climate change, global events, and other unforeseen circumstances are making it increasingly vital for supply chain managers to have plans in place to respond to disruptions when — not if — they occur. Accurate data and proactive planning can minimize the impacts of these disruptions on your supply chain and the company’s bottom line.
- Maximizing operational efficiency
A well-planned supply chain streamlines processes and reduces waste throughout its lifecycle to lower operational costs and maximize margins. Modern planning approaches incorporate real-time data and AI tools to uncover hidden efficiencies.
- Managing revenue risk
Market fluctuations and disruptions affect supply chains in various ways, but nearly all impact a business’s bottom line. Recognizing and managing revenue risk is critical to responding strategically to disruptions when they occur.Integrated scenario planning can help businesses spot, understand, and plan for potential financial risks throughout their supply chain.
- Managing supplier risk
All supply chains rely on a network of suppliers to ensure they receive materials and can deliver products on time. A slow or unreliable supply can throw a wrench into even the most well-oiled gears. Supplier management helps organizations build networks of reliable supplies while also strengthening those relationships through enhanced collaboration.
- Meeting ESG requirements
Integrating environmental, social, and governance (ESG) criteria into supply chain practices promotes more efficient operations and ensures a more environmentally responsible supply chain. This can help companies meet legal or regulatory requirements, hit company sustainability goals, and enhance brand reputation with consumers. - Planning for resilience
The strongest supply chains are capable of responding and adapting to even the most unexpected new challenges. Modern tools that leverage real-time data and AI help organizations experiment with scenario modeling and plan for the unpredictable.
Contemporary challenges in the supply chain planning process
In our modern connected world, today’s supply chains reach farther than ever. This opens the door to working with better suppliers, acquiring higher-quality materials, and taking advantage of cost-saving efficiencies. It also, however, can leave supply chains vulnerable to new challenges.
- Greater complexity
As supply chains become more global, intricate, and interconnected, managing them effectively has become more difficult. Multiple suppliers, diverse markets, and intricate logistics networks add layers of complexity.This greater complexity can leave supply chains vulnerable to an increased risk of errors, production delays, and slowed responsiveness. Managing these modern supply chains requires advanced planning and technology to prevent operational disruptions, keep costs low, and take advantage of the benefits a connected world has to offer.
- Demand variability
Customer demand can change on a dime. Factors like market trends, seasonality, and economic conditions can cause it to fluctuate significantly — sometimes in unpredictable ways. These changes could leave your supply chain struggling to keep up with demand or languishing with a warehouse full of excess material.That’s why it’s important to rely on more than historical data when forecasting demand. Modern demand modeling tools combine real-time data with AI for intelligent scenario planning.
- Supply chain disruptions
Supply chain disruptions can happen for many reasons, including as a result of natural disasters, geopolitical events, pandemics, and supplier failures. They can cause delays or halt production entirely. Disruptions can be expensive and can impact your brand reputation among customers — and they aren’t going anywhere.The impacts of climate change are only growing stronger and becoming more frequent. Travel and moving populations add to the risk of future health pandemics. Geopolitical turmoil has far-reaching effects on today’s globally connected supply chains. Continuity planning and risk management will only become more critical to mitigate these impacts.
- Inventory management
Inventory management is the never-ending challenge of supply chain planning. It’s a constant balancing act between having sufficient stock to meet demand and minimizing holding costs. It requires modern tools, precise planning, and real-time data.
- Coordination across supply chains
Coordinating activities and information across different parts of the supply chain is a complex undertaking. Many parties are involved, including suppliers, manufacturers, and distributors. Lack of transparency, miscommunication, and misalignment can make it difficult for these entities to collaborate effectively.That’s a problem because even a minor miscommunication can lead to longer lead times, higher costs, and mismatches between inventory supply and customer demand.
- Managing through acquisitions
Corporate acquisitions often involve integrating teams, products, services, and — you guessed it — supply chains. Bringing together disparate supply chains requires businesses to combine different systems, processes, and cultures. This integration can be challenging and time-consuming.A poorly managed integration can lead to disruptions, inefficiencies, and higher operational costs during what may already be a challenging time for your teams.
The stakes of these challenges are high. Ineffective supply chain planning can lead to increased costs, lost revenue, reduced profitability, and loss of customer trust. In this environment, an effective, resilient supply chain becomes a serious competitive advantage. By addressing these contemporary challenges with strategic planning and advanced technologies, businesses can enhance their supply chain resilience and achieve sustainable growth.
Emerging supply chain planning technologies
New software and technologies are changing the way businesses plan and manage supply chains to meet the challenges of the modern world head-on.
Digital twins
A digital twin is a digital replica of a physical supply chain. It helps organizations recreate their real supply chain in a virtual world so they can test scenarios, model different nodes, modes, flows, and policies, and understand how decisions and disruptions will impact network operations.
Organizations use digital twins to provide greater visibility across their supply chain, identify patterns, and discover opportunities for optimization. Digital twins are key enablers of supply chain resilience and help organizations make smarter, faster, data-driven decisions to respond when something goes wrong.
Integrated scenario planning
Traditional supply chain planning is about the nuts and bolts of meeting customer demand. How much material do I need? When can I get it? How will my factories run? It’s not built for experimentation. Integrated scenario planning is different. It layers on top of supply chain planning to help you understand the impact and likelihood of real-world scenarios in a digital space.
For example, if a desktop computer distributor in Texas receives parts from a supplier in Thailand, they can model the impact of severe floods in the region and coordinate a contingency plan for the upcoming rainy season. A digital twin (above) is a key component of integrated scenario planning.
AI/ML for supply chain planning
New artificial intelligence (AI)/machine learning (ML) (a subset of AI) capabilities are popping up everywhere in supply chain planning. These technologies offer a wealth of potential for optimizing supplier networks, ensuring compliance, and uncovering inefficiencies that hinder supply chains.
Generative AI can identify the highest-cost drivers in your supply chain and recommend changes to save time and lower costs. For example, AI may identify an alternate route for shipping products from another geographic region.
Graph-based technology for supply chain planning
Graph-based technology for supply chain planning, also known as graph databases, visualizes and analyzes the complex relationships and interactions within a supply chain, representing them as networks of interconnected nodes. Nodes may represent suppliers, manufacturers, warehouses, or distribution centers, with the connections between them representing the flow of goods, materials, and information.
This visual representation can provide insight into relationships and dependencies through a business’s supply chain and help to reveal bottlenecks or potential disruptions in real time. These models can also be used in combination with graph algorithms to simulate scenarios, predict future demand, and plan strategic responses.
How Coupa’s AI platform enhances supply chain planning
Coupa’s AI-driven tools, like Demand Modeler and Network Optimization, take your supply chain planning to the next level. With Coupa’s AI Total Spend Management platform, you can:
- Make better decisions by understanding complex trends and factors across the entire supply chain
- Automatically identify cost-saving and eco-friendly opportunities, like node skipping and mode switching
- Understand market demand for the short and long term, looking into the future from one week to even ten years
Optimize forecasting and get ahead of disruptions with the tools made for today’s modern, complex economy.
