Warehouses are a necessary component for any supply chain. If a supply chain is running smoothly, warehouses will perform several tasks to accommodate the hassle-free flow of goods from the supplier to the customers. When you’re attempting to maintain an effective and productive warehouse, among the most important business management tools you should use is supply planning, which can directly impact your inventory, supply, and demand levels. These systems are oftentimes used to estimate the demand for certain products and to identify how many materials will be needed to meet these demands.
This tool allows you to plan for future demand by making sure you have enough goods in your inventory. If you don’t use supply planning in your facility, it will be much more difficult for you to anticipate future demand, which makes backlogs more likely. Proper supply planning depends on inventory management, release of orders, and order entry.
Before you use supply planning in your warehouse, you should know that this process can be complicated by the current availability of labor, the complexity of handling numerous vendors, and the time it takes to receive products. Learn more about how important supply planning is in the following guide.
What is Supply Planning?
Supply planning involves performing an analysis of demand forecasts and comparing the data to existing inventory. Once these comparisons have been made, supply chain activities will be coordinated to ensure demand is met. This process is helpful when you’re trying to ascertain the production level for different services or goods. It also allows you to understand how much materials are needed and when you should purchase them.
If you use supply planning properly, it allows you to make sure that the correct property is available when you need it. This technique gives you the opportunity to minimize risks and costs within your warehouse or distribution center. Supply planning is an essential aspect of supply chain management.
While you perform supply management, inventory levels will be altered whenever demand changes. If there is a notable change in projected demand, your production will need to adhere to these changes. Any sizable movement in sales volume can impact inventory levels. By keeping your inventory well-stocked before a high-demand period, you lower the risk of substantial backlogs.
The Supply Planning Process
When performing the supply planning process, you’ll be focusing on coordinating how your goods will be moved throughout the supply chain.
Forecasting demand is the initial stage of the supply planning process. You’ll be tasked with analyzing market trends and historical sales data to estimate what the demand for your products will be in the months to come.
These forecasts should be performed on a regular basis because of the many external factors that can impact the supply chain as well as how well your products sell. The external factors that you should be on the lookout for include trade sanctions, inflation, and issues with obtaining raw materials. If you want to maintain a highly efficient supply chain, all potential disruptions need to be taken into account.
Estimate future demand by studying customer surveys, past trends, sales levels, and any historical data you can gather. Your sales forecasts will help you create supply planning forecasts because these documents display how demand changes over a product’s lifespan. Make sure that you estimate custom orders as well. Every custom order needs to be viewed as a demand component for each item that’s being sold.
Determine Sources of Supply
After you determine forecast demand, the next thing you should do is identify the suppliers that will help you meet demand. Once you’ve identified all possible suppliers, you’ll need to negotiate contracts and establish the appropriate inventory levels.
This step can differ slightly depending on the exact type of warehouse you manage. It’s important to identify where the supplier is located before creating a contract that allows you to purchase the products you need.
It’s possible that changes will need to be made to payment terms as well. For instance, you might choose to require instant payment from your customers or clients. Make sure that you create a supply plan that matches your business strategy and allows you to more effectively manage your cash flow.
Now that you know how high your product demand is and where you’ll obtain the supplies you need, you can focus on developing a production schedule that accommodates the availability of the goods you require for production.
During this stage of the process, you must create production schedules to ensure demand is met and coordinate directly with other suppliers to schedule additional plant production. Manufacturers often develop production schedules based on the availability of labor and raw materials. This process is referred to as manufacturing resources planning (MRP), which is a piece of software that properly schedules your resources.
This part of the process requires you to plan how goods will be transported from the initial supplier over to the manufacturer. You’ll also need to plan how these items will be delivered to the customer from the manufacturer. In this scenario, you must select carriers, coordinate with numerous carriers, and identify the most productive and efficient routes for moving the goods throughout the supply chain.
When performing inventory management, you must figure out how to allocate space in your warehouse or distribution center. This space will be necessary for storing materials. It will also help you identify the best inventory levels for your facility if you want to stick to your preferred production schedules.
Proper inventory management often requires that you know which factors push the demand that an item receives. Inventory monitoring is fully automated to ascertain order patterns, sales history, and market trends. The data you receive allows you to identify how much of the product you should acquire to ensure you have enough supplies at times when demand is high.
Monitor and Adjust the Plan
The supply planning process is an ever evolving one that needs to be constantly monitored and adjusted whenever you receive new information or notice that market conditions have changed. Regular updates allow you to make sure your supply plan continues to be effective.
Why Supply Planning Matters
Supply planning is necessary to make sure your company has the right amount of raw materials to meet all of your current and future production demands. If you don’t have enough of these materials, you’ll likely experience production disruptions and delays.
In the event that you’ve ordered too many raw materials, your financial resources could be tied up for an extended period of time, which hurts efficiency and increases costs across your business. By implementing a proper supply plan, you should strike the right balance between minimizing costs and meeting customer demand.
Supply Planning Best Practices
Before you begin to develop a supply plan, read up on the supply planning best practices that you should adhere to. Make sure that you:
- Collaborate with suppliers – Establish strong relationships with potential and current suppliers. You should also use a single system to ensure effective communication with your preferred suppliers.
- Use technology to improve supply planning – Use software applications to perform inventory management, tracking, and sales forecasting.
- Implement demand forecasting – Analyze market trends and use real-time data to anticipate future demand and avoid issues like overstocking or shortages. Being ready for higher demand increases the likelihood that you’ll keep customers satisfied.
- Build flexibility into the supply chain – Include numerous elements that allow you to enable production at different quantities throughout many locations. Manufacturing schedules should also be adjusted when needed.
FAQs about Supply Planning and Supply Chain Processes
You may have some questions about supply planning and how it will work in your warehouse. The most frequently asked questions are discussed in more detail below.
Q: Why is supply planning necessary?
A: Supply planning gives you the structure for how to best manage supply and demand throughout your warehouse. This plan should give you the information you need to determine the most efficient and cost-effective techniques for acquiring and distributing finished goods and raw materials. If you don’t have a supply plan, it’s more likely that your business will face much higher costs as well as a higher chance for overstock and shortages.
Q: What is supply planning vs. demand planning?
A: Supply planning centers around finding out how to source, distribute, and manufacture products in a manner that allows you to meet the estimated demand. As for demand planning, it focuses on forecasting future demand to identify how many services or products must be produced to meet demand.
Supply planning is critical for effective logistics while also allowing you to ensure a timely supply of finished goods and materials. You’ll be tasked with anticipating what future demand looks like and figuring out how to effectively acquire and distribute the goods you need. It plays a crucial role in making sure that your production process is as efficient and cost-effective as possible. By following the supply planning best practices and making regular improvements to your supply planning efforts, you should be able to increase your sales and bolster your operational planning performance.