You can very quickly drown in data when building a supply chain plan. We’ve discussed why S&OP shouldn’t be that complicated.
In the end, there are really only three data elements to focus on.
1. Independent Demand
You are typically managing many different forecasts in a sales and operations planning process. Some forms these take:
- production plans from Manufacturing
- purchase plans from Procurement
- distribution plans from Logistics
- projected orders from wholesales and distributors
Ultimately though you can (and actually should) build your master supply chain plan from one forecast: the independent demand forecast for the final customer.
Fulfilling this demand is the main goal of an organization. It should drive the entire process.
2. Cycle Times
You now take this independent demand forecast and work backwards based on cycle times. Let’s look at a simple operation. You have a manufacturing facility that delivers direct to the end customer.
Of course there are distribution centers, wholesales and retailers in between, but let’s keep things simple for now.
And let’s further simplify this by assuming that the farthest visibility we have is the retailer. Meaning, we don’t know what the actual buying pattern is of the retailer’s customers. (Not ideal, but not uncommon.)
So, in this case the retailer is the end customer.
Now let’s say the manufacturing and shipping time from the plant to the retailer is 30 days. This means that the production forecast will match the independent demand forecast but slid back 30 days. Pretty simple.
3. Target Inventory Levels
Now that’s assuming life is predictable. But it isn’t.
There is always some level of variability. And thus you keep inventory of raw materials, works-in-progress and finished goods at various nodes in the supply chain.
You then calculate what the appropriate level this inventory should be.
That’s All You Need
Continuing from the same example above, here are the guiding principles the plant will use to build its production plan:
- The manufacturing of product needs to start 30 days before it is required by the retailer (cycle time).
- The plant needs to produce enough to fulfill the demand of the retailer (independent demand).
- Additionally, the plant needs to produce enough to ensure that inventory levels are maintained at the determined target (target inventory levels).
So, with these three data points you’ve determined what the plant should produce and when.
You can then repeat this process to build the plan for all the other interim supply chain nodes and processes (like procurement, distribution, wholesalers, multi-stage manufacturing).
And you get your supply chain plan.
Understandably, some supply chains aren’t as simple. But if you start with these, it’ll be very easy to layer on other data elements if absolutely necessary.
image: © istockphoto.com/ShyMan