Supply Network Planning for Higher Profitability

Supply network planning is an integral part of the sales and operations planning process and involves a gamut of functionalities including demand planning, distribution requirement planning, deployment, and demand-and-supply matching and optimization. A greater accuracy in the network plan leads to fewer line changeovers, minimum waste, higher asset utilization rates, accurate inventory quantities, and better on-time deliveries to customers. This reduction of waste at all stages results in improved margins and higher profitability for the organization.

With changing times, the traditional role of supply chain has changed, giving way to a “supply network” rather than a “supply chain”. The new role reflects the complex nature of the supply chain and demands improved two-way communication and information flow that involves customers, suppliers, and business partners.

supply chain network

 Characteristics of “Supply Chain Network”

 Free Flow of Information

An effective supply network demands collaboration between customers, suppliers, and business partners in the network. For example, retailers provide the weekly sales information, on the basis of which accurate forecast is made. Marketing and sales make the forecast, based on market intelligence and promotions. Distribution centers then generate the replenishment plan and send it to overseas factories. The factories plan the production, procurement, and transportation accordingly and provide the feedback to a marketing company. All these are done in automated and collaborative fashion. As a result, the company responds to market conditions quickly and effectively. Information sharing benefits all the stakeholders, improves customer services, and reduces supply chain costs.

Network Integration

A collaborative supply network requires integration of partners’ legacy systems, which can be done via Business Communication Platform (BCP) or Portal. The BCP or Portal acts as the independent layer between back-end ERP systems and front-end applications.

Planning Not Managing

In supply network planning, supply planners are focused on planning and not in administrative works, such as knowing the dollar value of the purchase requisition and constantly adjusting the forecast. The forecast provides the baseline of initial supply plan. The actual demand triggers pre-defined business rules that respond to exceptions. The onus is on the supply planner to optimize the business, thus ensuring that the supply network is responsive and flexible.

 Advanced Planning

The traditional approach will not match the needs of a complex supply network; therefore, the Benefits Realization approach needs to be implemented for achieving success.

 Components of Effective Network Planning

Systematic Network Planning (SNP) approach based on the following three fundamental components improves the overall effectiveness of network planning. Take into account

  1. Variables—aspects of the network plan that can be changed; for example, facility location, product type, and demand
  2. Sensitivities— considering the cost and performance variance in case of changes in variables
  3. Scenarios—sets of possible changes to the network

The simplified procedure improves planners’ effectiveness to address problems such as

  • The best existing location at which to add capacity
  • The impact of a change in the inventory policy
  • The effect of adding or closing a warehouse
  • Inventory and resource planning for seasonal or peak periods
  • Contingency planning for supply interruptions or loss of capacity

Steps to Effective Network Planning

  1. Project orientation.This is to understand the scope of the project and schedule important deadlines and milestones
  2. Defining the variables.The purpose of this step is to create a modeling framework for the variables and trade-offs
  3. Analyzing the sensitivities.The output of this step is a validated baseline model that replicates the company’s current performance
  4. Creating scenarios.In this step, the company models the results for alternative network plans relative to the baseline
  5. Evaluating the alternatives.During this phase, the project team will select a network plan from among the alternatives
  6. Detailing and doing.In this last step, the team creates a detailed procedure for implementing the selected network plan

This practice improves the overall effectiveness of network planning

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