7 Steps to Achieving Supply Chain Planning Success

The success of any business deeply hinges on the effective management of operations. Often, communication gaps are the primary culprits behind delivery delays and stock shortages. Therefore, every successful company requires a centralized system for effective communication known as Supply Chain Management (SCM).

1. Planning

Every organization must manage its resources to achieve the maximum benefit. The planning process helps in determining customer demand and identifying supply sources needed to meet those requirements. Supply Chain Managers must organize these sources in a timely manner to ensure they're available to kickstart production. On-time supply is crucial to maintain customer confidence.

Additionally, it’s essential to enhance relationships with vendors. The planning process involves multiple departments working together to provide a supplier forecast. This collaboration ensures that the organization is well-prepared for market demands.

2. Procurement

Procurement and sourcing are often conflated, but they are distinct processes. Sourcing is part of the procurement process and both are vital to the success of supply chain management. Procurement involves obtaining all materials needed to complete the production process, from raw materials to packaging.

This process commences with forecasting and purchase planning to secure quotations, negotiate prices, place orders, and receive order confirmations until goods arrive at the company's premises. Post-receipt, suppliers are paid based on agreed terms.

The sourcing process predates procurement and focuses on identifying reliable and high-quality suppliers capable of meeting demand. The primary objective of sourcing is to find suppliers who balance quality and affordability. This process includes quality testing, vendor information gathering, delivery lead time assessment, minimum order quantity, and supplier capacity and capabilities. Procurement aims for the perfect balance between price and quality, not just the lowest price.

3. Production Planning

Production planning involves creating a plan to maximize output from available resources. The primary goal of production planning is to deliver products within specified time limits while ensuring consistent quality. Organizations often need to produce multiple products on the same plant and ship to various customers. Thus, it's crucial to prioritize production based on time limits and production capacity.

Adequate resource allocation to each production line is critical for maintaining quality standards. The sales and production departments collaborate, considering past data and forecasted sales volumes.

4. Inventory Management

Inventory management is the most crucial section of supply chain management and one of my personal favorites. This involves managing raw materials and finished goods, including Work in Process (WIP).

Efficient inventory management allows organizations to determine the optimal raw material volume required to fulfill future orders. Insufficient raw materials can lead to delivery delays, negatively impacting customer perception. It's equally important to maintain an optimal level of finished goods to meet expected orders. Effective inventory management also mitigates the risks of high stock levels and overage inventory over the long term.

5. Warehousing

A warehouse is where goods are stored for various purposes, such as raw materials, finished products, or semi-finished products. The primary purpose of warehouses is reducing transportation costs. Organizations need warehouses to store products, and multiple warehouses may be necessary.

Managing warehouses at different locations decreases the overall cost of delivering products to customers in a specific area. Warehouses can store goods for a prolonged period to benefit from increased prices, and companies can save raw materials for use during shortages.

6. Logistics

Logistics is the procedure of moving items from one place to another. It encompasses both raw materials and finished products. The logistics department ensures products are delivered on schedule and handles the transport of finished goods to warehouses at different locations.

The logistics department also generates invoices for customers, processes payments, and handles returns. Large organizations often hire third-party logistics (3PL) providers to manage this department, especially when sensitive handling is involved.

Conclusion

Successfully implementing the supply chain management system takes time and effort. However, the benefits are significant. Once implemented, it enhances profitability and customer satisfaction, making the supply chain a cornerstone of successful business operations.