Organizations with the responsibility to manage a supply chain have several priorities that need to be continually balanced: completing orders on time and in full, meeting financial goals, and running facilities at optimal productivity levels, to name a few. Achieving balance across these competing priorities requires an organization’s demand planning be integrated with supply planning.
Sales and Operations Planning (S&OP) is a process that intends to align supply with demand because the outcome of the S&OP process is a consensus-based operating plan that unifies an organization’s ability to create supply against the expected demand of their products.
Sales and Operations Planning
The title “Sales and Operations Planning” itself implies that supply planning and demand planning are connected. Demand planners work with marketing and sales to forecast future demand and operations to generate the supply plan. The S&OP process helps identify discrepancies between the demand and supply plans, and then S&OP teams can apply different methods to bring supply into balance with demand.
It is essential to understand what each function – both demand and supply planning – contributes to an organization before discussing how organizations can benefit from integrating demand planning and supply planning.
Without a proper understanding of their demand, organizations can fall short in facilitating orders and maintaining a steady workflow. Demand planners leverage historical sales data and an awareness of upcoming new product launches, promotions, and other marketing initiatives to anticipate future demand.
During the supply planning stages of the S&OP process, supply planners interpret their organization’s demand forecasts and create a roadmap for meeting that demand. Supply planners work closely with other logistics, finance, operations, and manufacturing teams to gather accurate data.
Unconstrained Versus Constrained Planning
When performing demand planning and supply planning, it can be valuable to consider the demand forecast, often referred to as an “unconstrained forecast.” Its primary purpose is to indicate the level and directions of future activity so that all teams and functions in an organization have time to respond to changes. This unconstrained forecast is based on the actual demand potential of running forecasts, with no consideration given to constraints that may exist, such as capacity, materials, cash flow, etc.
On the other hand, the constrained forecast is a forecast constrained by the organization’s operational side. While it may not be realistic to fulfill the unconstrained forecast, it allows organizations to explore possibilities.
After considering the potential upside that might result from meeting the unconstrained forecast, evaluate the forecast from a constrained perspective since it is this view that translates into actionable and realistic operating plans. Typical constraints include:
- Minimum and maximum batch sizes
- Acceptable backorder numbers
- Accessibility of specialized skills in the manufacturing process
- Storage capacities
- Safety regulations and employee well being
- Time-based limitations on production
- Service Levels
By anticipating and properly planning these and many other constraints, an organization is better positioned to meet customer service goals while minimizing costs.
Some products or product families require different inventory optimization rules/constraints to meet both the demand and business constraints. Advanced Supply Chain Planning packages, like Vanguard Predictive Planning, can easily support this requirement.
Advantages of Supply Chain Planning Software
Adopting supply chain planning software can help an organization coordinate demand and supply planning, ensuring all contributors can access the same data through a single efficient and accessible platform.
Compared to manual planning methods, supply chain planning software provides the ability to analyze large data sets, leading to more accurate forecasts. With purpose-built software, it is also more likely to detect trends and patterns within the data. The right software also decreases the amount of time spent compiling and reconciling spreadsheets and avoids creating conflicting demand and supply plans. And with supply planning software, you can generate a supply plan to match the organization’s demand plan swiftly and systematically.