Supply Chain Planning 101

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How do organizations orchestrate all of the moving parts around managing or manufacturing the goods or services they market to meet customer demand? This is the essence behind supply chain planning. Organizations look to optimize the amount of inventory they carry or manufacture with market demand. This is where supply chain planning software comes in.

About supply chain planning

Common business processes for supply chain planning enable organizations to predict demand, which is a key driver to manufacturing plans, including purchase plans. Supply chain planning also may include capacity plans, production scheduling, and even network planning. Lastly, supply chain planning typically includes both tactical and strategical plans. Time ranges may vary from a few weeks to several years.

How supply chain planning works

Supply chain planning requires actual transaction data as a required input. Typically this input data comes from a financial system or enterprise resource planning system (ERP).  This data includes:

  • Current inventory levels
  • Materials in stock
  • Sales orders (consumption data or actual sales).

Planners may create scenario plans or what-if plans by adding knowledge that is not known by the system or plan.

Who should use supply chain planning software

The short answer is just about everyone. According to ARC Advisory Group, manufacturers represent 85% of the user base, followed by consumer packaged goods companies (CPG), with chemical, pharmaceutical, and retail rounding out the group. Supply chain planning software has become so affordable that even small to mid-size (SMB) companies can deploy it rather easily.

ROI of supply chain planning software

According to AMR Research, “Billions [of dollars] in operating margin and trillions in market capitalization separate supply chain winners from losers.” Specifically, companies that are best-in-class at demand forecasting average 15% less inventory, 17% stronger perfect-order fulfillment (“perfect” means complete, accurate, and on time), and 35% shorter cash-to-cash cycle times. They also have only a tenth of the stockouts of their competitors. In terms that Wall Street appreciates, an improvement of 10 percentage points in a perfect-order rating correlates with 50 cents better earnings per share.

How to decide on a supply chain planning software

When looking at supply chain planning software, ensure that you have your requirements documented, including a list of “must haves” and “nice to haves.” Buy something not only for today, but think about where your organization will be two years later. Think about cloud versus on-premise. Are there reasons you might want one or the other (government regulations, for example)? Consider the end-user experience and how the software may improve their day-to-day, as well as foster collaboration. Think about ways the software could automate some of your current manual processes build a strong business case.

If you are in need of assistance in building out a business case, do not hesitate to reach out to Vanguard Software. We have years of experience partnering with our clients.