Planning is the foundational element in the supply chain. Companies would fail to survive without the proper development and execution of strategy. Planning involves phases of decision to answer questions such as;
– How and when to source the product?
– What manufacturing strategy is best to convert the material to a final product?
– What mode of transportation to use in moving inventories?
– How to optimally design a distribution network
– How supply chain risks are managed?
– How costs are reduced without compromising quality?
– What information system support is needed to facilitate information sharing?
The above questions create a set of policies and procedures to manage the flow of materials, information, and money.
Levels of planning
The best way to rationally understand the overall supply chain management is to look at its planning phases. These planning levels give you a logical understanding of supply chain management processes. The three levels are;
Strategic planning – oftentimes it is called supply chain design or strategy. It is the high level of planning that requires long term decision-making (planning horizon usually 3 to 10 years). It influences the creation of policies and procedures for procurement, manufacturing, and logistics to meet a long-term plan of the company. It lays the foundation for the processes necessary for the entire supply chain to work effectively and efficiently. The decisions at this level are carefully selected as their impact to the business is substantial, that is why it is a critical component of supply chain management. Examples of decisions made at this level include;
– How many distribution facilities are needed and where?
– Increase revenue by 10%
– Mergers and acquisitions to expand market share
– Supply chain configuration
Tactical planning – strategic plan needs to be broken down to deliverables, so it is workable and achievable. That is where tactical planning comes to play. Unlike strategic planning, decisions at the tactical level usually span from 6 months to a year. At this stage, the goal is to maximize efficiency within short-term operations given the limitations initiated in the strategic planning. In simple terms, short-term objectives must create value to support the strategic direction of the organization. Examples of tactical decisions include;
– Quarterly or semi-annual forecast
– Policies to reduce inventory
– Supplier selection
– Production schedules at product family level
Operational planning – these are the day-to-day or weekly activities needed to carry out tactical goals. During this level, activity control policies are implemented to ensure daily activities are optimized and create value. This is the most apparent processes we see in the daily operations of the business. Examples of tasks done at this level include;
– Taking customer order
– Production schedules at end item level
– Weekly inventory cycle count
– Generate packing list
– Levels of planning can be summed up to the pyramidic view.
Figure 4. The pyramidic view of planning levels of supply chain management