Read more: Making strategic decisions through supply chain network design (case study).
Successful supply chain management is impossible without proper planning. However, the latter is not as easy as it sounds. In this blog post you are going to learn about various supply chain planning levels (strategic, tactical, and operational) and dive deeper into strategic planning done with modeling.
Contents:
Any large company has a plan for sales, production, purchasing, and sometimes transportation of products. However, few of these plans can be rigidly linked because, in most cases, they are made separately from each other and in different measurement units.
For example, a production plan may be in tons, a sales plan in dollars, and a shipping plan in a number of freight cars or containers. Therefore, it can be hard to understand how many freight cars and containers needs to be shipped to transport all the products.
The reason this happens is because each department of the company aims at solving its own problems and looks at the business from its own point of view.
End-to-end supply chain management with integrated planning
Depending on the type of business, specific problems can vary greatly from company to company. However, the general trend of disparate data and lack of information exchange between departments is very common. The world's most successful companies have long gone from siloed to integrated business planning with the concept of Sales and Operations Planning.
Usually, companies do supply chain planning at several levels, namely strategic, tactical, and operational. Each level differs in its objectives, planning horizon, and level of detail.
Compared to other levels, strategic and tactical planning are crucial to successful supply chain management. It could be said that the so-called Pareto's law is applicable here as 20% of efforts in strategic and tactical planning brings 80% of the total effect of planning. On the other hand, errors made on the strategic level happen to be the costliest ones. So, what do you need strategic planning for?
Let’s explore what strategic planning is in more detail.
This type of planning usually covers a several-year time horizon. It influences the creation of policies and procedures for procurement, manufacturing, and logistics to meet a long-term plan of the company.
When developing a strategic plan, a company identifies the major product groups it offers to the market and the potential demand for them. It also designs the supply chain structure that will help to meet the demand. The strategic level addresses supply chain development and restructuring challenges, investments in production and warehouse modernization, reduction of logistics costs, etc.
In strategic planning, the company's management can get answers to the following questions:
The most important financial and investment decisions are made at this level, therefore their impact on the businesses’ bottom line is substantial. That is why supply chain strategic planning is considered a critical component of supply chain management.
With the company’s finances at stake, the question that arises is how to do supply chain strategic planning with minimal risk.
At this level of planning, it is necessary to consider many factors and constraints, numerous indicators, types of costs, and connections between them, as well as to understand the supply chain structure. When planning changes, a company would need a tool to test different options and safely look into the future. Supply chain modeling is perfect for this task.
Although Excel is one of the most common tools in supply chain management, it has limitations. Spreadsheets fail to describe all intricacies of a supply chain network, connections between its elements, and factors that could affect operations.
More complex computer supply chain models allow a company to create different scenarios, compare them with each other, choose the best one, and justify the chosen decision. To build such models, software for supply chain strategic and tactical planning could be used, and anyLogistix is an example of such software.
A strategic model operates with generalized and aggregated data, and the re-planning cycle is relatively long (from several months to a year or more). How does it work?
Suppose you have a real management problem. For example, this could be a facility location problem where you are trying to decide where to locate facilities and which quantities should be shipped from the facilities to the markets.
The next step is to transform the real problem into a supply chain model. For this transformation, you would need to reduce the complexity, or in other words, simplify the reality. As an option, you could aggregate demand into fixed quantities instead of considering fluctuations in demand.
In the described case, the facility location problem is formulated as a mixed-integer linear programming model that can be solved with the help of algorithms in a tool such as anyLogistix.
The software will calculate the solution. In this example, the solution would include suggestions on new facility locations and product quantities that should be shipped from each opened facility to each market. The software would find the best solution in terms of total production and logistics costs.
But can you take the solution and present it as a managerial decision? Not always.
Supply chain problem-solving workflow with modeling
The software provides you with a solution to the mathematical problem. But to transfer this solution into managerial decisions, usually management expertise is needed.
Here you would need to review the simplifications of reality you’ve made for the model. Then in the analysis you should consider supply chain risks, flexibility, and so on. Because of the need for managerial expertise these supply chain models are called decision-supporting, not decision-providing.
Read more: Making strategic decisions through supply chain network design (case study).
With their differences and unique traits, strategic, tactical, and operational planning are of utmost importance for successful supply chain management. However, when it comes to the strategic level, the companies should be thorough and ensure their decisions are based on data, not on a gut feeling.
Supply chain modeling is widely used in the industry for all levels of planning, particularly strategic planning. It gives companies room for testing their hypotheses and supply chain-related changes as well as solid data to support business decisions.
Delve into supply chain optimization and simulation – two of the most applied technologies to develop network design strategies and solve complex supply chain problems. Read our white paper to find out more about these tools.