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Demand and Supply Planning Essay

Abstract

This paper demonstrates the concept of Supply Chain and the understanding of its different parties. How existing practices in demand planning improve forecast accuracy with advanced statistical forecasting capabilities and how demand planning is different than other SCM parties in structuring flexible hierarchy models & inventory integration. In addition to explore the Integrated Demand and Supply Planning for Consumer Goods and Services Companies, where we show a Case Study for Nestle Company using weather forecast data that shows a significant insight into the extent to which difference products and/or customer sales were impacted by weather. On the other hand, Globalization and the challenges of managing a global operation – such as forecasting in the face of uncertainty and reducing inventories for improved cash flow.

Introduction

What is a supply chain?

The supply chain concept arose from a number of changes in the manufacturing environment, including the rising costs of manufacturing, the shrinking resources of manufacturing bases, shortened product life cycles, the leveling of the playing field within manufacturing and the globalization of the market economies. At a high level, a supply chain is comprised of three fundamental processes which are integrated. Procurement process involves sourcing and designing supply contracts with vendors and also developing interfaces which act as a conduit for information. Production and inventory control encompasses the manufacturing, material handling and warehousing sub-processes. Distribution and logistics process deals with the retrieval and transportation of products to retailers, distribution centers or final customers. These processes interact with one another to produce an integrated supply chain.

UNDERSTANDING THE SUPPLY CHAIN

There are specific roles for each function in the Supply Chain that are supported by the activities of Demand Planning. At a basic level, the Supply Chain flow of a product looks like this, beginning with ‘Create’ and ending with ‘Deliver’.

Source

Create
Plan
Sell

Deliver
Make

Create: One level below the “Create” flow are individual departments that support these Supply Chain actions. “Create” involves Research & Development, Regulatory Affairs, and Product Development as new formulas are discovered, tested and developed for the market. Sell: It is focused on introducing the product to market and driving consumption. Sales, Marketing, Category Management, Market Research, Marketing Services, and Trade Marketing are key departments that support this process. This phase is also a critical communication feed to the Plan phase as it is closest to consumption and customer needs. Plan: It is the center point of the Supply Chain responsible for the creation of inventory levels that coincide with the needs of customers or distributors, which is one step before consumption.

It is also the point where financial planning is executed and P&Ls are managed. Demand Planning, Supply Planning, and Finance departments are usually found within this point in the Supply Chain. It is important to note that the position of Demand Planning here is the “hand-off from Sales to Operations, giving it the unique opportunity to link the company’s supply chain activities. This is the kick-off to execution of the company’s strategic plan. Source: It is the first step in producing product for sale, as raw materials, packaging components and finished goods are procured. Purchasing and Contract Manufacturing take place here in preparation of the manufacturing process.

Make: It is simply the manufacturing of materials and components that result in “finished goods” inventory. In a synchronized Supply Chain Manufacturing, Packaging, Quality Control, and Technical Operations execute the inventory plan developed upstream in the Plan phase. Deliver: It is the physical movement of finished goods from manufacturing points to the distribution network, and finally to customer distribution centers, ready for replenishment to store level locations for consumption by the public. Distribution, Transportation, Logistics, and Customer Service are the key organizations that reside in the final phase of the Supply Chain.

Demand Planning

At the front end of your supply chain, your demand plan accuracy drives your production, inventory, distribution, and buying plans. With Demand Planning, you’ll have the tools to improve forecast accuracy with advanced statistical forecasting capabilities. You’ll get the sharpest, most accurate picture of customer demand as a solid foundation for your sales and operations plan, plus tools to help you extend beyond forecasting to create a fully synchronized demand-replenishment plan integrated with your ERP system.

Demand Planning provides a single, global view of the “truth” to accurately predict and shape customer demand across your enterprise. It helps manufacturers and distributors like you understand your total demand plan to take into account:

* Seasonality
* Promotions and events
* Product lifecycle changes

Demand Planning contains three modules that you can deploy individually or combine to form a complete supply chain planning platform: I. Demand Planner—to deliver accurate “self-learning” forecasts for improved forecast accuracy. II. Inventory Planner—to optimize inventory at each distribution hub, ensuring the highest levels of available stock for a given customer service-level target. III. Replenishment Planner—to plan inventory and distribution movements through every node of your supply chain, from supplier through manufacturer and all levels of your distribution chain. More than 25 years of supply chain management experience built into Demand Planning, so you can be assured there’s proven, rich functionality driving your global supply chain, with supply chain experts guiding you to best practices. Demand Planning provides advanced statistical capabilities combined with market knowledge gained through internal and external collaboration to bring pinpoint accuracy to your demand plans. With Demand Planning, you get:

Demand forecasting: This powerful forecasting tool in a graphical environment automatically detects seasonality, trends, slow-moving items, unusual outliers, and step changes in demand. With the “self-learning” engine, you forecast demand at any combination of product group, customer, or channel. Model scenarios to see the effect of promotions and events and their future impact.

Web-based collaboration: Share knowledge with every stakeholder in the demand planning process. Your internal sales and demand planners better shape demand. External customers contribute with visible input to improve your responsiveness. Suppliers upstream know your plans and improve their delivery performance.

Inventory planning: Analyze, model, and strike the right balance between target service levels and your inventory investment. Redistribute inventory according to predicted demand to ensure it meets tailored service levels—and increase your stock turn rates.

Replenishment planning: Automatically align supply replenishment with demand across your entire manufacturing and distribution network. Using different modeled scenarios, you can see results ripple through and quickly realign inventory, transport, manufacturing, and buying plans.

The Demand Planning Difference

Unlike other supply chain management systems, Demand Planning uniquely offers: * A “self-learning” statistical forecasting engine that improves accuracy over repeated forecasting periods by learning and continually adjusting its model between forecast and actual.

* Collaboration with all stakeholders in the demand planning process through a web-based user experience. * Flexible hierarchies so you can properly model your physical and operational supply chain—and change the models as your business changes. * Integrated inventory planning and optimization for stock-based supply chains so you can balance investments in inventory with desired customer service level availability.* Replenishment planning across your entire distribution chain, ensuring inventory flows through the chain to protect customer-facing distribution hubs and ensuring the highest levels of availability. * Exception alerting to draw attention to potential shortfalls in availability so you can respond more quickly to re-flow supply from alternative sources.

Integrated Demand and Supply Planning for Consumer Goods and Services Companies

Accenture (Global Management Consulting) helps consumer goods and services companies with aligning customer expectations with supply chain plans through our integrated demand and supply planning approach.Overview According to Accenture research, high-performance businesses are much better and faster than their competitors at allocating resources and achieving superior return on investment. And that is largely because their approach to demand planning is highly sophisticated. Global operations call for a higher level of integration between demand and supply. Accenture helps consumer goods and services companies collect actionable insights on market trends and customer expectations and align them with supply chain plans to get the right products to the right consumers at the right time through our integrated demand and supply planning approach.

Sales and Operations Planning (S&OP)

There are many ways to manage demand and supply planning activities. In most larger companies, the Sales and operations planning (S&OP) process is the most common. S&OP is at the heart of balancing supply and demand, and aligning the company around a common financial, demand and supply plan. It is an integrated business management process through which management continually works to achieve alignment among all functions of the organization. Smaller companies can benefit greatly from this approach. Most try to facilitate the process using spreadsheets and data pulled from the ERP. The problem, volatility of demand, uncertainty of supply, and increasing customer expectations are challenging companies in their goal to maximize business opportunities and minimize risk.

There are many components to S&OP plans. In most situations an S&OP plan includes an updated sales plan, production plan, inventory plan, new product development plan, and a resulting financial plan. At the highest level, these plans are designed to achieve the financial and strategic objectives of the company. In most companies, the planning frequency is monthly and planning horizons are 12 months. Situations in which there are short product life cycles and high demand volatility require a more frequent S&OP planning schedule. A properly implemented S&OP process routinely reviews customer demand and supply resources and “re-plans” quantitatively across an agreed rolling horizon.

The re-planning process focuses on changes from the previously agreed sales and operations plan. While it helps the management team to understand how the company achieved its current level of performance, its primary focus is on future actions and anticipated results. Demand Caster methodology includes all elements of a robust S&OP process. It follows the traditional 5 step S&OP process described below.

Sales and Operations Planning Steps:

1. Data Gathering: Collect data on past sales, analyze trends, and report forecasts 2. Demand Planning: Validate forecasts, understand sources of demand, account for variability, and revise inventory and customer service policies. 3. Supply Planning: Assess the ability to meet demand by reviewing available capacity and scheduling required operations. 4. Reconciliation of Plans: Match supply and demand plans with financial considerations 5. Finalize and Release: Finalize the plan and release it to implementation


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