How many Supply Chains to satisfy customers’ needs?

Roger OakdenLogistics Management, Logistics Planning, Procurement, Supply Chains & Supply NetworksLeave a Comment

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Operate with One Plan

You cannot ‘do’ supply chains – it is a planning concept. Developed in the early 1980s, the term reflects an effective plan that goes across operational disciplines for moving and storing items to meet end user needs.

The ‘doing’ is performed by disciplines that are brought together as the Supply Chains group. At the minimum, the group comprises Procurement, Operations Planning and Logistics. To be effective, Procurement and Logistics must operate within the ‘One Plan’, coordinated by Operations Planning. The diagram illustrates the elements that are brought together under ‘One Plan’.

Planning levels

The approach for planning is governed by the planning ‘Level’, which identifies the technique(s) used and the amount of detail required when planning an item’s movements and storage. There are four Levels shown on the left side of the diagram:

Strategic: The Supply Chains Network Strategy consolidates the strategies of Procurement and Logistics within the planning criteria of Operations Planning. The Strategy considers changing elements (internal and external) of the Supply Chains Network that influence the organisation, with a planning horizon of three to five years. In addition, the Strategic Action Plan identifies actions for improving the current supply chains processes within the next two years, together with timelines and resources required.

Tactical: The planning of Operations commences at the Tactical level, which takes a medium term view of the business and its environment. It is driven by Sales & Operations Planning (S&OP); an approach defined by its meeting process with associated analysis, to plan sales and operations over an extended timeline.

S&OP is often mentioned as a monthly process, but to allow an easier comparison of ‘like with like’, the periods should each be four weeks, with 13 per year. There are three periods within the horizon to consider:

  • ‘freeze period’, which is close to the current period. In this period, changes to existing plans at the Tactical level are not made, due to the likely disruption and expense. Changes to current plans happen at the Operational and Execution levels
  • ‘firm period’ where changes to plans at the Tactical level can be made, but they must be managed, such as renegotiating Procurement contracts
  • ‘flexible period’ where changes at the Tactical level can be made, due to the low risk of disruption and expense

The S&OP planning horizon is from the end of the ‘freeze period’ (which typically includes periods 1-3), out to the period required by the business for planning, installing and implementing new assets. This could be up to 24 periods and the action will change the capacity available.

Operational: Supply & Operations Execution (S&OE) converts output from the monthly/4 week S&OP plan into a weekly action plan. This consists of work order commencements and completions, allowing for actual and potential disruptions. The planning horizon is from the end of the Operational ‘freeze period’ (likely to be two weekly periods) out to the longest Lead Time of purchased materials and intermediate items, which may be 12 weekly periods. Within the S&OE planning horizon is where selling and buying commitments are made that affect the organisation’s cash flow.

Execution: Provides for scheduling production and distribution orders over their delivery lead time. To meet the Operational Plan, the schedules may have some work orders starting late, while other start early, depending on current availability of resources.

How many supply chains to plan?

Even though there is ‘One Plan’ for your business, there is more than one supply chain to plan. At the S&OP, the executive team must quickly comprehend the operational aspects of the business. This requires that product data is consolidated in two areas:

  • Sales and production of Stock Keeping Units (SKUs) are presented using a standard unit of measure. This can be a ‘standard’ case or shipper size, litres, tonnes etc.
  • SKUs are presented as ‘families’, which represent the outbound supply chains for products

The typical number of S&OP families (supply chains) is less than twelve, with each having its own supply, inventory and delivery characteristics. As an example, a family of SKUs may incorporate the following elements:

  • Sales analysed using Coefficient of Variation (CoV), that identifies the sales of SKUs within patterns, each with a different approach to serving customers. It is from a CoV analysis that types of supply chains, such Adaptive and Responsive and Flexible and Agile, evolve
  • Customers with specific requirements for their defined SKUs, for example vehicle assemblers or supermarket chains
  • Volume to Weight and Value to Weight ratios of SKUs, as the ratios can influence the selection of transport modes
  • Risks associated with the item: contamination; perishable; ageing (use by date); flammable/explosive; and theft
  • SKUs that utilise a Constraint in the business, which restricts output and therefore potential sales
  • Finished goods produced for the enterprise in defined countries and locations and using the same transport modes

Each SKU has a Bill of Material (BoM), which describes how the SKU is structured. This enables the calculation of ‘dependent demand’ for each input item, based on the ‘independent demand’ of the SKU.

S&OE uses the S&OP supply chains (families) to establish the Master Schedule (MPS) and evaluate available Capacity (RCCP), identifying the resources required to achieve the S&OP out to the planning horizon of S&OE.

The supply chains used for S&OP are then converted to inbound supply chains by allocating the items in the BoM of each SKU to a supply chain. As an example, an inbound supply chain may incorporate the following elements:

  • Materials group for the item e.g. metals, ingredients, electronic assemblies, packaging etc. as each item in a group is likely to have similar supply characteristics:
    • Each group is divided into Categories and where required, sub-Categories. For example, for a food company, the ‘Ingredients’ group may contain a Category named Sweeteners, which has a sub-Category named Glucose
    • Categories can be grouped by the similarity of their Flows (physical, money and information/data)
  • Volume to Weight and Value to Weight ratios of items that may influence the selection of transport modes
  • Critical materials and/or critical suppliers (e.g. monopoly or duopoly) that have high risks associated with supply
  • A Constraint in supply, such as a port operating at capacity or seasonal capacity constraints
  • Intermediate goods produced by suppliers or contractors in defined countries and locations and using the same transport modes at Links in the supply chain
  • Risks associated with the item: contamination; perishable; ageing (use by date); flammable/explosive; and theft

How many inbound supply chains will there be? To effectively manage the analysis and planning process there is likely to be less than twelve.

While the total number of outbound and inbound supply chains of each enterprise will depend on the business model, it will certainly be more than one! So why do so many commentators refer to ‘the supply chain’ when discussing an organisation’s many supply chains – they do not refer to a fleet of trucks as ‘the truck’!

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...

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