More than Just Buying
Like Demand Planning, within most organizations the role of Supply Planning (or inventory planning) is typically located within the inventory planning group. In fact, often the Supply Planning role is referred to as Supply Chain Planning and isn’t even a distinct role from Demand Planning. I have chosen to make a distinction between Supply & Demand planning to highlight the very unique tasks involved. In addition, I believe very strongly that even though the Supply Planning role is often located outside the true Logistics department it has such an impact that it felt necessary to highlight.
The Supply Planning position is all about execution. A Supply Planner doesn’t generally make the decision on who to purchase inventory from, at what price to buy inventory at, or how much inventory the organization plans to sell. In the most basic sense a Supply Planner has the organizations checkbook and is responsible for cutting purchase orders to manufactures for inventory. The goal is to consistently ensure that there is a steady supply of inventory to cover current and forecasted sales orders without producing surplus.
A Day in the Life
The Supply Planner’s most urgent responsibility is to resolve shortages of inventory by collaborating with suppliers to expedite goods and internal sourcing departments to find additional sources. Shortages can have a very real and dramatic impact on a company’s bottom line and as a result can consume a significant amount of the day to day. In order to avoid shortages (or surpluses) the Supply Planner needs to be constantly looking out into the future to evaluate if there is enough supply on order to feed the project demand. Typically, a Supply Planner uses a report called a DRP (Distribution Requirements Planning) or MRP (Material Requirements Planning) to help project the company’s future inventory on hand. The DRP/MRP is a report that is constantly changing depending on how demand actually performs and needs to be reviewed by exceptions at least weekly (sometimes daily).
The final key task is working with suppliers to adhere to purchasing requirements. Suppliers often ask or require certain constraints that need to be accounted for when planning out the purchasing. For example, an import supplier may require a supply planner to purchase in full truckloads. This will have a dramatic impact on the frequency in which purchase orders need to be issues. Another example of a constraint is that a single supplier may have very different lead times for potentially complementary items. The unique lead times for each item needs to be accounted for when planning the supply of the item.
Fill Rate (or Service Rate) is the most critical Supply Planning metric and really one of the most important metrics for the entire Supply Chain organization. Fill rate is typically the percentage sales order lines that an organizations was able to fulfil within the agreed upon lead time to the customer. Fill Rate goals will differ by industry, organization & even product lines but typically companies target somewhere between 95% & 98%. In addition to fill rate Supply Planners are responsible for measuring surplus and making it visible to the organization. This generally involves working with sales to find an outlet to sell the overstocked item. Finally, a Supply Planner needs to keep a close eye on the performance of its assigned suppliers. This could involve measuring key assumptions used in the purchasing process like suppliers lead time and the suppliers fill rate.
Supply Planning is a high stress & highly visible role. One day you are a hero and another day you aren’t. The key to success in a supply planning role is to be able to take some punches and respond with clear, reliable & objective information.
In my next post we will look downstream to one of the key groups within the Logistics department, the transportation team.