A supply chain is a network of individual functions within an organization that begins with the development of a strategic plan and ends with the delivery of a product or service. Those functions are listed below:
- Demand Planning
- Supply Management and Procurement
- Inventory Management
- Warehousing Operations
- Manufacturing and Service Operations
- Transportation Operations
- Customer Service Operations
Demand forecasting is an estimate of a company’s future needs and forms the basis for a credible demand plan. Typically, sales forecasting defines what customers will buy over a defined period, usually one year. In turn, the demand planning function defines what inventory and resources are needed to support the sales forecast.
As an example, a commercial baker sells cakes, cookies, and bread. The company forecasts, or predicts, how many cakes and cookies its customers might purchase categorized by size and type. These quantities and variations translate into raw material requirements and other resources needed to manufacture finished products. The forecasting part in this example is the finished products of cakes, cookies, and bread, and the demand plan defines the ingredients, ovens, mixers, and equipment used, as well as the number of people preparing the baked goods.
Demand planning is the process of planning goods, materials, and resources required for procurement and manufacturing to support the sales forecast. The process starts with the general requirements defined by the sales department for finished or semi-finished products (which require additional manufacturing steps to become finished products; they are also called work in process). The plan further enables the generation of procurement requisitions for raw materials and other goods and materials. The demand planning function also defines other resources needed for manufacturing like mixing and baking equipment along with personnel staffing to perform the necessary operations.
The demand plan attempts to achieve a balance that defines the necessary supply elements with anticipated customer demand. This balance is critical to ensuring stock levels are optimized to satisfy manufacturing process requirements, while simultaneously making sure stock levels are not excessive. Having too much inventory is expensive and has inherent risks of obsolescence and shelf-life expiration.
Reference: Warehousing Operations Certification Track. LINCS in Supply Chain Management Consortium. May 2016. Version: v2.22. www.LINCSeducation.org.
Lecturer (Technical), Department of textiles at SKTEC