Strategic Planning is Key for a Successful Supply Chain Network

There are various methods of planning to guide a company when designing an optimal supply chain network.  With today’s level of uncertainty, planning must account for both predictable and unpredictable circumstances.  Proper planning is also necessary to ensure a company sufficiently anticipates any potential issues and is able to implement the solution within the required lead time.  With plans, a company becomes active rather than passive.  The framework for planning is based on the methods shown below:

Strategic Supply Chain Planning

Strategic planning is the process of determining the company’s objectives and resource requirements.  The goal of strategic planning is to define the overall approach to stocking points, transportation, inventory management, customer service and information systems and the way they relate to provide the maximum return on investment.

Strategic planning is an effective tool for managing predictable changes in requirements where timing can be anticipated.  This type of planning is focused on forecasting needs far enough in advance to efficiently utilize resources throughout the supply chain.  Granted, forecasting with a long planning horizon is a risky business, and distribution plans based on such forecasts are often ineffective.  Nevertheless, the forecast is a supply chain’s best available information concerning the future.  In fact, the only way to survive the rapidly changing distribution environment today is to have good strategic supply chain plans that include shared information throughout the supply chain.  Strategic planning addresses such issues as organizational structures, realignment of capacities, network planning and impact on the environment.

Tactical Supply Chain Planning

The tactical planning time frame is one to two years.  Its primary purpose is to plan policies and programs and set targets for accomplishing the company’s long-term strategic objectives.  Tactical planning must anticipate the distribution center workload to prevent overloading the primary resource-the workforce-during peak demand.  The tactical plan defines how to develop the resources needed to achieve the goals in the strategic plan.  For example, if a company decides in its strategic plan that it requires a new warehouse location to enhance customer satisfaction, the tactical plan allocates resources and determines the timing for the new facility.  For example, some of the steps to follow when relocating a warehouse include:

• Locate the new facility
• Sign the lease
• Design the new facility
• Modify the facility according to design
• Hire new employees
• Train employees
• Start transferring material from vendors and existing plants
• Start shipping from the new facility

Tactical planning first attempts to provide timing for each step.  Second, it considers major issues, such as identifying specific skills required to accomplish the plan and the time needed for each step.  Third, it identifies the specific capital requirements for each step.  A fourth component is often the need for outside sources.  In warehousing, this could mean anything from partnering with a consultant to hiring a construction company.  Other types of tactical planning include inventory policies, freight rate negotiation, cost reduction, productivity improvements and information system enhancements and additions.

Operational Planning

Operational planning implements tactical policies, plans and programs within the framework of the distribution system to meet the company’s strategic objectives.  The time frame can vary from daily to weekly to monthly.  The major components of operational planning are managing resources, such as labor and capital assets, and measuring performance to aid operating efficiency and anticipate future operating issues.  An operational plan incorporates the philosophies of the strategic plan and general timing of events in the tactical plan and devises the daily routine.

An operational plan is where the rubber meets the road, so to speak.  Typically, it is where the planning process fails because the majority of the daily activities are routine.  No priority is put on implementing the planned activities, and it becomes easy to lose sight of the planned goals.  Operational planning can involve tasks such as distribution center workload scheduling, vehicle scheduling, freight consolidation planning, operations expense budgeting and implementing productivity improvements and cost reductions.

Contingency Planning

One tool that is often overlooked but particularly meaningful for sound distribution management is contingency planning.  Contingency planning is a defensive tool used to guard against failure resulting from unpredictable changes in distribution operations.  Typically, contingency planning asks “what if” questions, such as “What if a major supplier is on strike?” or “What if we had a recall?” or most recently “What if we had a major impact to the global supply chain?”  The prepared manager will look to contingency planning to help counter the potentially devastating impacts of the many emergency situations that may directly involve distribution.  They will determine in advance what course of action will be required if a given unanticipated change in requirements or circumstance occurs.

Contingency planning is the opposite of crisis management, which entails developing a plan after something has occurred.  The idea behind contingency planning is to significantly reduce the lead time required to implement a plan of action. You do not wait for a fire to start before installing sprinklers in the warehouse.

Events that can adversely affect a distribution system include:

• Energy shortages can affect both the warehouse and transportation systems.  Transportation is the most talked about distribution function that is affected, but energy shortages also affect the warehouse.  On the transportation end, how do you maintain service?  Do you offer less product line?  Repackage to maximize loads?  Warehouse energy shortages could affect lighting, heating and material handling equipment.
• Strikes can occur in the company itself or at key material or service suppliers.  The objectives of a strike plan will need to be determined.  Items to consider are personnel and property protection; maintaining goodwill with customers, the public and employees; and resuming operations as soon as possible.  Decisions will need to be made on whether to build inventory, divert work to another plant, outsource work, lay off workers, operate with non-striking employees or hire temporary workers.
• Natural disasters, such as forest fires, tornadoes, floods, and hurricanes, can result in employees’ lost wages and time and computer backups.
• Health crises, such as the COVID-19 pandemic, can impact all links in the supply chain.  Manufacturing, shipping and delivery can experience delays, while stay-at-home orders, panic buying and store closures can result in supply shortages and a shift in consumer shopping habits (such as increased e-commerce sales).  Changing order volumes and profiles can also present additional challenges for distribution operations.
• Product recalls can be time-consuming and expensive, so it is important to be ready to minimize cost and damage to the company’s image.  Items such as lot shipment identification, lot segregation and return procedures, legal obligations, production contingencies and public relations should be addressed.
• Acts of violence can occur to an enterprise or be completely unrelated but still have an impact, such as when security concerns in September 2001 closed U.S. borders for several days and interrupted the flow of goods.

Designing and optimizing a distribution network is more challenging than ever today, as consumer expectations and the frequency and level of disruptions continue to increase.  Contact us today to learn how we can help you launch a successful network design or supply chain optimization project during these uncertain times.