The purpose of supply planning at a high level is to analyze and manage the risks and opportunities in the supply chain to the benefit of the organization. At a more granular level, supply planning can be an inter-departmental function to achieve the same benefits with specific suppliers and materials.
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Explore this issueJune/July 2018
The amount of planning time devoted to supply planning depends on the nature and operational culture of the organization. Some organizations are informal and ad hoc and others are highly organized and detailed in their planning. Whatever the nature of the planning functions, every operation can benefit from supply planning for its ingredients, materials, and packaging.
Supply Planning Review and Specifications
The ideal supplier is one who can consistently deliver fresh materials with maximum remaining shelf life and no food safety risk on spec, on time, in the exact quantities required by production, and at the lowest possible price. In reality, each supplier meets only some of the ideal requirements.
When considering a new material or a new supplier, the starting point of a supply planning review includes establishing the acceptable parameters for each input. These can be differentiated as the required and the desired characteristics. This review document is usually in the form of an extensive specification. The details in the specification inform the planning team of which characteristics are critical to the safety, quality, and functionality of the finished product and, therefore, non-negotiable. These characteristics may be any combination of organoleptic, compositional, microbiological, or functional.
A specification may include other requirements that the supplier must meet. These include standards of operation for food safety and quality, and increasingly, social and environmental stewardship. Other standards may include requirements for Good Manufacturing Practices, Hazard Analysis and Critical Control Points (HACCP), traceability, allergen management, and foreign material control. Additional requirements may be part of a product’s quality, origin, ethical, and environmental stewardship claims. Part of the supply planning activity can be to review performance against all requirements to determine if the supplier is adequately meeting them.
Supply planning must also integrate production requirements into the specification. These include things like lead times for ordering, minimum and maximum order quantities, emergency supply capabilities, and determining how much is going to be required overall for a defined contract period or the upcoming year. For seasonal production, the raw material needs to be available during the season. While the price may be affected by the level of service required, because short lead times may cost more, the capability of a supplier to actually meet the lead times and the risk of failing to deliver must be assessed.
For some functional materials, requirements may also include the availability of technical support from the supplier for day-to-day usage, product development, or troubleshooting modes.
A potential challenge to the supply planning function occurs when each department starts to inflate estimates and narrow specifications to drive “improvement.” This provides a skewed specification to the planning and purchasing team. Realistic numbers versus negotiating numbers should be used to inform the planning process and carry out meaningful assessments and cost impacts.
The impact of operational supply requirements on planning varies according to how dynamic their customer demand environment is. For example, with stable predictable sales and production schedules (every production manager’s dream), the supply system can be carefully planned and operated to minimize costs and maximize efficiencies. The more dynamic the sales and production environment, the more variable and dynamic the supply ordering process, and the more robust and flexible the supply base may need to be. In this case, minimizing supply costs and maximizing efficiencies may need to be balanced against a need for short lead times and variable order sizes. Another less desirable option is larger raw material inventories, which carry the risk of material expiring before they can be used.