Pushed by the advance of globalization, and in face of growing market demands, different industry sectors have begun to focus on optimizing supply chains and production processes. That’s why we think that Constrained Supply Planning: as unknown as important.
As is well known, the goal of supply chains is to optimize communication among the different sectors involved, as well as the production and distribution processes of the product with regards to timely delivery, in the precise quantities and at the expected costs. In this way, it’s advisable to reach a balance point between supply and demand.
Over time, this process has spread beyond the borders of companies, integrating the different actors and components such as suppliers and distribution channels. It should be also kept in mind that the starting point for adequate planning of a company’s supply chain is a thorough understanding of the demand to guide all actions and processes towards its satisfaction and the opinion and behavior of consumers are also integrated.
Currently, supply chain planning does not only cover optimization processes, but has also become a consensus process. It is for this reason that Sales and Operations Planning, better known as S&OP, its acronym, a monthly planning process that people use to reach a consensus on a resources’ assignment plan comes into play. This process bases on forecasts of up to six months with a monthly frequency.
It’s a process
Among the steps for its execution, there’s the review of supplies, pointed at the development of long – term capacity plans and short – term production requirements, that’s a restricted supply plan, and also the operational review which analyzes the financial impact of the restricted supply plan, making what we know as: compensation decisions. These risk analysis, quite common in financial fields, are extremely useful to supply chain processes.
But what is a restricted supply plan?
Basically, it is a sequence of actions to take in the future, keeping in mind the restrictions regarding the availability of raw materials and production capacity determined by quality issues, fluctuations in demand and difficulties in the distribution and delivery process. Its main function is to ensure that production process doesn’t start without materials and prevent over – reserving resources.
Nowadays, planning processes focus only on supply chains with unlimited capabilities without anticipating many of the difficulties that can arise along the way, resulting in delays and losses. Enterprises uses restricted supplies planning to cushion this impact by designing a replenishment plan in phases, thus guaranteeing optimal service provision without affecting inventory policies, but, above all, providing a practical, realistic and executable plan.
Restricted supplies planning is key to avoid:
Supplier limitations
When the capacity of the suppliers of certain products is below the expectations and/or need of the company.
Factory limitations
Insufficient sets, very short shifts and low production stages.
Storage limitations
Facilities with low capacity.
Loading and unloading limitations
Limited reception and delivery capacity.
Transportation constraints
Restrictions on vehicles, routes or schedules.
Time constraint
Production and storage restrictions.
Aiming to dealing with these types of difficulties that constrained supply planning follows a specific process, as described below.
Step by step
The supply chain must be constantly supervised, paying special attention to its weak points. Worth to consider that digitizing the supply chain processes not only speeds up its operation, but also makes it more adaptable and accurate, anticipating risks and achieving a better coordination of its parts.
The kickoff
The first thing to do is determine the key components for the supply chain operation. This implies reviewing the materials lists and cataloging them, seeking to identify those available in very limited quantities.
Based on specific characteristics, such as supplier conditions, it’s possible establishing a risk index that helps identifying supplies in shortage. After this identification process, companies are able to measure the risks to which they are exposed. It is of the utmost importance to maintain constant communication with suppliers seeking a draw up contingency and information exchange plans to monitor delivery times and inventory levels and thus generate early warnings as well as recovery plans.
Even in the case of not having visibility of supply chains or having limited communication regarding their functioning and available resources, it’s possible to elaborate risk hypotheses by collecting information from various sources such as data from the industrial sector to which the company belongs, transport and distribution conditions and statistics at the regional and even national level.
In case of taking the risk of delays or stoppage in production (generating losses), it’s possible to seek alternative suppliers. Likewise, it is important to keep in mind the local policies regarding the transport of assets.
Teamwork
It’s important to have a team with experts in marketing, sales, operations and strategy who are able to make adjustments. It’s useful to prioritize logistics needs with views to covering the contingency, especially to minimize the impact on price variations.
This kind of planning is widely used in food and pharmaceutical industries since they’re based on a process production scheme. In this type of planning, the selection of suppliers and the assignment of supplies requirements is a critical factor to optimize competitiveness by achieving not only excellent customer service, but also prices that allow them to compete in the market.
The providers
To achieve these goals, companies rely on only a few suppliers as strategic partners from the design phase to the delivery of the final product. These suppliers are also classified, either individually or in different groups based on the material they provide. Depending on the demand, business should use several providers instead of relying on just one, which is risky.
Regarding the selection of suppliers, the Systemic Analytical Process is particularly useful. This tool, also used to qualify and select suppliers, is mainly used to generate an analysis of each supplier and use this information to generate a set of possible solutions.
When selecting suppliers, we advice to consider the following fracts:
- The suppliers or materials.
- The quantities to order.
- The period of time in which will need it.
- The context and particularities of the supply chain.
- The supply strategy.
Likewise, integrating purchase order planning with supplier selection can imply significant savings, especially considering the costs involved.
The raw material
Providers delivers raw material only in fixed and predetermined quantities. Each supplier provides a specific amount of raw material, at specific price and with a limited capacity for each time.
It’s important to be careful with the material that’s stored in inventory, since it can generates delays in the items purchases and also an additional cost caused by the delay in the delivery of orders.
Keep up – to – date data on available inventory, including stock and spare parts. It’s also important to point out that after – sales stock can also serve as backup in situations of shortage. The elements to consider are:
- The finished products that are in warehouses and that are pending quality control.
- Use spare parts to elaborate new products.
- Evaluate the use of parts with certain factory defects to cover a contigency.
- Study whether it’s viable to speed up the arrival of pieces in transit, considering customs policies
Difficulties and recommended practices
The demand for specific products is premanently fluctuating, which complicates determining without a certain margin of error. Planning team must be able to get reliable data to work generating a proportional offer within the S&OP framework. For this reason, we recomend to implement the following practices:
- Use advanced tools to generate statistical projections that provide reliable demand data.
- Include market studies in demand projection models.
- Monitor the estimates seeking to be able to react in a timely manner in case of fluctuation.
- Reduce the size of the orders and increase their frequency since this way reduces the peaks and valleys that reflect losses.
- Prioritize customers based on their strategic importance.
- Analyze the possible scenarios and evaluate the capacity to face them.
- Determine which are the products with the greatest strategic importance according to their profit potential.
- Establish alliances with business partners.
Other contingency and prevention measures that you can implement include establishing alternative supply sources and relocating production centers. These measures are infrequently used given the additional investment of time and effort compared with the most used.
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