The planning process described in the first part of the article (“Logistyka” No. 3/2010), while universal, was created primarily with manufacturing companies in mind. The second part of the article will present the application of part of the planning process according to the APICS standard in a company that supplies the market with products sourced mainly from external contractors.
Planning process in a distribution company
Characteristics of the company’s supply chain. The primary activity of the company covered by this article is the distribution of finished products to European markets. The specificity of the products and customers requires ensuring constant availability of goods and a relatively short delivery time. The final customer is primarily retail chains, which expect a delivery lead time not exceeding 4 – 5 days. Ensuring such product availability is possible thanks to a European network of regional distribution centers. Inventory management in these centers is carried out according to an ordering method based on the re-order point (Re-order point).
Finished products offered by the company can be delivered to the market in two ways. Products characterized by stable demand and a small number of common components are manufactured by external suppliers in the Far East. Products with high demand volatility and products dedicated to retail chains are ordered from external suppliers in industrial packaging, and then adapted and packed according to the specific customer’s order. The reason for using such a product division is the distance of suppliers from sales markets and the different nature of demand. The company is geographically much closer to customers than external suppliers, and with this division of the assortment, it can react more effectively to changes in demand.
The supply chain diagram is shown in Figure 1, where: DC is the distribution center, and CSP is the central stock point, where products are not yet available to the customer (central stock point). Before the planning process, consistent with APICS standards, was implemented, the company planned its material flows as follows: based on information from sales organizations, delivery plans were prepared for the next 12 months on a monthly cycle for each finished product. Then, the plans for finished products were aggregated to the levels of product families and geographical markets. At higher levels of aggregation, managerial decisions were made to reduce or increase the level of flows. These decisions then had to be reflected at lower levels of aggregation. This approach is known as pyramid forecasting. The way of working described above involved a large workload for planners and enabled the realization of the particular interests of individual managers. Furthermore, the planning process started from lower-level planning by many planners, which resulted in a lack of planning consistency and an uneven level of inventory within product families. Therefore, it was decided to reverse the planning cycle so that it could start from the organization’s business goals and effectively reconcile the purchasing and production plan with the sales plan. This task required the organization to develop the following planning elements:
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creation of a common model for sales planning and demand trends
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creation of a common model for production planning (internal and external)
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creation of an easy-to-use model for determining inventory levels
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establishment of a planning cycle that would combine the above elements.
Planning cycle. The restructuring of the planning process began with defining the planning cycle. Together with representatives of sales and production organizations, the way of working presented in Figure 2 was developed. It was also decided that the planning horizon and the frequency of planning would not change. The agreed method of planning required the creation of tools supporting both sales planning and purchasing and production planning. The sales planning problem was solved using SAP APO software. For individual product families, forecasting models that best reflected the nature of their sales were selected. Issues of purchasing and production planning and determining inventory levels were solved using an MS Excel spreadsheet. The method of planning and the functioning of the developed tool are described in the next chapter.
The article comes from the magazine “Logistyka” 4/2010.