We have all heard of ‘4P’ theory in marketing also known as the ‘Marketing Mix’, which point out most import aspect of marketing Viz Product(or Service), Place, Price & Promotion.
In Supply chain management ‘4P’ model concept can be effectively applied on the planning front. Thereby 4P model in Supply chain management can be as below.
1. Planning– Demand/Supply.
2. Planning– Production/Procurement.
3. Planning– Warehousing/Space.
4. Planning– Logistics/Distribution.
Lets briefly go through each one the ‘P’ below.
1. PLANNING- Demand & Supply Planning. Demand & Supply Planning is the important part and the door way towards an effective supply chain management. Today companies are increasingly adapting the Demand driven approach which helps the business to fine tune the supply chain strategies and align the business to the ever changing market demand. Demand & Supply planning has 2 major components as listed below.
1. Demand Planning.
2. Supply Planning.
DEMAND PLANNING: This is an analytical process where the future demand for a particular product is estimated, in other terms it is also know as ‘Sales Forecasting’. Demand planning is generally done through a number of statistical forecasting methods, as deemed suitable by the business, such as Moving Average method, Weighted Moving Average Method, Exponential Smoothing Method Etc. Demand planning is a collaborative exercise between SCM, Sales & Marketing, and each department should take part in this Forecasting process to arrive at a consensus. Generally the consensus is arrived during the Joint meeting called as Sales & Operation planning or S&OP.
SUPPLY PLANNING: This is the second stag of the planning, where actual required quantity of products or service is determined considering the Forecast generated through Demand planning. Supply planning is activity purely driven by Supply chain department and considers numerous factors such as onhand stocks, purchase orders, in-transit stocks etc., This is also termed as ‘Re-order Quantity Planning’ or in short ROQ planning.
The basic formula for calculating ROQ is below.
Re-Order Quantity = (Forecast qty + Safety stock)-(Stock On hand + Quantity on order)
2. PLANNING- Production/Procurement. In manufacturing environment Production planning is linked with supply planning, following product planning by type, quantity, and schedules over a planned period. Production planning can take into account days, weeks, or the whole season, This type of product planning depends on an accurate and properly balanced production plan, determining what will be produced, the amount to be produced, and the time needed to produce it. Procurement is a key activity In Non-manufacturing business Procurement planning is the process of identifying and consolidating requirements and determining the time frames for their procurement with the aim of having them as and when they are required. in short it is the process of deciding what to buy, when and from what source. A good procurement plan will describe the process in the identification and selection of suppliers, contractors and consultants, to achieve most cost effective supply solution.
3. PLANNING- Warehousing/Space. Warehouse or Space planning is an elaborate process of deriving the method to optimize the storage space inside the warehouse by finding creative storage solutions , Material handling, Inventory control Etc., it also includes the optimal and safe storage of inventory with minimum cost and best access to the materials stored.
Warehouse planning is an important and continuous exercise, since this often is the place where most of the material handling is done there by incurring direct cost to the company, so it is very crucial to have a well designed and robust warehouse operations for best customer service.
Primary warehouse activities are listed below:
- Receiving goods (Inbound)
- Storage of goods
- Shipping/Distribution of Goods (Outbound)
4. PLANNING- Logistics/Distribution. Logistics or distribution of goods is one of the most important aspect of a business, where the goods are delivered to the customer once concrete sale has been made. This is often associated with physical movement of goods from point of origin to point of destination by means of suitable transport mode, the main modes of transport are listed below.
- land
- Sea
- Air Logistics
Logistics planning is a process of selecting and optimizing the best mode of transport to achieve the fastest, Safest and cost-effective way to transport goods. The selection of transport mode also depends on the type, size and nature of the material to be shipped.
In addition to the above 3 traditional mode of transport, we can add one more mode which is less used but quickly gaining grounds in today’s highly advanced digital age that ie ‘Electronic mode’, This is often used in delivering the digital products like software and communications. So the final list of different ways of transport mode are as below.
- Land : Short distance + Any material + Any size+ less lead time.
- Sea : long distance + Any Material + large Size + long lead time.
- Air : Medium to Long distance + limited material + small size + short lead time.
- Electronic : Digital products + Instant delivery
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