There are several straightforward segments to supply chain planning: forecasting, inventory control, demand planning and so on. However, when setting up a chain of supply and inventory, two of the most important considerations are long-term planning and contingency planning. These elements can be less developed then inventory control, or even ignored, in an initial overall plan.
Supply chain planning begins with analysis of three main components: personnel needs, materials acquisition and production/inventory levels. This will help planners project daily, weekly and monthly needs for supplies and finished goods inventory. Everything works well until one or more components break down. Manufacturers need contingency plans in place.
Long-term planning is more than just an extended forecast (see forecasting in our previous article). Planning for years or even decades out involves capital equipment purchasing and management turnover, perhaps even the sale of all or part of the company. It involves plant expansion and the possible acquisition of new property. All these things affect the supply chain when the availability of raw materials, parts and labor supplies can fluctuate.
An important consideration in long-term planning is finding and vetting new suppliers. While a company might not need alternative suppliers immediately, it is possible for a primary supplier to fold. Since every manufacturer wants the best value for every dollar spent for supplies, they should closely monitor the price and availability of the supplier’s raw materials, not just their own. This is also an important part of contingency planning.
Everyone needs alternatives. We all plan on buying goods and services, but often find they are discontinued. The same is true in business procurement processes. Key employees leave or materials become prohibitively expensive. Newer companies are less experienced in these fluctuations. The more experience companies get with uncertainty, the more they realize alternative planning and long-term planning are priorities.
When long-range and contingency planning is in place (supply chain planning is always changing and therefore never actually completed), an economy of change takes place. By that we mean changes are smaller and less disruptive. Less time is needed to return to normal business cycles. Financial problems are reduced, as well.
Would a company rely on one live computer to hold all their records? Of course not. When companies have alternative suppliers and shippers, they can return from disasters in much the same way backup data banks guarantee those companies do not lose all their computer records. Redundancy like this is important in the supply chain too.
Contingency planning also includes partnerships with suppliers. When two, three or more companies can help one of the members recover from a disaster, the impact is less on any one of them. One of the plans included for several decades in manufacturing partnerships is vendor-managed inventory. If a company buys and stocks a large amount of goods from one company, the vendor will manage the inventory and usage, and replenishment, for the buyer.
For instance, a company buys a lot of metal cutting tools from a carbide tool manufacturer. This includes tool holders, fixtures and other items. The supplier will provide logistics and inventory help. The supplier might even put their own employee in those tool cribs at the user’s plants to do the work and keep the records. The employee might sharpen tools, repair or build fixtures, etc. There can be no better representative of a vendor to turn to than a person present right in the plant.
Every manufacturer should consider these kinds of innovative plans when setting in motion supply chains. Chains are fluid and changing, as personnel and standards change. There is no such thing as too much contingency and long-term protection.