For many companies, putting together a supply chain can be an easy part of supply chain management. The real difficult parts often seem to come from adequate supply chain planning. The difficulties that often arise as a result of poor planning can be extremely problematic for a business. The following sections will explain some of these problems and will seek to address their root causes.
First, businesses need to understand exactly what the term supply chain planning means. Supply chain planning refers to a companies ability to make accurate forecasts regarding their demands in the near future. For example, the company may forecast X amount of sales and may order enough goods from vendors to cover those sales. However, if fewer sales are the reality, the company could end up with excessive inventory and may see a large, sudden decrease in profits. Likewise, too many sales could cause the company to need to order additional shipments of goods at the last minute which may force vendors to need additional materials and to pay overtime to their workers. These costs will usually be passed on to the buyer and will also reduce profits. Also, too many sales may mean companies cannot meet the end-user demand and distributors may be left with no product to sell to waiting customers.
Obviously, supply chain planning is important to a company's success. Poor planning will result in a loss of profits and/or revenue while accurate planning allows the company to operate smoothly and to minimize expenses. The question then is how to more effectively create business forecasts for supply chain activities.
Many companies have turned to their customers for help. By communicating directly with customers about what they want and by getting their feedback on existing products, businesses are able to more accurately understand the needs and wants of their target audiences. With this information, they can make a forecast that reflects customer reality, not the hopeful expectations of marketing and sales teams. Furthermore, improved technology has made it even easier for businesses to get their hands on customer feedback. The Internet, for example, makes it possible for companies to communicate with customers in real-time, so they can then use the data immediately in their forecasts.
Supply chain planning can be made easier by technology in other ways as well. For example, cash-to-cash cycle time is an important part of supply chain planning because it impacts the revenue of the business. Cash-to-cash cycle time refers to the time span between the purchase of the raw materials and the sale of the finished product. The faster the cash-to-cash cycle the better. On average, 26% of businesses have been able to reduce their cash-to-cash cycle time to under 30 days thanks in part to improved technology.
Information technology advancements such as payment processing, procurement of direct supplies, and customer order entry have helped significantly reduce the length of the cash-to-cash cycle for many of these businesses. In fact, less than 25% of the businesses today have a cash-to-cash cycle time of more than 90 days.
These technology improvements along with real-time customer feedback have made it possible to more accurately predict revenue, profit, and sales in the near future. More accurate planning means that businesses can work together with their vendors and distributors to outline a plan that makes sense based on those forecasts so that no one is put into a negative situation.
Overall, supply chain planning is a critical component of any business's supply chain management. Without accurate planning abilities, businesses end up cutting into their revenue unnecessarily and possibly putting vendors and distributors into difficult situations that may strain the supply chain relationships in the long run. Only by communicating with customers directly and in real-time can businesses have a solid, reliable foundation on which to base their supply chain planning forecasts. Likewise, they need to use technology to free up revenue from the supply chain by reducing their cash-to-cash cycle time.