There are multiple levels of supply chain planning within an organisation, as well as numerous functional divisions. Most businesses formally revise their profit plans at least once a year. The 5 levels of Supply Chain Planning Horizon acknowledge that planning is a continuous process that occurs at various levels and times depending on resource availability. All of the functional plans must also work together to ensure that they mesh and support the overarching strategy and objectives of the organisation.
To support the long-term plan, it is crucial to have a plan with several time frames (time-phased plans) that work together. Each time-phase also results in a shift in complexity. The diagram below illustrates how the five levels of supply chain planning work together, along with how frequently they are reviewed and how sophisticated their organisational structure is, from Low to High.
Organisations typically use a range of names to describe the different planning levels. In this blog, I’ll briefly go over the components of the supply chain planning building block that make up a typical organization’s profit plan, sales inventory & operations planning (SIOP), master plan, material planning (Mat. Plan), and factory planning or line scheduling.
Supply Chain Planning Horizon/Review Frequency
Profit Forecast, Annual/Quarterly
The Profit Plan, which is the highest degree of supply chain planning and also has the longest duration, is evaluated quarterly and is often extended over a period of 12 months. Financial planning is based on the profit plan. You might foresee the requirement for greater investment in receivables, inventory, the introduction of new products, headcounts, capital investments, or facilities using the information generated from the profit plan.
The profit plan takes into account an organization’s goals, general service needs, and management’s plans for achieving the organization’s vision. The process is complicated by the fact that these plans frequently involve cross-functional teams.This phase of supply chain planning outlines the anticipated effects of supply chain activities on the company’s revenues, costs, and working capital.
Sales Inventory & Operations Planning (SIOP) – Monthly
SIOP is one of the key processes in every business, or it should be, hence it requires multiple blogs or even book(s) to explain its fundamentals! Simply said, the SIOP process gives a general picture of the company’s Sales, Inventory, and Operations Planning approach! Its goal is to make it easier for you to comprehend how supply and demand are balanced during planning.
It provides a method of organisational reform that will…
- Balance employee understanding of supply capacity and market demand.
- Establish a common language for information sharing among all functional groups
SIOP is a cross-functional Supply Chain Planning process designed to keep demand and supply in balance by:
- Monitoring external market demand changes through the Sales department.
- Communicating market changes to the internal organization
The SIOP which is 5 Step monthly process (shown below) helps the business and Supply Chain communities proactively plan for changes in demand by Monitoring the External Market.
SIOP as Supply Chain Process:
- is a forecasting and decision making process,
- involves every department in the business,
- gives the visibility and alignment on the middle term demand (2-18 months)
It is a monthly process
- That provides realistic demand, production, and inventory plans to meet customer requirements.
- That is implemented by a cross-functional team
- That is documented and agreed by all parties
- That provides communication and co-ordination of activities in different departments
Read this blog “Top 7 Best Sales and Operations Planning Books” to know where to learn more.
Please watch this video to understand the concepts of Levels of Supply Chain Planning:
Master Plan or Master Production Schedule (MPS)- Monthly/Weekly
The master level or top-level schedule used to set the production plan in a manufacturing facility on a monthly basis but spread over a number of weeks. APICS considers the term Master Production Schedule (MPS) and Master Schedule to be synonymous and defines them as “The anticipated build schedule for those items assigned to the master scheduler. It represents what the company plans to produce expressed in a specific configuration, quantities and dates.” However, Everdell (1987) defines the master schedule as referring to the “presentation of information that expresses how a master scheduler has decided to satisfy the demand placed on the ‘end item’ by determining production quantities to be completed on specific schedule.”
In theory, Master Production Schedule is the linking pin between the marketing and sales (sales orders, forecasting), manufacturing operations and engineering functions. The MPS function should aim to develop and maintain a manufacturing plan which is satisfactory for all three functions. Moreover, the master schedule is reconciled monthly with the rough cut supply plan resulting from the SIOP Supply planning process.
The Master Production Scheduler (or equivalent process owner) creates and maintains the Master Production Schedule in the ERP system. The MPS is used to drive and direct all manufacturing, purchasing, and manufacturing related engineering activities. To have successful MPS, BOM Accuracy and Inventory Accuracy are key.
BOM Accuracy– The Engineering Manager (or equivalent process role) creates and maintains the engineering BOM’s and facilitates the translation of engineering BOM’s into manufacturing BOM’s. The Manufacturing Manager (or equivalent process role) creates and maintains the manufacturing BOM based on coordination with the Engineering Manager’s engineering BOM’s.
Inventory Accuracy– Demonstrating inventory management abilities by performing cycle counting on a regular basis and an annual physical inventory. There needs to also be a demonstrated ability to identify and correct inventory errors outside of these physical counts on a daily basis.
Materials Planning – Weekly/Daily
In most companies there is a material planning process that maintains valid material plans along with a control process that communicates priorities through either MRP, production schedules, supplier schedules, Min/Max planning and / or Kanban for replenishment as an example on daily or weekly basis. Materials planning are daily to weekly activity in most operations to maintain required customer service. Again like SIOP, material planning is a topic of greater depth and breadth in terms of the key concepts. However, here are brief definitions of some key techniques:
Min-max planning- An inventory planning technique that uses min and max inventory values for items and maintains on hand balances between these two levels
Kanban planning- An inventory planning technique that determines Kanban size, number of Kanban cards, minimum order quantity, lead times, lot multipliers and safety stock days
Reorder point planning- An inventory planning technique that uses reorder point and reorder quantity values for items and maintains on-hand balances required to meet forecasted demand during lead time plus safety stock
MRP- The original MRP dates back to 1960s, when letters stood for materials requirements planning (now called MRP or MRP I). MRP enables a company to calculate how many materials of particular types are required, and at what times they are required (Slack et. al., 2004*). MRP in itself is massive topic and entire chapter can be dedicated to explaining this!
Factory Plan or Line Scheduling – Daily
The production line scheduling process is owned by Supply Chain/Materials Planning Team. The Supply Chain/Materials team decides how constrained materials will be allocated to meet what customer demand. Operations/Manufacturing is involved in constrained capacity decisions to meet the line schedule (demand) which is presented in shape of work orders which is to be released when MRP run overnight daily (if you are using ERP/MRP). If managed by Kanban or Min-Max systems, then planners need to maintain inventory levels to the trigger levels to maintain Min-Max stocks or Kanban quantities.
Planners must ensure line schedules are aligned with MPS or SIOP; also work orders are maintained for aging or volume to assure alignment with SIOP or actual demand, in other words, line scheduling process has to be fully integrated with SIOP. The daily work that is given to lines/cells should be in line with the agreed-upon production plan level with production folks. Furthermore, attainment and/or linearity to this plan is tracked and managed.
Lastly, line scheduling processes must be aligned with the On Time Delivery (OTD) Policy, drive sufficient inventory visibility and reduction in premium freight.
As a supply chain professional, you’ll always feel like you have more work to do.
Instead of burning yourself out, look for ways to do supply chain planning more efficiently at different levels, so we have to fire fight less.
The 5 levels of Supply Chain Planning I have mentioned in this blog have always been there in some shape or form. What I have tried to do is drive the focus in the frequency of these planning ‘horizons’ and how they are stacked in the planning ‘hierarchy’, so you can improve your supply chain performance and possibly business as a whole.
If you actually apply some of them, you will be able to get the same results in half the time I did!
If you have any questions about the Supply Chain Planning horizons & complexity or have any experience applying it in your life or business, leave your thoughts in a comment below—I’d love to hear from you
*Slack, N., Chambers, S., and Johnston, R. (2004), Operations Management, Pearson Education Limited, Essex.
About the Author- Dr Muddassir Ahmed
Dr MuddassirAhmed is the Founder & CEO of SCMDOJO. He is a global speaker, vlogger and supply chain industry expert with 17 years of experience in the Manufacturing Industry in the UK, Europe, the Middle East and South East Asia in various Supply Chain leadership roles. Dr. Muddassir has received a PhD in Management Science from Lancaster University Management School. Muddassir is a Six Sigma black belt and founded the leading supply chain platform SCMDOJO to enable supply chain professionals and teams to thrive by providing best-in-class knowledge content, tools and access to experts.