rightsizing supply chain

Budgeting, Planning & Forecasting

- 5 min read

Three reasons why rightsizing in Supply Chain can optimize planning

Maintaining excellent Supply Chain planning in the warehouse, transportation, and inventory management and control will ensure the ‘right product in the right place at the right time’ for the customer. Underpinning this notion is rightsizing, a planning process that helps businesses invest in the right assets and inventory as and when they need to. For example, where would it be best to spend if an organization has additional money to invest, in assets, additional inventory, or extra shift time? Spreading the costs evenly across each area is not the best approach. Strategically investing in certain focused areas (i.e. rightsizing) can produce the most significant results. 

This blog explores rightsizing in the Supply Chain and how businesses can enhance supply chain planning with a transparent, intelligent process that connects and considers bottlenecks and limitations while also planning and managing buffers to ensure maximized throughput. 

Dealing with a world of increasing variability 

In Supply Chain, businesses will do ‘whatever it takes’ to meet customers’ demands while turning a profit. To reduce demand fulfillment costs and the impact of stockouts, companies must systematically set inventory safety stock levels to balance customer demand variability with supply potential, setting potential improvements in inventory management by reducing cost while maintaining service levels. 

Analyzing production plans, customer demand, strategic predictions, supply availability, and inventory on hand for hundreds of Stock Keeping Units (SKUs) in a particular geography, demography, or customer type are the primary considerations for profiling the inventory plan. 

By considering demand variability across locations, plans can be set to maximize inventory throughput by understanding where there are possibilities to reduce the inventory for SKUs with positive and predictable demand and the chance to reposition the planned stock levels where the yearly forecasted demand of an SKU is below a certain key thresholds. 

Supply Chain optimization can be improved by balancing inventory and effectively managing alternative and essential resources throughout the Supply Chain, from material supply, through production to the point of sale and, ultimately, the customer. 

The factors to outline a reliable operational strategy and a better Supply Chain include: 

  • Accurate demand forecasting 
  • Timely production decisions 
  • Right inventory selection 
  • Responsive logistics strategy (warehousing and transport) 
  • Benchmarking of inventory health to pursue process improvements by comparison with best-in-class organizations. 

Concentrating on enhancing these factors will enable businesses to reduce costs and inventory while ensuring excellent availability. 

Intelligent Coordination 

Planning and scheduling decisions made during the production phase influence the whole Supply Chain. This may be due to: 

  • a coordination deficiency between the warehouse and the store 
  • the inadequate supervision of orders, supplies, or transport 
  • a lack of cooperative efforts between the factory and the warehouse 
  • erroneous decisions made on the production floor. 

Ineffective demand forecasting, poor supplier order management, or inflexible production schedules can cause product shortages or slow down product availability. This makes it impossible to ensure that customer-facing availability is protected, immediately impacting revenue and directly impacting the customer experience. 

An essential step is to plan production optimally aligned to future demand; this will ensure you have the appropriate inventory for each SKU, and you will be able to respond to the anticipated customer’s needs. 

Three key Supply Chain areas rightsizing can enhance 

Rightsizing offers businesses a transparent and intelligent way to map out and plan their Supply Chain processes. Below are three key areas of Supply Chain and how rightsizing can positively impact them. 

Demand forecasting

Market unpredictability and variations in purchasing patterns make sophisticated and responsive demand forecasting approaches a must in any industry. It reduces inventory and improves the synchronization of the Sales & operations flow, enhancing service levels. 

Improved demand forecasting facilitates understanding of projected cash flow through identifying trends, seasonality and significant events; intelligent forecasting methods enable planners to identify and adapt demand plans based upon identified causal factors, driving further improvements to the forward view. 

S&OP (Sales & Operations Planning)

Coordinating the flow from production to sales through procurement, logistics, and warehousing ensures the rightsized supply chain remains balanced. Scenarios are developed based on the demand plans, production limitations, inventory costs, and marketing campaigns to fill gaps in demand and supply. Each is assessed through core KPIs that help the supply chain achieve the organization’s goals. 

Top-down sales-driven and bottom-up production constraint-driven scenarios blend to facilitate an integrated approach that underwrites a feasible and profitable plan utilizing a balanced inventory. 

Production planning

The production plan leverages production capacity to deliver finished goods requirements by connecting and managing bottleneck resources to ensure agreed delivery times; companies might choose to use existing capacity optimally and ensure higher-delivery performance. 

The production plans accept orders and promised delivery dates outside the fixed horizon, leveraging Make-to-Order (MTO) and Make-to-Stock (MTS) approaches to right-size inventory levels. This helps ensure the fulfillment of each order on time in full and prioritizes the appropriate material supply to that pegged order. 

Supply Chain planning will improve as demand-driven data considers every restraint and factor, building upon reliable supply orders delivered on time. A blend of planning insight (analytics) and automated decisions using AI and Machine Learning will ensure the plan is best aligned and adapts to fulfill the intended objectives  

Adaption and responsiveness 

Sometimes sudden and impactful change occurs. For example, substantial raw material shortfalls, major process disruptions, extensive increased order inquiries, or unpredicted significant demand can massively disrupt the Supply Chain. In the event of any of these, businesses will need to adapt and enhance their Supply Chain plans.  

This re-planning can be minimized in a rightsized Supply Chain as buffers and flex points enable a “reasonable” level of change readily absorbed within the existing plan. When a significant event requires adaption and responsiveness from an organization, the right planning process can aid businesses to remodel and adjust priorities.  

Top organizations utilize both critical data and an IBP (Integrated Business Planning) model to underpin an adaptive and responsive approach to their Supply Chains. IBP is a process for aligning teams within the business to achieve organizational goals. This is best achieved by aligning key business functions, including Finance, Supply Chain, Product Development, Marketing, and other integral operational departments. 

The main benefit of an IBP culture is that materials are bought at the right price, at the right time, and in just the correct quantity to fulfill market demand while managing costs and corporate expectations. The link to Supply Chain rightsizing is clear. Learn more about the importance of IBP in Supply Chain by downloading our eBook.

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