Supply chains are critical in today’s business environment, with products required every minute of every day to meet a variety of consumer needs. Modern supply chains are under unfamiliar pressure from shortages and unusual demand patterns. These pressures can wreak havoc on overall business operations if needed supplies are not available at the right place and time to fulfill demands.
Successful supply chain leaders in today’s organizations are proactively managing this operational risk and providing their distribution management planning group with the right software tools and business policies that guide and direct the group in their planning tasks.
While distribution-centric supply chains may try to use tools and processes designed for manufacturing operations, there are fundamental differences. Manufacturing supply chains are oriented toward establishing and managing supplies for production schedules that meet required finished goods demand profiles. Distribution-centric supply chains are instead focused on demand patterns and requirements for products for independent end-user demand or point of use operations. As such, distribution management planning operations need to be optimized for overall successful supply chain operations. Any missteps and end-users suffer or take their business elsewhere.
Every step in the distribution management planning process needs to be clarified, ownership defined, completion and success criteria established, and appropriate system tools and processes identified to support the operational goals of the business.
When thinking about distribution management planning, there are certain common elements that should be considered when developing a model that best fits your operations. Let’s review the key elements.
- Forecasting demand – This is done at the warehouse or distribution center level, by item, to support individual warehouse operations. Forecasts can also be rolled up into companywide forecasts for procurement planning and budgeting. Forecasting is performed on items that are to be stocked in a warehouse and provides the demand profile needed for replenishment planning.
- Replenishment planning – A demand forecast, along with current on-hand balances, open outbound orders and pending inbound orders are used, along with established replenishment parameters to determine which items need to be ordered, in what quantities and when. A time-phased procurement plan is ideal, in that it provides visibility into future requirements.
- Issuing replenishment orders – Purchase orders, transfer orders or production orders are issued to the providing parties requesting necessary supplies at the ideal time.
- Resolving supply issues – Buyers may indicate a supplier cannot provide product in the time required. Planners need to work closely with buyers to find and approve alternate sources of supply or substitute products that meet the end-user needs.
Establishing a Distribution Management Plan
It is important that supply chain leadership understands that demand planning is critical to their operations, and not simply an extra duty for purchasing buyers or operations staff to accomplish.
There is an inherent misalignment when asking purchasing buyers to perform demand planning tasks. Demand planning is focused inward into the stocking locations, with the goal and focus of establishing the correct levels of inventory to support operations, while purchasing buyers are more focused on managing the relationship with the suppliers and resolving supplier procurement issues. An inward focus on optimized inventory levels and replenishment will not be foremost in the minds of purchasing buyers.
The key to successful demand planning is establishing a reasonably accurate forecast of demand and setting replenishment parameters so that stock is managed and replenished on time and in the right quantities. Company and department policy will establish customer service levels and a budget for inventory investment. Distribution management planning policies and procedures define how the planning team will meet their targets for customer service levels and inventory investment. There is a balance that needs to be found between these two elements, and the supply chain management system tools should support and maintain this equilibrium.
One successful approach to managing inventory is to use an ABC-based inventory velocity classification that identifies the fastest moving items as ‘A’ category items and the slowest moving as ‘C’ category items. Once identified, different replenishment parameters are established for A, B and C items.
- ‘A’ items are often managed for frequent replenishment in quantities easily controlled by the warehouse staff. Safety stock is kept low as a percentage of monthly demand because supply is often reliable for ‘A’ items. Weekly replenishment is common.
- ‘B’ items can carry more relative safety stock and be replenished less frequently. Bi-weekly replenishment is common.
- ‘C’ items are usually slow moving, but necessary for carrying a full spectrum of products in inventory. These items can be replenished infrequently, with more relative safety stock.
Establishing, monitoring and publishing success metrics of distribution management planning will go a long way to professionalize this important supply chain role in overall business operations.
Distribution Management Planning Tools
The supply chain platform needs to provide the necessary tools for managing inventory investment and customer service levels at different places in the supply chain. These tools include demand forecasting, min/max and forecast-based replenishment calculations, and tools for review and approval of proposed replenishment orders.
Regional Self-Distribution Versus Commercial Distribution
For regional self-distribution networks, inventory is often carried at point of use locations, as well as at the self-distribution warehouse. Both point of use locations and warehouses need the right tools to manage inventory to optimal levels.
For commercial distribution companies, multiple distribution centers may be included, supporting regional customers. The ability to capture demand history and forecast demand separately for each warehouse needs to be provided by the supply chain platform.
A Successful Distribution Management Plan
It’s clear that distribution management planning is a key element of a distribution-centric supply chain. Once a framework has been established by identifying scope, role, policies, procedures and the success metrics, individuals can be empowered to be focused on distribution management planning as their primary role.
Key metrics to include in this framework are: customer service levels (percentage fill within a prescribed timeframe) and inventory investment levels (inventory value and forecasted days of supply). Publishing statistics monthly on these customer service and inventory investment metrics professionalizes the operation and incentivizes these planning individuals for success. Assuring that trained replacement staff are available to handle distribution management planning operations when primary staff are taking time off is a necessity.
Establishing a professional planning environment with modern operations and a career opportunity path for your distribution management planning staff will help attract and retain better demand planning talent. With the right tools, the right staff and strategic operations, distribution management planning can have a significant long-term impact on the overall success of your business and can provide a reliable, well-managed supply chain ready to fulfill fluctuating consumer demands at any given time.
