​​Capacity planning

​​Capacity planning, at its simplest level, is the way you determine the production capacity you’ll need to fulfill market demand. Since no organization has an unlimited capacity for production, a lot of this planning involves the management and allocation of resources: How much you’ll need, when you’ll need it, and how you’ll deliver it.

From scheduling production, ordering materials, utilizing resources, navigating process bottlenecks, and identifying opportunities for increased efficiencies, capacity planning involves a lot of moving pieces. And, like a puzzle, these pieces need to be placed just right so organizations can meet the forecasted demand in a set period of time, whether that’s weeks, months, or even years.

The goal of capacity planning is to make the most of your production capabilities, while minimizing costs and maximizing profit. You can’t produce an infinite amount of goods, nor can you house an infinite amount of materials. 

Template for Capacity planning for a retail outlet. 

Template for Agile resource capacity planning

Template for Scrum capacity planning

Types of Capacity Planning

The Capacity Planning Process

The Benefits of Capacity Planning

Capacity planning tools

Capacity planning tools help a resource manager forecast future resource needs and ensure you have adequate capacity to meet them. A resource can be anything that a business needs, from people and technology to infrastructure and financial resources. 

Top capacity planning tools

Supply chain forecasting

Supply chain forecasting refers to the process of predicting demand, supply or pricing for a product — or a range of products — in a particular industry.

For example, the algorithms behind a forecasting model can look at data from suppliers and customers and forecast the price of a product. The algorithm can also examine external factors, such as weather or other disruptive events, to further increase the precision of the pricing forecast.

Advanced supply chain forecasting uses AI to save time and money, improve accuracy, and help enterprises react to exceptions in real time. AI-powered supply chain platforms can assimilate large volumes of forecasting data and provide effective insights to ensure an agile and flexible supply chain.

Furthermore, shared forecasts are KEY for Suppliers

Shared forecasts allow suppliers to plan ahead. As a result, suppliers can provide a better service to you.

Suppliers are fighting blindly without forecast data. On the other hand, having a solid forecast allows suppliers to prepare and plan ahead.

Supply chain forecasting method

5 quantitative forecasting methods

1. Moving average

This is probably the simplest statistical forecasting method you could use. In essence, taking the moving average means using historical data to make sales projections for an upcoming period of time. For example, you might take an average of the previous year's aggregate monthly sales to forecast sales for the next month and place orders accordingly. You could then amend the moving average every month (or quarter or year) as you see fit.

While this is the simplest way of supply chain forecasting, it is also probably the one with the most glaring shortcomings. For example, calculating the moving average gives all data equal weight. As such, you might under or over order if more recent data turns out to be a more accurate projection of future sales. Working with the moving average also means you don't account for seasonality or trends in your forecasts.

Use the moving average only for products you sell in low volume.

2. Exponential smoothing

Exponential smoothing is similar to moving average forecasting but puts greater weight on the most recent data sets.

However, similarly to moving average forecasting, it doesn't consider seasonality or trends.

Still, it's a straightforward method to use for short-term forecasting for products not typically affected by seasonal demand fluctuations.

3. Adaptive smoothing

Adaptive smoothing provides a deeper analysis of your sales trends, building on exponential smoothing by considering seasonality. If you use adaptive smoothing in your forecasting, you will likely be using automation and machine learning to identify patterns to ensure you can make intelligent decisions all year round.

Adaptive smoothing is ideal if you have an extensive product range or see significant seasonal shifts in customer demand.

4. Regression analysis

Regression analysis is a relatively simple statistical method for forecasting, but one that you'll need technology to perform for you. This is because this method makes assumptions through algorithms that look at the relationship between several variables. Therefore, the more variables and data sets you have, the more accurate your regression analysis, and thus your forecasting, should be.

Given how regression analysis looks at multiple data sets, this method is helpful for quickly forecasting seasonal sales trends.

5. Life cycle modeling

You would use life cycle modeling when projecting long-term demand for a new product.

For example, when launching a new product, there are always different groups, like early and late adopters and the early and late majority. By analysing the demand for a new product post-launch, life cycle modelling can help predict the long-term demand trend, enabling you to ensure you have enough inventory to meet both short-term and long-term demand.

If you sell updated versions of the same product, your life cycle modelling will get more accurate with each product launch. For example, every time Apple launches a new iPhone, not only do they have historical life cycle modelling, but they get to refine it with data from their latest launch.

5 qualitative forecasting methods

1. Delphi method

The Delphi method relies heavily on expert insight and opinion and is widely considered one of the most effective long-term supply chain forecasting approaches.

This approach involves questioning a group of experts or advisers independently in person or via a questionnaire. You're not running a focus group or seeking the consensus of a panel - the value in the Delphi method is that you gather unbiased data.

The traditional manner of utilising the Delphi method is to hire a third party to conduct the research on your behalf, after which they hand over the data to you.

2. Historical data analysis

Expanding on the example we gave under life cycle modelling above; it's historical data analysis that Apple uses to help inform its projections for new iPhones and other products.

And your business can use it too, so long as you have an equivalent relevant product on which to base your projections. This is a qualitative analysis method as you're not using historical data from the actual product you're selling, but it's the closest relation to quantitative analysis from these methods.

3. Market research

Market research is one of the most tried and tested techniques you have at your fingertips. Initially, you might conduct market research to ascertain whether there is consumer demand for a new product at all.

If you are going ahead with new product development, your market research might inform you who will buy it, when they'll buy it, how often they'll buy it, and potential reasons why they might not buy it. All of these findings can help inform your initial order of a product and ensure you're able to meet initial demand.

4. Sales force composition

Sales force composition is sometimes known as "panel consensus" or "collective opinion."

This method is essentially an internal consultation, using stakeholders from various departments in your business to give their own opinions and forecasts based on their knowledge and potentially using some historical data, too.

As well as forecasting sales, this method can also help predict return rates or for identifying ways to improve future versions of existing products.

5. Focus groups

An extension of market research, focus groups involve bringing together up to a dozen people from your target market to engage in an open-ended discussion. The idea of running a focus group is to get a more in-depth level of research and insight into the likely demand for new products.

If you're selling products to a broad range of demographics, you might run several focus groups to produce several data sets and give an overall picture of likely customer demand for new products.

Template for Supply chain management demand forecasting

Supply chain network design 

It’s often useful to think about your supply chain as a network. Networks are made up of nodes and links. 

Nodes and links in a supply chain.

A factory is a node; so is a warehouse, a distribution center, and a retail store. Nodes are connected by links. Generally speaking, links are forms of transportation, such as a ship, a railroad, a truck, or a drone. Products move through a supply chain, flowing through links and stopping at nodes.

Your goal for any supply chain is to deliver maximum value at the lowest cost. One way to achieve this goal is to change the nodes and the links. Perhaps you can lower the costs of your raw materials by sourcing them from a different supplier, which means you’d be changing one of your nodes. Changing a node also means changing the links that connect that node to the rest of your supply chain.

Six steps of systematic network planning

Operation design

How to design your operations in order to make the right number of products at the right time?

First, you’ll look at planning a production schedule. Then you’ll examine the two main environments for making products: discrete manufacturing, in which items are made individually or in batches, and continuous manufacturing, where items are made in a stream. After that, you’ll consider whether to make products before or after a customer places an order. Finally, you’ll look at some of the key elements of managing quality and sustainability because they are important strategic issues that are heavily influenced by your Make processes.

Supply chain finance

Supply chain finance (SCF) is an essential chapter of Supply Chain Management. It connects buyers & sellers with financing institutions. As a result, it helps corporates to lower financing costs and improve efficiency. Most importantly, it unlocks working capital tied in the supply chain. Supply Chain Finance is a segment of Trade Finance.

Supply Chain Financing is a set of services available for Medium-Sized and Big Corporates. For example,  Loans, Purchasing Order Finance, Factoring and Invoice Discounting are the most common.

The key idea behind SCF is to provide suppliers with access to advantageous financing facilities by leveraging the buyer’s stronger credit rating.

Source: PwC

Cash Flow

Sometimes when a company purchases supplies, it doesn't pay right away. Its suppliers allow the company 30, 60, 90, or even 120 days before they're required to pay up. For the purchasing company, these instances are recorded on the balance sheet as a short-term liability called accounts payable.

Over time, how a company uses its accounts payable can have a big impact on its cash flow. Accounts payable are considered a source of cash, meaning that by taking advantage of these arrangements with suppliers, a company can actually increase its cash flow and cash on hand.

The suppliers in our scenario have their own cash flow considerations in setting how long they're willing to wait to receive payment. For the supplier, letting a customer wait for a little while before paying is called an account receivable. These short-term credits are recorded as current assets on the balance sheet, and they have an inverse impact on cash flow as accounts payable. Accounts receivable, therefore, are a use of cash.

SCF is an invaluable tool for lengthening a buyer’s days purchases outstanding and increasing cash flow. SCF has the powerful potential to improve a supplier’s financial viability and reduce a buyer’s purchase costs and internal procurement expenses. SCF can lengthen accounts payable without hurting suppliers’ financial viability; at the same time, it has the potential to lower direct purchasing costs as well as the costs of the procurement transactions themselves. 

Procurement

Procurement is a business process that involves the outsourcing and purchasing of goods and services. Businesses often have sets of policies and standard procedures to abide by when communicating with and selecting a supplier or vendor for their products and services.

The procurement process entails:

• Defining the policies to evaluate the proposals, quotes and vendors

• Researching and identifying customer needs

• Preparing the methods, tools and platforms to communicate with the suppliers

• Preparing a Request for Proposal (RFP) or Request for Quotes (RFQ)

Procurement policies are put in place to align with the company’s vision and ethics. For example, if your company positions itself as being green and eco-friendly, its procurement policies must reflect this when purchasing new goods and services from outside vendors.

9 steps in procurement process

Data application in inventory management

The supply chain is broad and complex and there are many key areas of control that allow for a successful supply chain. A data-driven supply chain integrates technology into all processes, and inventory management is a key element in the supply chain. Data can be derived and applied in many different ways, depending on an organization’s size and strategy.

Inventory forecasting is one of the greatest challenges in inventory management. Trends over time can be constructed leveraging traditional techniques of math and experience, but granular data helps drive greater insight and to create clearer forecasts. By knowing when spikes and troughs are likely to occur, instead of making a best guess, it’s easier to order the right amount in advance so that costs can be minimized, and waste can be avoided. This requires the type of business intelligence derived from smart data collection and IoT.

External force impact on procurement

A business is a vulnerable entity that is at the whim of external forces, be they financial, political, technological, socio-cultural or environmental.

Buyers have to ensure they take into account the external environment when creating procurement strategies in order to get ahead of risk. Supplier management plays a huge part in this, enabling businesses to create a supply chain of pre-qualified supplier and monitor their exposure to threats. This allows procurement departments to act and adjust for the external environment.

Technology

The rapid evolution of technology, for moving physical products and for processing information, has transformed the way that supply chains work. A few years ago, we ordered things from a catalog, mailed in checks, and waited for our packages to be delivered. Today, we order products on our phones, pay for them with credit cards, and expect real-time updates until those packages are delivered to our doorsteps. The technology may be something simple, such as a whiteboard with sticky notes that gets updated daily, or it may be something as complicated as an enterprise resource planning system. Each business, and each function within each business, has different technology needs. Supply chain management requires understanding how technologies work and how to use them to create value at each step in the supply chain. Many experts describe the Industrial Revolution in four stages:

• Industry 1.0: Harnessing water and steam to power factories and transportation.

• Industry 2.0: Generating electricity to power industrial process.

• Industry 4.0: Connecting complex supply chain processes using IoT and the cloud.

We are entering Industry 4.0 right now, which is why sensors, Big Data, and IoT are becoming so important for supply chain management. During Industry 4.0 supply chains will become more automated, and supply chain analytics will be the tool that people use to design and manage supply chains.

SAAS will reshape supply chain and logistics

E-business

E-business involves the execution of business transactions over the Internet. Companies conducting e-business perform some or all of the following activities over the Internet across the supply chain:

• Providing product and other information

• Negotiating prices and contracts

• Placing and receiving orders

• Tracking orders

• Filling and delivering orders

• Paying and receiving payment.

All these activities have been conducted in the past using existing "channels" such as retail stores, sales people, and catalogs

B2B supply chain management benefits B2B eCommerce

• Inventory Visibility and Stock Availability

An effective eCommerce SCM can help streamline tasks related to stock monitoring or ensure availability of resources before the "out of stock" point. It can also "connect" customers to the inventory, allowing for transparency and the ability to know if or when the requested product will be available. This can empower customers and build trust, attribute critical for any business, especially B2B eCommerce.

• Customer Experience

Speaking of customer empowerment and trust, a good SCM system can do wonders for customers' experience through the eCommerce platform and help a company's reputation tremendously. Happy customers (those who had an excellent browsing journey through the platform and got what they wanted when they requested it) tend to leave great reviews. They can build a company's reputation, helping towards customer loyalty and securing new customers. In an era where most potential customers are checking reviews before purchasing a product or a service, investing in a refined eCommerce SCM system that can help customer satisfaction is a no-brainer.

• Profitability Improvement

Some business sectors, such as manufacturing and distribution, do not allow for big profitability margins due to the market's saturation. A good SCM system can help Identify problematic areas within the business's operations that can cause additional costs, delays, or mistakes, all of the aforementioned affecting profitability. Solving these problems through an SCM system that offers better SCM interactions, cost-efficient operations, and optimized inventory availability can increase profitability and help a business jump ahead of the competition.

Reverse Logistics

Reverse logistics is any part of the logistics process where goods or services move from what is typically their final destination (the customer) back to their origin (or in some cases, to a third location). Reverse logistics encompasses work that happens after a product is delivered to a customer.

Reverse logistics (RL) has recently become a popular way to increase sustainability in the production of goods. Manufacturers employ green production processes to help protect the environment. The wide adoption of green products spreads environmental awareness. To minimize the environmental impact of their production processes, many companies have implemented green supply chain management (GrSCM), including internal environment management, green procurement, green collaboration, and environmental design. Retailers that sell products like furniture or decoration can use reverse logistics to set themselves apart by offering to remove a customer’s old appliance or furniture. Some buyers won’t be able to dispose of the old appliance or furniture on their own. Hiring another company to come in and take away the old item adds another step to the process and can often be very expensive. By offering a solution to this problem, you can make your business stand out and increase customer satisfaction.

5 R's of Reverse Logistics