Supply Chain Planning – 5 Levels of Time Horizon and Complexity Hierarchy

Supply Chain Planning

Supply Chain Planning within an organisation exists on many levels, as well as in many functional areas. At a minimum, most organisations formally update their Profit Plans on a yearly basis. However, planning is an ongoing process that happens at different levels and different times dependent on resource availability and this is recognised by the 5 levels of Supply Chain Planning Horizon. Additionally, it is important that all the functional plans tie together to ensure that they mesh and support the company’s overall plan and objectives.

It is important to have a plan of different time frames (time-phased plans) that fit together to support the long-term plan. The complexity also changes with each time-phase. The figure below shows how the 5 different level of Supply Chain Planning Horizon fit together, their review frequency and complexity in organisation from Low to High.

Generally, organisations use a variety of terms to explain the various planning levels. In this blog I will briefly discuss what Profit Plan, Sales Inventory & Operations Planning (SIOP), Master Plan, Material Plan (Mat. Plan) and Factory Plan or Line Scheduling are which make the Supply Chain Planning building block in a typical organisation.

Supply Chain Planning

Profit Plan- Yearly/Quarterly

 

At the highest level of Supply Chain Planning, which also extends the furthest in time, is the Profit Plan, which is mostly extended to 12 months and generally reviewed on a quarterly basis. The profit plan serves as a basis for financial planning. With the information developed from the profit plan, you can anticipate the need for increased investment in receivables, inventory, new product introduction, head counts, capital investment or facilities.

The profit plan considers an organisation’s objectives, overall service requirements, and how management intends to achieve its organisation’s vision. These plans are complex and usually include cross functional teams which adds to complexity of the process. This stage of Supply Chain Planning defines projected implications of supply chain activities within the business and their financial implication on revenues, cost and working capital.

Sales Inventory & Operations Planning (SIOP) – Monthly

 

SIOP in itself requires several blogs or even book(s) to cover its basics, as it is one of the core processes in any organisation or should be one! Simplistically speaking, The SIOP process does exactly what it says on the tin – it provides a general overview of company’s Sales, Inventory and Operations Planning method! Its purpose is to aid you in understanding the planning balance between supply and demand.

It represents an organizational improvement process which will…

  1. Balance employee understanding of supply capacity and market demand.
  2. 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:

  1. Monitoring external market demand changes through the Sales department.
  2. 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

SIOP

 

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 configurations, 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 explain 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 over night 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.

Conclusion

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.

 

18 thoughts on “Supply Chain Planning – 5 Levels of Time Horizon and Complexity Hierarchy

  1. When you said “as a supply chain professional, you’ll always feel like you have more work to do” you hit me right where I live… The supply chain planning architecture you lay out in this post is very helpful in keeping our leadership priorities clear while managing the prevailing VUCA. Nice job.

  2. Dear, above mentioned points are very correct and appropriate and one can be more benegficial if Automation of processes can be achieved via ERP.

  3. I really loved this article. But I think the software you are using is very effective on what would your cycles be. So business should really make sure the ERP/MRP sofware they use is the best one for their needs and they can revise plans in the interval they wish to.

  4. Dear Sir,
    I read some of your articles earlier and this one is also as attractive and useful as these were. I am very much interested to read any of your research work on Material Planning. Requesting you to provide me a link.

    Thanks

  5. Could you advise me about bullwip effect?
    I am confusing how come the bullwip effect is still happened even if we have the method of canculating bussiness forecast?

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