Supply plan (purposes)
One of the main objectives of the company lies in establishing an effective integrated system of regulation and control over supply plan.
A well-organized supply system provides your company with the ability (both financial and material) to plan and ensure delivery of the right products to the right places at the right time. This leads to optimum customer service, reduced costs and increased profitability.
If your company has a poor supply plan, extreme situations may be called for. This happens when:
1. There are fewer products at the outlet than necessary. In this situation there may be customers that you are unable to serve and, consequently, you either missed a sale or lost both a sale and a customer
2. There are more products at the outlet than necessary. This leads to a waste of company resources. Money buried in product, storage space and manpower are inefficiently used, and overly-large working assets affect costs.
Both of these situations lead to lost money.
In order to avoid situations like these the state of your inventory must be monitored at all times, and stock may sometimes be moved as a preemptive measure. Therefore, you must be able to track and make changes to the financial and material burdens that result. Even if you know that you need to order product – in order to be able fulfill future sales – your company may not have enough money to do so on demand. In this situation, the company may need to raise additional resources (read – take out loans). This adds cost to monthly payments.
To prevent capital loss, use a planning tool. Do so at the beginning of each reporting period (this may be done monthly, semi-annually, or on an annual basis). Here are the steps to take:
Step 1. Compile a sales plan at each of your outlets.
Sales plans are usually compiled monthly, often on the basis of recommendations made by the manager responsible for sales. Great sales plans are created using automatic solutions such as Mycroft Assistant. The strength of Mycroft Assistant is that it is able to generate a sales plan independently. For each product, sales records seasonality, sales trends and a host of other factors are taken into account. A forecast of consumption of future products is built automatically.
Here, we are looking at a company that sells household chemicals at two retail outlets (RO) within Moscow. We have compiled the following sales plan:
Step 2. Follow the expected consumption rate of products to compile a supply plan for each outlet.
Here is our data:
We order “Shampoo” from France. Delivery time is two months, and we can only make purchases every six months. This means that we need to buy whatever product we need two months before a shortage may occur, and we need to plan six months in advance.
We order “Toothpaste” from China. Delivery time is three months, and we can only make purchases once every three months. This means that we need to buy product three months before any shortage occurs and we need to plan three months in advance.
We buy “Detergent” from Moscow. Delivery time is one day and we can order at any time. This means that we can buy the product whenever we need it.
Using this information, it is easy to calculate which products to buy when. The goal is to order product from the suppliers so that we never have a shortage at any given outlet.
To prove how the method works, it is sufficient to simulate the situation for each accounting period (in this example, it is one month) for each product and at each outlet. Modeling will provide, in terms of future sales, whether you need to order product at any specific time for any given outlet. It also takes the pre-defined limits into account.
Here is a table of the purchase plan and supply plan by outlet:
For the sake of simplicity, we presume that the price of each product is 1 common unit, and we count the “balance” in units.
Below are illustrative histograms:
RO 1, RO 2 and aggregate are listed separately. By looking at this, we find the following:
1) According to this model, the largest volumes of purchase at each of the outlets occur in February and July. Therefore, we must make necessary financial accommodations in advance. We need to procure the money in March, May, June, August, September, November and December because these are months with small financial burdens in terms of product purchase. In other words, we save up during these times to prepare for purchases during heavy purchase times.
Forecast of stock balance
RO 1, RO 2 and aggregate (for the company) are listed individually. From this we conclude:
1) That at RO 1 (the blue bar) we do not need to stock more than 1,000 units, and that the minimum we should keep in stock is 200.
2) That at RO 2 (the red bar) we do not need to stock more than 1700 units, and that the minimum we should stock is 400.
3) If we run everything through a distribution warehouse, that warehouse must be able to hold no more than 3,000 units, but not less than 500 units.
4) The main activity of sales turnover is planned in March, April, September and October. At the very least, we do not plan vacations for warehouse workers, or start repairs, during these months.
Step 3. If changes occur in the nature of sales in retail outlets, you adjust the sales plan and, accordingly, change the supply plan.
Once you have prepared your plan, you must keep track of the effects of its execution and make adjustments as warranted. This is a prerequisite that avoids future extreme situations that can occur if sales plan and actual sales volume become mismatched.
Step 4. Systematically execute the formulated supply plan.
In order to achieve maximum economic benefits, it is important not only to compile the plan itself, but also to follow it strictly. Doing so will prevent unforeseen situations and improve the smooth management of the company as a whole.
The formulation and execution of your supply plan serves the following purposes:
1. Optimization of warehouse volume. Advise you as to how much storage space you will need, and when, in order to service your flow of products. You can get information about how much product is at each of the outlets and can plan to make sure you are at the upper limit. This will prevent unused space or allow for planning the expansion of your warehouse(s) before the need becomes critical.
2. Optimization of human resources. Provide information about the amount of trade flow at each of your outlets. When you know the volume your employees can handle, you can forecast vacations, layoffs or the hiring of additional (or perhaps temporary) personnel.
3. Reduction of the loan debt burden. Knowing when and how much product you will need to purchase, you can predict the burden on the budget by planning ahead for a mismatch of income and expenditure. This will allow you to reduce borrowing, if you create a financial buffer for the execution of the plan in advance.
4. Improved customer service. In the absence of a force majeure, and through execution of the formulated plan, you will be able to provide your customers with the amount of products that you yourself set, and that corresponds to the ability of customer service to maintain. So, when a customer comes to your store, they are less likely to hear that “product hasn’t arrived yet” or “product is unavailable right now but will be in stock in three days.” More customers will be served and satisfied.
5. Improved manageability of the company. Prevention of unforeseen circumstances and having an understanding of what is happening, where and when, are examples of qualitative improvements that can be made in any company. The ability to produce not only a plan, but also an assessment of its execution, is a step in the right direction towards identifying problem areas of company management
Automation of supply planning
All of the above can be done manually in a program like Excel. But, when you have a growing company with active stock movement, and multiple outlets with hundreds of products, it is incredibly time-consuming to carry out these calculations manually. Doing so would require a lot of manpower, which is better spent on other tasks. We suggest shifting this type of work into an automatic solution, thus preventing errors that can be caused by “the human factor.”
In Mycroft Assistant, we have implemented an expert automated inventory system, via a planning module that even a person who has never been engaged in drawing up plans can manage and understand quite easily.
Mycroft Assistant performs inventory management perfectly, and this can help SMBs avoid overstocking and product shortages. It thereby reduces costs, increases profitability, and helps provide the proper level and type of service to all of your customers.
By analyzing sales records and current balances, Mycroft Assistant generates a forecast and makes recommendations for product purchase, and even assigns the proper warehouse that should take delivery. It also forms a plan of sales and purchases for future periods. The solution replaces the “manual” work, allowing your company to develop and operate efficiently without the need for additional staff.
To plan sales and purchases, you simply need to press the button labeled “Calculate plans” Mycroft Assistant will automatically analyze your sales records and current balances and account for any factors that affect stock movement. As a result of this calculation, you will receive a layout of quantitative and financial indicators that you can use to maximize purchases and sales.
Here is a sample of how the monthly plan of sales and purchase is displayed by the System:
Mycroft Assistant analyzes your actual execution plan and compares it to the estimated plan. It then provides date on the volume of its execution on a monthly basis. You will be able to clearly see when the actual and estimated plans vary significantly, and can then take measures to adjust either the plan or the work done by the supply chain.
By using the information automatically provided (by individually customizable) by Mycroft Assistant you can bring a new level of quality to your company’s operations. Here are a couple of “real life” examples. One of our customer, who uses our solution, was able to reduce the money that was “frozen” in stock from 12 to 4.5 million rubles without any loss of sales volume. Another company used the Mycroft Assistant to reduce its need for procuring outside financial resources by a very large factor.
In sum, both manual and automated work planning are the cornerstones of efficiency of all trading companies. Mycroft Assistant provides your company with cutting-edge solutions that will bring you a significant competitive advantage.
— Demand forecasting – information about it you can find HERE ;
— Sales analysis – information about it you can find HERE ;
If you want to get started with the Mycroft Assistant – where we have implemented everything necessary for you to work effectively, simply sign up HERE and follow the provided instructions.