Best Practices in Demand and Inventory Planning - Managing the supply chain is critical to a manufacturer's overall operations and to the bottom line. - BioPharm International


Best Practices in Demand and Inventory Planning
Managing the supply chain is critical to a manufacturer's overall operations and to the bottom line.

BioPharm International
Volume 19, Issue 5


Supply chain planning systems help companies tackle long-term strategic issues, such as business forecasting and global capacity, all the way down to short-term tactical issues such as day-to-day scheduling. However, the length of the planning horizon determines the degree of flexibility and the methods used to manage the plant.

Long-Range Planning Horizons
The planning horizon for a typical business is a rolling twelve-month period. This time horizon is often considered a demand forecasting problem. Because the forecast is used to drive the budget, distribution, and production planning processes, increasing the accuracy of the forecast is fundamental to improving the stability of these plans—i.e., distribution, inventory, production—and the overall return on investment.

Medium-Term Planning Horizons
Once a credible forecast is developed, planners can immediately establish distribution requirements, inventory levels, allocation of demand to plants and capacity planning (at the plant level).

To develop a long-range master production schedule, the planner must first establish inventory levels required for the finished products at each location. An inventory policy system provides essential help with this process.

The objective of an inventory policy system is to help the planner establish safety stock levels, reorder points, and reorder batch sizes over time, consistent with meeting a target customer service level. The location of the inventory is also considered during this process.

The inventory policy system builds on the forecast and is the driver for distribution and production planning. It formalizes the process of setting stock policy and allows the planner to look at the tradeoffs between inventory investment and service levels. Naturally, the aim is to meet the target customer service levels, while holding the minimum level of inventory.

Production Planning
Once inventory levels are established at each location, the planner can decide when and where (assuming multiple plant choices) production should occur. This is the function of the production planning system.

The production planning system covers months, weeks, and days as it resolves the trade-off between capacity, labor, and inventory. By planning the inventory requirements over time in demand forecasting and inventory policy, the planner can see the long- and short-term effect on plant capacity.

The planning model considers demand requirements, line capacity, and formulations required to meet the demand quantities and dates. Simulation capability tests different scenarios and considers multiple solutions quickly.

Benefits of improved planning using advanced planning and scheduling (APS) techniques include faster planning and replanning, increased stability of plans, reduced overtime, improved labor utilization, reduced changes in daily schedules, improved customer service levels, greater confidence in the plans, reduced inventory levels, increased plant throughput, and fewer changeovers because of better sequencing.

In most production planning scenarios, the objective is to resolve staffing, materials and capacity issues over weeks and months, rather than minute-by-minute or hour-by-hour—which is traditionally the realm of scheduling. At this level of planning, planners can work with average run rates and key resources, aiming at a good trade-off between the quality of plans and the ease of maintenance of the system.

However, some modern APS tools, include sophisticated facilities for modelling production, even at the planning level—e.g., batching rules, alternative routing and recipes, changeover logic, sequencing rules, etc.—to ensure the plans produced are realistic and optimal.

Short-Term Planning Horizons
Production planning drives long-range plans from demand forecasting. Short-range production plans must also resolve the replenishments of stock for the network of distribution centers, such as regional and local warehouses that ship to customer locations. The system considers each warehouse when deciding what products will be stocked and how much to stock in each location. As described above, the inventory policy system will recommend optimum stocking levels and reorder patterns.

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