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Hierarchical supply chain planning

22 May 2019

What are the biggest challenges in the supply chain today? Every company with a supply chain will give a different answer, but the majority will most likely agree that trade agreements and technology is at the top of the list.  A lack of understanding of technologies is actually one of the main reasons companies fail in their digitalization projects. The major underlying reasons for this failure to understand technology are: a lack of focus on the right issues and the lack of a strategic and customer focused approach. You can read more about it in the article “Digitalization – Where we go wrong”.

But technology is not the only problem facing supply chain. It comes as no surprise that supply chain planning also tops the list of the biggest challenges in supply chain today. Planning operations, sometimes on a global scale, including sourcing materials, transportation and finished goods. As supply chains get longer and more complicated, an argument can be made for the positive effects of hierarchical planning.

Hierarchical planning has been pushed aside in the supply chain discourse in favor of other practices such as sales and operations planning. Nevertheless, hierarchical planning can be an essential tool for an efficient supply chain, especially one in a world with uncommon trade uncertainty.

Planning successfully

Hierarchical planning is divided up in three levels; the upper strategic, the middle tactical and the lower operational planning. Creating a holistic planning strategy through the entire supply chain. Strategic planning spans between two and twelve years, tactical planning between 12 and 18 and finally operational which focuses on the day-to-day operations.

While most companies do some hierarchical planning, implicit or not, most fail when it comes to creating a clear link between strategic, tactical and operational. Which in turn makes it difficult to make good decisions through the levels. First, it’s very easy to get bogged down in the day-to-day details at the operational level. The too much time and recourses is used to get the daily orders out of the door which leaves us with disconnected and ineffective tactical and strategic planning. On the opposite end, strategic planning done wrong can choke operations and put unnecessary constraints on the day-to-day activities.

To successfully utilize hierarchical planning requires a feedback loop of communication up and down all levels. Planning cannot be created in a vacuum but developed through dialogue. One also need to take account natural company events that will change the original plan. Such as product launches, changes in tactics and operations. Hierarchical planning needs to be flexible enough to bend with the changes in industry, of conditions and of course the supply chain itself.

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