PLAN AND SOURCE ACTIVITIES

1. Overview of demand forecasting, planning methods

Forecasting is conducted based on four fundamental methods, with most cases involving a
combination of these methods in various ways:
The qualitative method involves making forecasts based on an individual's intuition or
subjective opinions about the market. This method is most suitable when predictions must be
made despite having very little reliable data. When a new product line is introduced to the
market, forecasts can be made by drawing comparisons with other similar products or situations.
Predictions can also be formulated using production selection curves, which are believed to
reflect potential market trends.
Causal forecasting assumes that demand is closely related to specific market or
environmental factors. For example, the demand for commercial loans is often strongly linked to
interest rates. If interest rates are predicted to decrease in the near future, loan demand forecasts
will be based on this causal relationship. Similarly, if prices are lowered, demand may increase,
and vice versa.
The time series method is the most commonly used forecasting approach. This method is
based on the assumption that existing demand patterns serve as reliable indicators for future
demand. It is most suitable when there is a large amount of trustworthy historical data, the
predicted markets are relatively stable, and the demand curve has not fluctuated significantly
over the past year. Mathematical techniques such as moving averages and exponential smoothing
are used to generate forecasts based on time series data. Most forecasting software applications
incorporate these techniques.
The simulation method combines causal and time series approaches to simulate consumer
behavior in different scenarios. This method is applied when addressing questions such as what
will happen to sales if the price of a product line decreases or how market share will change if a
competitor launches a competing product or opens a store nearby.

In addition, there are four predictor variables as follows:

- Supply: the quantity of product available
- Demand: the total market demand for the product
- Product characteristics: the product characteristics that affect demand
- Competitive environment: the actions of product suppliers in the market
Some examples of popular time series analysis models and methods (read Self-study Document
2-2)
 2. Overview of supply chain planning

The image depicts two diagrams illustrating the production planning process and the
integration of relevant factors within the supply chain.
- Strategic Business Plan: This is the company's overall long-term plan, providing strategic
direction for production management.
- Production Plan: Based on the strategic business plan, the production plan sets specific
medium-term production goals, such as production volume or production timelines.
- Master Production Schedule (MPS): A detailed schedule developed from the production
plan, specifying the types of products to be manufactured in each specific period.
- Material Requirements Plan (MRP): A plan that determines the necessary raw material
quantities to meet the master production schedule, ensuring a stable supply of materials.
- Production Activity Control and Purchasing: This is the execution phase, involving the
management of actual production processes and procurement activities.
These stages form a closed-loop process, starting from planning to execution and control.

These factors are closely related to each other, shown in a pie chart with two-way arrows
between departments.
The Strategic Business Plan is at the center of the cycle, coordinating all other plans within
the company.
The other plans include:
- Production Plan: Defines production activities and objectives.
 - Marketing Plan: Establishes strategies for product promotion and market reach.
- Engineering Plan: Involves product development, technology, and process optimization.
- Financial Plan: Provides the necessary financial resources to support the execution of
other plans.
This pie chart emphasizes the interconnection between production, marketing,
engineering, and financial plans in achieving the company's strategic goals.

This diagram illustrates the production and material planning system, including different
levels of planning over time and various types of plans related to the Capacity Plan and Materials
Plan.
Planning Horizon: The planning process is divided into three time horizons:
- Long Range: Covers planning periods of more than one year, applied to product families
or groups of products.
- Medium Range: Spans from 6 to 18 months, applied to final products.
- Short Range: Focuses on short-term planning, measured in days or weeks, applied to
components or subassemblies.
Capacity Plan
- Resource Requirements Planning (RRP): Long-term resource planning that helps
businesses determine the necessary resources to meet production goals.
 - Rough-Cut Capacity Planning (RCCP): Medium-term capacity planning that evaluates
production feasibility by assessing available resources (labor, machinery) to meet forecasted
demand.
- Capacity Requirements Planning (CRP): Short-term capacity planning that ensures
sufficient resources are available for manufacturing components and subassemblies.
Materials Plan
- Aggregate Production Planning (APP): Long-term production planning that aligns market
demand with production capacity.
- Demand Management: Forecasts market demand to determine the required production
volume.
- Distribution Requirements Planning (DRP): Plans product distribution to meet demand
across different geographical regions.
- Master Production Scheduling (MPS): Medium-term scheduling that specifies which
products will be produced in each time period.
- Material Requirements Planning (MRP): Short-term material planning based on the master
production schedule (MPS) and inventory status.
- Bill of Materials (BOM) + Inventory Status: Identifies required raw materials and current
inventory levels to support detailed material planning.
- Production Activity Control (PAC): Monitors and adjusts actual production processes to
ensure production goals are met on time.
- Purchase Planning & Control: Ensures that necessary materials are procured on time and
at a reasonable cost to meet production demands.
Relationship Between Components
- Capacity Plan and Materials Plan operate in parallel. The capacity plan defines production
capabilities, while the materials plan ensures an adequate supply of materials to support
production.
- Master Production Scheduling (MPS) and Material Requirements Planning (MRP) are
critical elements that bridge medium- and short-term planning for both production capacity and
material availability.
 The diagram shows the difference between two typical strategies: Chase and Level
production strategy.
Chase strategy (a)
In this strategy, production is adjusted precisely to match market demand.
The Production curve closely follows the Demand curve, indicating that production
increases or decreases based on fluctuations in demand. Inventory levels remain very low or
nearly zero throughout the year because the company produces just enough to meet demand,
with minimal or no stockpiling.
Level production strategy (b)
In this chart, production remains stable throughout the year, regardless of demand
fluctuations.
The Production curve is relatively flat, indicating that production levels do not change
despite variations in demand. Demand fluctuates over time, while Inventory increases when
production exceeds demand and decreases when demand surpasses production. This results in
either excess inventory or backorders. The management of surplus inventory or backorders
depends on the gap between production and demand.
S&OP planning process:

This chart illustrates the five-step process of an S&OP (Sales and Operations Planning)
system, a crucial framework that helps businesses integrate sales planning with operational
planning to achieve a balance between supply and demand while optimizing production and
distribution processes.
This process consists of sequential steps to ensure that different departments within the
company—from production to marketing and finance—work in synchronization toward a
common goal. Each step plays a vital role and depends on the outcomes of the preceding steps.
Data Gathering: This step involves collecting data from various sources as the foundation
for planning. The data includes key inputs such as actual sales figures, statistical demand
forecasts, and marketing inputs based on the 4Ps (Product, Price, Place, Promotion). Additionally,
it may incorporate external factors, market trends, and macroeconomic conditions.
Accurate and comprehensive data collection is crucial for the subsequent steps in the
process, ensuring that decisions are made based on reliable and up-to-date information.
Demand Planning: After data has been collected and analyzed, the next step is demand
planning. This involves creating forecasts for future market demand based on sales data,
consumer trends, and other influencing factors. These forecasts serve as the foundation for
businesses to prepare resources—ranging from production to logistics—ensuring that goods are
available to meet customer needs.
Demand planning not only relies on statistical models but also integrates the latest market
insights and the company’s marketing strategies. This combination helps ensure that forecasts
are highly accurate and aligned with real business conditions.
 Supply Planning: Once demand has been forecasted, the next step is supply planning. This
process ensures that production resources, raw materials, and manufacturing capacity are
efficiently allocated to meet the projected demand.
Supply planning includes assessing current production capacity, forecasting required raw
materials, and managing the supply chain. This step is crucial, as any miscalculation in supply
planning can lead to excess inventory or shortages, impacting both profitability and brand
reputation.
This stage often requires close collaboration between production, procurement, and
operations teams to ensure a smooth and efficient supply chain.

The Pre-S&OP Meeting is held to discuss and validate the elements planned in the previous
steps. Functional teams review demand forecasts and supply plans, analyze capacity constraints,
material availability, or other potential issues that could affect the company's ability to meet
demand.
This meeting provides an opportunity for different departments to address potential conflicts
and align their plans before final decisions are made. It is a crucial step in adjusting and refining
the plan to ensure that all elements are realistic and aligned before presenting it to senior
leadership.
The Executive S&OP Meeting is the final and most critical step in the S&OP process, involving
senior business leaders. At this stage, strategic decisions are made based on the insights
gathered and analyzed in the previous steps.
This meeting not only resolves any remaining conflicts but also provides recommendations and
finalizes the action plan. The decisions made here will shape the company's sales and
operations strategy for the upcoming month or quarter, including goal adjustments, resource
allocation, and planning for production and distribution activities.

3. Source
Purchasing, Procurement, and Sourcing are three key terms in supply chain management,
often used to describe activities related to acquiring goods and services. While they share some
similarities, each term has a distinct meaning, representing different aspects of an organization's
procurement process.
Purchasing: refers to the specific activities involved in buying goods or services from
selected suppliers. It is an administrative process that focuses on executing transactions, including
issuing purchase orders, processing payments, and receiving goods or services.
Compared to procurement, purchasing has a narrower scope. It is primarily concerned with
the transactional aspects of acquiring goods and does not include strategic elements such as
supplier selection, contract negotiation, or long-term supplier relationship management.
 Procurement is a broader concept that encompasses the entire purchasing process within
an organization. It includes everything from identifying needs and selecting suppliers to managing
supplier relationships after contracts are signed.
Unlike purchasing, procurement involves both transactional and strategic activities aimed
at optimizing the acquisition of goods and services in an efficient, sustainable, and cost-effective
manner. It covers all aspects of sourcing, selecting, and managing suppliers, from the planning
stage to contract completion.
Sourcing is a crucial component of the procurement process, focusing on identifying and
evaluating potential suppliers. This activity emphasizes market analysis and supplier selection to
ensure the best fit in terms of cost, quality, and supply capabilities.
Sourcing plays a foundational role in establishing long-term and stable partnerships within
the supply chain. It primarily involves assessing and selecting suppliers based on key criteria such
as pricing, production capacity, product quality, and reliability.

Overall Comparison:
- Purchasing: Focuses on transactional and administrative activities related to acquiring goods,
such as issuing purchase orders and processing payments
- Procurement: Encompasses the entire purchasing process including long-term strategieslike
supplier selection, contract management, and cost optimization.
- Sourcing: The first stage of procurement, dedicated to finding and evaluating suppliers with
the goal of establishing sustainable partnerships.

Role:
Strategic sourcing plays a crucial rolein supply chain management and modern business
administration. It goes beyond simply finding suppliers; it also includes managing, developing,
and optimizing supplier relationships to achieve a sustainable competitive advantage.
1. Cost Optimization – Reducing procurement costs while maintaining quality and efficiency.
2. Improved Product Quality – Ensuring high standards through effective supplier selection
and management.
3. Long-Term Partnerships – Building strong, sustainable relationships with key suppliers.
4. Supply Chain Risk Management – Identifying and mitigating potential disruptions.
5. Operational Efficiency – Streamlining procurement and production processes.
6. Competitive Advantage in a Globalized Market – Enhancing adaptability and resilience.
7. Agility in Responding to Market Fluctuations – Quickly adjusting sourcing strategies to
meet changing demands.
8. Comprehensive Supply Chain Optimization – Integrating sourcing strategies with overall
supply chain management.
To choose good suppliers, we need to build supply strategies, for example: Many suppliers,
"a few" suppliers, vertical integration, science-technology alliances, joint ventures, etc.
Steps to perform Sourcing activities

Internal analysis:
Before starting the sourcing process, businesses need to conduct a comprehensive internal
demand analysis. This includes:
Determining product/service needs: Businesses need to identify detailed requirements related
to the products or services to be purchased, including technical specifications, quantity, quality
standards and delivery time.
Allocate budget and resources: Based on the needs, businesses need to allocate reasonable
budgets and identify supporting resources to ensure the sourcing process is effective and in line
with the financial plan.
Determine the number of suppliers
Find and shortlist potential suppliers. Businesses can use a variety of methods to approach
suppliers, including: Market research and internal data. Use information from current or potential
suppliers, combined with market research, to build a list of suitable candidates.
Evaluate and select suppliers
After determining the number of suppliers. Request for tenders or quotations. Enterprises
can invite suppliers to submit proposals and quotations based on specific requirements, from
which they can be compared and evaluated.
We can evaluate and select suppliers based on: TCO analysis (a comprehensive assessment
not only based on initial price but also costs incurred during the cooperation, operation,
maintenance and risks), using a weighted method. In addition, using a technology platform is also
suggested to evaluate and select suppliers, because e-commerce platforms or supply
management software can be used to connect with potential suppliers globally, helping to expand
the scope and optimize the selection.
Negotiation and Contracting
Once suitable suppliers have been identified, the business will proceed to negotiate the
contract terms. The goal of this step is to achieve favorable terms and minimize risks for both
parties: Negotiation of price and payment terms, Commitment to quality and delivery, Terms of
support and after-sales service.
Cooperate
Maintain and develop supplier relationships. Develop strategic partnerships. Evaluate and
improve cooperation effectiveness.