Week 1 | Session 4: SC Processes — Planning, Sourcing & Manufacturing

Course: Supply Chain Digitization

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SC Processes — Overview

Note

SC processes follow a fixed sequence — the same order applies across most supply chains, with minor variation by industry. Different stakeholders handle different processes, and KPIs are defined for each to monitor performance regularly and ensure efficient, effective execution.

The 6 Major SC Processes in sequence are:

1. Planning & Forecasting
2. Sourcing & Procurement
3. Production & Manufacturing
4. Inventory Management
5. Distribution & Logistics
6. Customer Service

Caution

Session Scope: Session 4 covers Processes 1–3 only. Processes 4–6 (Inventory Management, Distribution & Logistics, and Customer Service) are covered in Session 5.

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Process 1 — Planning & Forecasting

Process 1 of 6

Forecasting vs. Planning — The Key Difference

Note

Forecasting: Predicting future demand, future sales, marketing needs, and resource requirements.

Planning: Deciding how to manage resources — production, inventory, capacity, and financials — to fulfil the predicted demand.

Relationship: Forecasting is always done first → its output feeds directly into Planning.

What Planning Covers

Planning Area	Description
Make-or-Buy Decisions	Produce components in-house, or buy from a supplier / outsource?
Facility Role Planning	What quantity to manufacture at each plant, store at each warehouse, sell at each retailer
SC Network Structuring	How nodes (plants, warehouses, retailers) are connected and what role each plays
Productivity Monitoring	Track performance of all facilities and processes using KPIs

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Forecasting Methods — Worked Example

Exam Calculation

Context: An online sports equipment retailer needs to forecast bicycle sales for August 2023.

Historical data:

Month	Units Sold
May 2023	200
June 2023	180
July 2023	150

Method: 3-Month Simple Moving Average

Note

Formula:

Forecast = (Month 1 + Month 2 + Month 3) ÷ 3

Calculation:

(200 + 180 + 150) ÷ 3 = 530 ÷ 3 ≈ 176.67 → rounded to **177 units**

If 4 months of data are available, use a 4-month moving average — and so on.

Business value of this forecast: The retailer can now plan inventory levels, staffing, and marketing spend for the holiday season based on an evidence-backed demand estimate.

Note

Forecast Error: The difference between estimated demand and actual demand. Used to measure forecasting accuracy over time.

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KPIs for Planning & Forecasting

Forecast Accuracy:

KPI	Full Name	What It Measures
MAPE	Mean Absolute Percentage Error	Average % difference between forecasted and actual value — lower MAPE = higher forecast accuracy

Forecast Error Measures:

KPI	Full Name	What It Tells You
MAD	Mean Absolute Deviation	Average magnitude of forecast errors
MSE	Mean Square Error	Average of squared errors — penalises large deviations more
RMSE	Root Mean Square Error	Square root of MSE — same units as original data, easier to interpret
Bias	—	Indicates whether the model is over-forecasting or under-forecasting systematically

AI/ML Model Performance (when ML is used for forecasting):

KPI	What It Measures
R² (R-Squared)	Proportion of variation in actual data explained by the model — higher R² = better model fit. Commonly used in regression-based forecasting and across other ML models.

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Process 2 — Sourcing & Procurement

Process 2 of 6

Sourcing

Note

Definition: Identifying, evaluating, selecting, and managing suppliers to fulfil a company’s requirements.

Goal	Description
Cost Reduction	Always the primary goal of any sourcing activity
Diversification	Avoid reliance on a single supplier to reduce supply risk
Quality Assurance	Ensure all vendors and suppliers consistently meet quality standards
Innovation Support	Suppliers are increasingly expected to support new product requirements in today’s fast-moving market

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Procurement

Note

Definition: The end-to-end process of acquiring goods, services, or work from external sources — from sourcing all the way through to final payment.

Goal	Description
Cost Control	Manage costs across the entire process, from sourcing to payment
Timely Flow	Track and ensure goods and services flow on time and efficiently
Risk Management	Manage supplier relationships proactively to prevent supply disruption
Quality & Delivery	Ensure product quality is maintained and delivery commitments are met
Compliance	Ensure all procurement activities comply with relevant regulations

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Sourcing vs. Procurement — The Key Distinction

Note

Sourcing is a subset of Procurement.

Sourcing identifies and selects suppliers → this triggers the broader procurement process that spans all the way to payment.

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KPIs for Sourcing & Procurement

Area	KPI	What It Tracks
Sourcing	Supplier Performance Score	Overall supplier performance — a composite measure across multiple criteria
Sourcing	Lead Time	Time elapsed from placing an order to receiving delivery
Procurement	Purchase Order Cycle Time	Total time to complete one full PO cycle
Procurement	Purchase Order Accuracy	Percentage of POs raised without errors
Procurement	Contract / Payment Compliance	Adherence to agreed payment terms and contract conditions

Tip

Application of Concepts: The Kraljic Matrix — referenced in Session 3 under the Sourcing driver — classifies purchased items by supply risk and profit impact, and directly informs which suppliers to single-source, multi-source, or develop as strategic partners. It will be covered in detail in a future session.

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Process 3 — Production & Manufacturing

Process 3 of 6

Note

Modern production is a data-rich environment — new technologies capture point-to-point data and track production progress in real time. The large volumes of data generated must be actively analysed to improve operational decisions.

What Data Analytics Enables in Production

Application	Description
Employee & Sales Performance Tracking	Data ensures production goals are met; allows schedules and production levels to be adjusted dynamically
Predictive Maintenance	Predict machine failures before they occur → reduce unplanned downtime
Quality Control (SPC)	Statistical Process Control — monitor and maintain product quality throughout production
Root Cause Analysis	ML models identify the causes of defects or production issues at their source
Process Monitoring	Continuous real-time tracking of production parameters across the line

Key KPIs for Production & Manufacturing

KPI	What It Measures
OEE (Overall Equipment Effectiveness)	How well equipment is being utilised: Availability × Performance × Quality
Cycle Time	Time taken to complete one unit of production
Throughput	Number of units produced within a given time period
Capacity Utilisation	Percentage of total production capacity that is actually being used

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Quick Reference — All Three Processes (Session 4)

Process	Core Activity	Key KPIs	Tools / Methods
Planning & Forecasting	Predict demand; plan resources, capacity, inventory, and network structure	MAPE, MAD, MSE, RMSE, Bias, R²	Moving Average, Regression, AI/ML
Sourcing & Procurement	Identify and select suppliers; acquire goods end-to-end through to payment	Supplier Score, Lead Time, PO Cycle Time, PO Accuracy, Compliance	Supplier Evaluation, Kraljic Matrix (future session)
Production & Manufacturing	Convert raw materials into finished goods; monitor production performance using data	OEE, Cycle Time, Throughput, Capacity Utilisation	SPC, ML, Predictive Maintenance

Tip

Exam Angle: “Explain the key SC processes and their KPIs.”

Answer framework:

1. List all 6 processes in sequence (Planning → Sourcing → Production → Inventory → Distribution → Customer Service)
2. For each: define it, state its goal, and name the relevant KPIs
3. For forecasting specifically — be ready to compute a moving average and interpret MAPE and Bias in context