Supply Planning
Translate a demand plan into time-phased decisions for inventory, purchasing, transfers and production while making lead times, policies and supply risk visible.
Each block is planned for 60 minutes: about 35 minutes to learn, 15 minutes for the worked case and 10 minutes for notes or review. Take breaks between blocks. You can complete the lesson over several days.
The idea in simple words
Supply planning answers: what should be available, where and when to meet the approved demand plan? It balances usable stock, committed demand, open receipts, lead times, order policies and feasible sources. A planned order is a recommendation until an authorized business process releases it.
Start here: Supply planning starts with the reviewed demand plan and the current inventory picture. It must use dated quantities and locations, not just a monthly total.
1. Convert demand into dated requirements
Use customer demand, forecast consumption rules, backlog and the planning horizon to identify what needs coverage. A demand plan may be consumed by orders according to an agreed method; do not add the same order twice. Time matters: 100 units due in week 2 are not interchangeable with 100 units due in week 8. Keep product and location identifiers aligned with the supply records.
Worked example
For Northstar, week 2 demand is 51 bottles and 6 units are already late. Demand to cover is 57 units in week 2. The same month’s later demand stays in its own week so the planner can see when supply is required.
Try it · 10 minutes
Build a four-week demand table with forecast, customer orders and backlog. State whether the forecast is reduced by orders or added to them.
Watch for: Demand and supply need the same item, location, unit and calendar.
2. Know what inventory is actually usable
Separate on-hand, reserved, quality-held, damaged and available stock. Add confirmed receipts only in the period and location where they are expected to arrive. Account for allocations and open demand according to policy. Projected available balance can be expressed as prior balance + receipts − demand, but the exact definition varies by organization. Reconcile physical records and planning records before treating a number as reliable.
Worked example
Opening usable stock is 18. A confirmed receipt of 10 arrives in week 1; 12 units of demand occur in week 1. Projected week-1 stock is 18 + 10 − 12 = 16. If 4 units are in quality hold, they should not be counted as immediately available.
Try it · 10 minutes
Classify a sample of 30 on-hand units into usable, reserved and held quantities; calculate the usable amount and explain each exclusion.
Watch for: Do not assume every recorded unit can meet a customer order today.
3. Calculate net requirements and choose an inventory policy
A simple net requirement is demand to cover + target ending stock − usable stock − scheduled receipts. If the result is positive, the planner considers a replenishment proposal. A reorder-point policy triggers when inventory position crosses a threshold; an order-up-to policy replenishes toward a target. Lot-for-lot follows the net need, while fixed lots or minimum order quantities can create extra stock. The policy is a trade-off among service, ordering effort, price breaks, shelf life and working capital.
Worked example
Demand is 57, desired ending stock is 10, usable stock is 18 and a confirmed receipt is 10: net need = 57 + 10 − 18 − 10 = 39. If the supplier minimum is 50, the proposal may be 50; the additional 11 units should be visible as policy-driven inventory.
Try it · 10 minutes
Calculate a net need for your own numbers. Then apply a 50-unit minimum order and identify the extra stock created.
Watch for: A reorder point is a trigger, not an instruction to ignore timing, open orders or constraints.
4. Model lead time and uncertainty
Lead time is elapsed time from a defined start event to a defined usable-supply event. A purchase lead time may include supplier processing, transit, receiving and quality release. Supplier calendars, holidays, shipment schedules and receiving capacity can change the date. Use observed variability where reliable, and make any buffer policy explicit. An average lead time alone can hide late-tail risk. Expediting may reduce time but can add cost and still fail to meet the date.
Worked example
A supplier takes 10 working days to build, 4 to ship and 2 for receiving and inspection. The planned usable lead time is 16 working days, not merely the supplier’s 10-day processing time. If inspection is delayed, the usable date moves.
Try it · 10 minutes
Map a real or fictional replenishment path from order release to usable stock. Mark every elapsed-time segment and the owner of each segment.
Watch for: Define lead-time start and finish before comparing supplier performance.
5. Select a source: make, buy, transfer or substitute
Source selection can consider qualified suppliers, internal plants, alternate products and inter-location transfers. Check approved status, minimums, order multiples, capacity, cost, yield, material availability and delivery promise. A lower purchase price can lead to higher freight, risk or handling cost. A transfer may solve one location shortage while creating another. A substitute needs technical and customer approval; it is not automatically interchangeable. Split sourcing only when allocations and receipt timing are operationally credible.
Worked example
Plant A has 20 surplus bottles but needs 5 as its buffer. Plant B is short 15. A transfer of 15 meets B’s need and leaves A at its buffer; transferring all 20 would improve B but expose A.
Try it · 10 minutes
Compare make, buy and transfer for a 20-unit need using fictional costs and dates. Record service, cost, risk and which approvals are required.
Watch for: Do not select a source from cost alone or promise unqualified substitutions.
6. Turn recommendations into time-phased orders
Create dated planned purchase, production or transfer proposals based on net need and lead-time offset. Respect calendars, minimums, order multiples, supplier schedules and frozen or firm horizons. A planned order is a proposal; a released order is an execution commitment under the organization’s process. Avoid changing firm orders automatically without review. Use exception messages such as expedite, defer, cancel or reschedule with the date and quantity that caused them.
Worked example
If 39 units are needed in week 2 and usable lead time is 16 working days, the order release date may fall in the prior month. A 50-unit minimum creates 11 extra units. A firm order already due in week 2 must be checked before creating a duplicate planned order.
Try it · 10 minutes
Review a four-week table of planned receipts and releases. Identify any proposal that arrives late or duplicates an open order.
Watch for: Time-phase by need date and release date; a total quantity alone cannot show whether supply is on time.
7. Plan for supplier risk, allocation and backlog
When supply is short, make priorities transparent. Options include allocating scarce stock by customer class, promised date, criticality or an approved business rule. Keep unfilled orders as backlog with quantities and dates rather than hiding them in a lower forecast. Ask suppliers to confirm quantities and dates, and distinguish confirmed supply from an unconfirmed promise. A disruption response should show the impact, owner, next update and alternate choices. Avoid quietly shifting costs or risks to another location.
Worked example
A supplier confirms 72 kits against an 80-kit requirement. The plan should show 8 units uncovered, the affected orders and the next decision date. It should not show 80 confirmed merely because the purchase order requests 80.
Try it · 10 minutes
Write an allocation rule for an 8-unit shortage. Test it against three customers with different due dates and explain who is delayed.
Watch for: A shortage does not disappear when the spreadsheet total is forced to balance.
8. Review supply plan health and connect the cycle
Review projected inventory, days of cover, past-due supply, supplier confirmation, excess, obsolescence, backlog and service exposure. These indicators answer different questions; no single measure is a full plan. Compare proposed and released supply, then feed execution changes back into the next planning cycle. Run a scenario when assumptions change and communicate what changed, what is feasible, what remains uncertain and who will act.
Worked example
For week 2: 57 units to cover + 10 target stock − 18 opening usable − 10 confirmed receipts = 39 units of net supply. A 50-unit minimum order creates 11 extra units; an 8-unit supplier shortfall would leave only 42 receipts and require a recovery decision.
Try it · 10 minutes
Summarize one week’s plan with demand, usable stock, firm receipts, net need, proposed source, release date, risk and owner.
Watch for: Keep assumptions and confirmed facts separate so planners can explain why the plan moved.
Further reading and scope
These sources provide background for the planning concepts. The explanations, diagrams and Northstar examples on this page are written for this site. Official software manuals describe the named product and configuration; they do not define a universal process. No source text or figures are reproduced here.
- SAP Help Portal, “MRP Procedures.” Official vendor documentation; publication date not displayed; accessed 30 October 2026.
Describes planning procedures in SAP. Screen names and system behavior are product-specific; the lesson’s planning arithmetic is a simplified general teaching model. - SAP Help Portal, “Scheduling for External Procurement.” Official vendor documentation; publication date not displayed; accessed 30 October 2026.
Illustrates that external procurement dates depend on planned delivery and scheduling assumptions.
Quick knowledge check
Choose an answer before opening the explanation. These questions review the key ideas from all eight blocks.
1. What does a time-phased supply plan add to a total quantity?
- Only a product description
- The dates and locations when supply is needed and available
- A marketing campaign
- A yearly revenue target
Reveal answer and explanation
Answer: B. The dates and locations when supply is needed and available Date and location reveal whether supply can meet demand when and where it is needed.
2. Which inventory should normally be excluded from immediately usable stock?
- Stock available for sale
- Stock in a quality hold
- Confirmed usable stock
- Stock at the required location
Reveal answer and explanation
Answer: B. Stock in a quality hold Quality-held stock may not be released for customer use.
3. Demand 57 + target 10 − stock 18 − receipt 10 equals what net need?
- 29
- 39
- 49
- 57
Reveal answer and explanation
Answer: B. 39 57 + 10 − 18 − 10 = 39.
4. What happens when a 50-unit minimum applies to a 39-unit need?
- The supplier must deliver exactly 39
- A proposal may become 50 and create 11 extra units
- The demand disappears
- Lead time becomes zero
Reveal answer and explanation
Answer: B. A proposal may become 50 and create 11 extra units The minimum changes the order quantity and the extra inventory should be shown.
5. Why should lead time include receiving and inspection?
- They may delay when stock becomes usable
- They reduce forecast error
- They change SKU codes
- They remove backlog
Reveal answer and explanation
Answer: A. They may delay when stock becomes usable The useful supply date is when the item can actually be used.
6. What is a planned order?
- Always a released commitment
- A system recommendation for future supply
- A customer invoice
- A forecast error
Reveal answer and explanation
Answer: B. A system recommendation for future supply A proposal needs the proper review and release process before execution.
7. Why can a transfer create risk?
- It can reduce stock at the sending location
- Transfers never have dates
- It always increases demand
- It eliminates all costs
Reveal answer and explanation
Answer: A. It can reduce stock at the sending location Moving stock can solve one shortage while creating another.
8. What should the plan show when a supplier confirms only 72 of 80?
- 80 confirmed
- 72 confirmed and 8 uncovered
- No shortage
- Zero backlog
Reveal answer and explanation
Answer: B. 72 confirmed and 8 uncovered Confirmed and uncovered quantities should remain visible.
9. What does a reorder point do?
- Sets a trigger for review or replenishment
- Guarantees a supplier delivery
- Measures production quality
- Defines the product’s sales price
Reveal answer and explanation
Answer: A. Sets a trigger for review or replenishment It signals when inventory position reaches a policy threshold.
10. Why retain past-due orders as backlog?
- To hide late demand
- To keep unfilled customer need visible for recovery and service decisions
- To make the forecast higher
- To avoid planning
Reveal answer and explanation
Answer: B. To keep unfilled customer need visible for recovery and service decisions Backlog is still a real obligation and needs an explicit response.
Educational content only. All quantities, products, scenarios and costs are illustrative. Real methods depend on data quality, local policy, system design, contracts and operating constraints.