PSI (Production Sales and Inventory) Plan

PSI Planning

Over time, the bulk of the operating synchronization activity is PSI planning (production, sales, and inventory) which is the information-based scheduling of product flows throughout the system.  

PSI planning, which is a marketing functional responsibility in many companies , begins with a forecast of future demand (unconstrained by operational factors such as capacity limits) that is meshed against current and targeted inventory levels (depleting excesses, accumulating for peak periods) to determine a desired level of new production.  

The manufacturing functional organization then applies the constraints  to set a feasible production schedule.  The planned new production is matched with the inventory plan to determine the expected level of anticipated sales (demand adjusted for constraints) that can be reflected in sales quotas and sales compensation schemes.

     

Keeping in mind that distribution is granular and temporal (i.e. the right product at the right place at the right time), the PSI must be planned for each step or stage in the supply chain .  So, as supply chains get longer (i.e. more layers added) and more complex (i.e. more types of intermediaries), the PSI planning process becomes more challenging.

The key to effective PSI planning is accurate, timely information flows.

Supply chains move both goods and information, and, generally, it is both cheaper and faster to move digital information than physical goods.  

Accordingly, many supply chains have shifted from a traditional push system (the manufacturer projects demand and pushes inventory to intermediaries who are responsible for storing the inventory until it is sold through) to an efficiency-based pull or demand flow system (real-time information triggers orders for inventory that flows through the system).

Companies that plan effectively based on real-time information are able to eliminate inefficient physical moves (e.g. accumulation of excess or obsolete inventory, premium transportation for small shipments) and dramatically increase the efficiency of their supply chains.

Some companies have taken PSI planning to very high levels of cooperative sophistication.

For example, P&G was the pioneer in a process called efficient customer response.  The essence of ECR is to link the supplier (P&G in this case) with distribution channel partners (such as Wal-mart and Kroger) so that real-time PSI information flows in up and down the supply chain (from supplier to retailer and back) as a basis for scheduling operationally efficient movements of goods.  ECR is the current pinnacle of supply chain synchronization.

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