Demand planning is the very foundation of the Sales & Operations Planning (S&OP) process. It provides the necessary input for the other steps in the process and gives insights into how the market is evolving.
However, it is not easy to set up a solid demand planning process that will get everyone on board and that doesn’t take up too much of your sales force’s time. Perhaps you can identify with the following questions in which case the answers may prove useful.
For the statistical forecast you need the actual demand, but most organizations don’t have this data to hand. The next best option is to input the data that is the closest to the actual demand, such as the order data or the shipment information. Just keep in mind that your shipping data already contains a capacity constraint, since you can only ship what you were able to produce. It is possible to manipulate the data afterwards – for example, when you know that the customer ordered 10,000 pieces but you could only deliver 8,000 of them – but we advise you to set strict rules to minimize manipulations.
If your business is very seasonally driven, it is advisable to have three years’ worth of historical data as input for the demand planning tool. Otherwise, two years is sufficient. If your organization has less historical data available, you can start with the statistical forecasting process but the forecast accuracy will be lower at the beginning. As more data is added to the system, the forecast will significantly improve.
The first, logical step is to clean your data history. In an ideal world, you then proceed by performing a demand analysis, establishing a statistical forecast, setting up a collaborative forecasting process, optimizing the performance measurement and holding a demand review meeting. However, not all organizations have the same level of maturity or have sufficient budget, resources or management support to implement all phases at once. It’s certainly possible to start with one building block and then gradually add the other steps.
The most convincing argument is undoubtedly that a better demand prediction leads to a better service level. Besides that, you can try to make the demand forecasting system as convenient as possible. It is quite easy to manage the demand of a large part of the product portfolio based on a statistical forecast. This allows your sales reps to focus on the exceptions. It will save them a lot of time without compromising on the quality of their forecast. Producing forecast value-add reports will also trigger Sales to give their best estimations. When it’s very transparent who delivers the best forecast, and you can even weight their outcomes in the process, the worst performers will make an effort to have a higher impact. For more tips about how to win your sales team’s buy-in to demand planning, click here.
Supply Chain definitely coordinates the demand planning process, though ideally receives input from the different stakeholders. Marketing can provide input such as promotions and can work in conjunction with Sales to give specific customer-related input. Finance, in turn, can share their valuable outlook on the overall business. Working towards a collaborative demand planning process should definitely be the ultimate goal.
Collaborative demand planning ensures that you have the blessings of all parties involved. That makes it easier to push the envelope through different areas. Furthermore, the output of the demand planning process serves as input for the supply planning process. The more accurate the demand plan is, the better you will be able to anticipate to the market demand in your daily operations. It’s easier to free up the necessary capacity, to have the raw materials available when they are needed and to calculate the safety stock. By improving your forecast by just 1%, you can already make great strides in increasing your working capital.
How often you need to review your demand depends largely on the industry you are working in. A manufacturer of fresh food products with limited shelf life, for example, needs to respond much faster to the changing market demand than a producer of vaccines that have a life span of ten years. For the latter a quarterly demand review can be sufficient, while in the FMCG market a bi-weekly demand review can sometimes be advisable. For most organizations, however, a review meeting once a month is the optimal frequency.
Having a toolset to support your demand planning process as an integral part of the S&OP process allows you to better streamline your overall supply chain planning. Many companies still run their demand planning process using Excel sheets, but that’s not the best solution within a complex supply chain. In other words, you can’t run and expand a million-dollar business efficiently with just spreadsheets. Having one, real-time version of the truth will allow your business to grow. Of course, there’s usually a basic demand planning module available in your ERP system, so why should you invest in an extra toolset? Unlike most other softwares, Arkieva is a best-of-breed S&OP software suite designed purely to solve S&OP challenges. Eg. it uses different statistical forecasting methods to achieve an optimal forecast. Arkieva has defined an optimal set of methods, but it’s also possible to compare them against your own preferred methods and to define the most ideal approach dynamically. This will lead to better overall demand forecasting results. Curious to see if the tool can be of added value to your company?
