Given its fundamental importance, demand planning has to be one of the most misunderstood and frustrating activities in today’s supply chain, if the amount of managers who discuss their demand planning headaches is anything to go by.
If you’re one of those supply chain managers who suffers from chronic demand planning headaches, you might find this post useful, since it offers a few thoughts, ideas, and suggestions to help make the demand planning process a little less perplexing.
4 Common Causes of Demand Planning Headaches
When discussing ailments, all the best medical publications first discuss the causes of a condition. In time-honoured fashion therefore, I’ll take the same approach to this supply chain malady. Some common causes of demand planning headaches include:
1. Plain and Simple Confusion
Surprising as it may sound, there are plenty of supply chain leaders who confuse demand planning with sales forecasting. If your company is concerning itself primarily with forecast accuracy, you’re missing a trick or three.
Of course the forecast is an important element of demand planning, but it’s really only the first step in the process. Demand planning comprises a number of elemental activities which together, enable a company to prepare itself to fulfil the orders it expects to receive. These activities include proactive as well as reactive measures—in other words, you might take proactive steps to influence demand, as opposed to simply trying to predict what might be.
Another cause of demand planning headaches, isolation is easily cured. All you need to do is stop approaching demand planning as a standalone task. Just as demand planning is made up of a number of activities, so it is in itself, part of the wider process of business planning.
If your company doesn’t already follow a sales and operations planning process, there’s never a bad time to get one implemented.
3. Numerical Fixation Syndrome
Having covered the two most widespread causes of demand planning headaches, it’s time to move on to some of the rarer causal conditions—like numerical fixation.
Numerical fixation exists when your company is fixated on a position within the “one number forecasting” debate, whether it advocates one number forecasting or insists that sales, supply chain, and finance functions each have their own forecast figure to work to.
If you want to kill that headache, it’s time to forget about one, two, or three and start thinking in terms of a common plan, with a capability of providing views based on roles. While that might sound complex, demand planning is a complex task. That’s the problem with one number forecasting–it’s just too constraining.
It should be noted that to graduate to role-based demand planning, your company will need to invest in more advanced demand planning technology than can be found in ERP systems. Try talking to some demand planning system vendors to see what the latest solutions can offer.
In any event, suppliers of these systems know the demand planning game as well as anyone, so they can be a great source of advice and information, as long as you can find a way to talk to them without eating a sales pitch (Logistics Bureau’s upcoming Supply Chain Leaders Insights event might be an ideal opportunity to catch some vendors in “expert advisor” mode).
4. The Bias Effect
Are you using the concept of consensus planning as part of your demand planning procedure? If so, all credit to your company, as long as the concept was implemented with an awareness of the bias effect.
As its name implies, the bias effect stems from the fact that each contributing group or business function will have certain biases and will make certain forecast errors based on its operational characteristics, especially when incentives are in play.
If care hasn’t been taken to manage incentive structures in an aligned manner, consensus planning may do more harm than good—and may be the cause of demand planning headaches.
The Curative Suggestions
Now that you’ve heard about some of the causes of demand planning headaches, you’ll be happy to know that there are remedies you can try. The cure for demand planning headaches lies in improved process, practices and tools. Here are some suggestions for where to seek improvement:
Measure to Improve
As with any supply chain process, measurement is key to improvement. If you don’t have any demand planning KPIs in place, you’ll have trouble finding the root cause of your headaches. KPIs should include metrics for forecast accuracy and for the cost of demand planning. Your company should be measuring inventory turns in any case, which can also provide you with clues about demand planning effectiveness.
While statistics feature highly in demand planning, the secret to success is in collaboration across business functions. It’s hard to successfully balance supply and demand with an un-bridged gap dividing manufacturing/supply chain and sales teams. Sales and operations planning is a concept which has successfully closed that gap for a great number of organisations.
Through S&OP implementation, your company can potentially benefit from improved demand planning effectiveness, greater forecast accuracy, and other bonuses to boot, such as a reduction in buffer inventory and improvements in overall supply chain visibility.
Deploy the Best Technology
Technological maturity is important across all aspects of supply chain activity, but never more so in demand planning. The companies which stand out as leaders in demand planning effectiveness are those which have eschewed ERP planning modules in favour of best of breed demand planning solutions. That’s not just my opinion—it’s actually the revealing result of studies conducted by leading research organisations such as Aberdeen Group.
Employ the Best Talent
If your organisation is suffering from demand planning headaches, it’s worth considering whether you have the right people in the right positions.
A lot of companies consider demand planning roles to be most suitable for analytic types and assign those positions accordingly. However, the companies most successful with demand planning tend to be those which assign some senior, long-serving staff to the team: people who know the business inside out and can work alongside junior or freshly appointed analysts. A good balance of people on the demand planning team will go a long way to preventing headaches.
Take Care of Your Data
Demand planning is a process that uses a lot of data, but of course quality is just as important as quantity. Get into the habit of having a data tune-up at least once a year. Better still; implement a rigorous process of continuous management to ensure data is cleansed and accurate. This will help to promote trust in the data and prevent people from making arbitrary changes to plans and forecasts.
Talk to the Right People
There’s nothing like a bit of healthy networking to learn new ways to improve forecasting and get rid of demand planning headaches. Like anything, it’s all about talking to the right people.
Consultants, demand planning solution vendors and execs from other supply chain companies, as well as their managers and analysts will all be able to tell you about their experiences and successes with demand planning, which might help you generate ideas to try in your operation.
We hope to have some demand planning systems vendors on board at this year’s Supply Chain Leaders Insights event to take place on October 26th 2016.
Remember, that event is all about interacting with experts in supply chain matters and learning from their knowledge and expertise—no sales pitches allowed. If you want to talk about a purchase you can always take the vendor’s details and have a separate conversation after the Insights event. So be sure to book your place if you want some seasoned advice and information from the people who know demand planning and the systems that support it.