by: Mark Gavoor
Demand Planning is a dynamic process. The goal is to provide a realistic prediction of sales of the upcoming months enabling the supply chain to procure raw and packing materials that will produce the right mix of finished products, at the right time, to meet anticipated sales demand. If the product is not available at the right time and place, customer service and sales will suffer. If the product is available but the sales do not materialize, there will be excess inventory that both ties up working capital and warehouse space.
Demand Planning is, of course, an enhancement and improvement over mere forecasting. Forecasting takes historical sales or shipments and used statistical methods to project what sales will be in the future. Statistical forecasts cannot really be used for new products and harder to use for promotional offers simply because the history does not exist.
So, we “Demand Plan.”
This sounds better than forecasting anyway. Forecasting is about predicting the future. Planning sounds much more solid, determined, thoughtful, and hence, predictive. It is a plan. A plan is like a blue print. Yes, this is what we plan to make and what we plan to sell. What could be easier? To boot, we use the best minds in the company and maybe even involve customers to develop the Demand Plan. We begin with a baseline Statistical Forecast and then tweak it with human intelligence and insight. We collaborate with Sales and Marketing which are the functions that shepherd both new products and promotions through the system. They know the volumes upon which the new products and promotions were justified.
Or do they? Ah, herein lies the rub.
Will the new product sell as expected? Will the promotion deliver the sales lift as expected? In the Supply Chain, we are often responsible for managing the Demand Planning process. This includes data management, preparing the base statistical forecasting and planning and managing the various meetings leading to the Demand Plan. We have all the responsibility but not necessarily the equivalent authority. We get judged and are essentially responsible for Demand Plan accuracy which can be tracked:
Individual Item Error:
%Error = ((Plan Actual)/Plan) x 100
Or
%Error = ((Plan Actual)/Actual) x 100
We are not responsible for Actual (Sales or Shipment). We are only responsible for the Plan and only partially responsible at that. We share the plan development with Sales and Marketing. Yet, somehow we own the Accuracy KPI (key performance indicators). Fair or not, that is the way things work.
If we are responsible for the Demand Plan and its accuracy … we need to take the authority that is often only half granted. When something does not make sense we have to be like a football referee and “throw the flag,” the BS flag, when our business partners make overly optimistic estimates for new products and promotions. After all, new products and promotions are the creations, the babies, of Sales and Marketing. They are proud of their babies and like all parents have great expectations for them. Heck, we hire optimistic people in Sales. It’s an important attribute.
That’s all good, but when we know that the Demand Plan is beyond what ever happened before, we have to throw the BS Flag and call the penalty. Certainly, we have to be data based as much as possible. We need charts because “hockey sticks” are best seen visually. Sometimes to illustrate the point, we need to aggregate at the sub-family or family level to see the historical anomaly of what is being proposed.
We may lose the battle when overruled by the General Manager or President but at least there will be some recollection for at least the next reporting period. After that all anyone will remember, with the exception of ourselves in the Supply Chain, is either a bad customer service trend or an excess inventory problem.
So, don’t be afraid, toss the BS flag and create some robust dialogue!
Written by Mark Gavoor.
http://www.cadentresources.com
For more information, please send an email to: ldewit@cadentresources.com
Twitter with us: http://twitter.com/demandcaster
Mark Gavoor, Supply Chain Thought Leader and Editor of The CRIB, has 32 years of experience in Quality and Supply Chain Management in the consumer products, automotive and defense industries. His experiences include warehouse, transportation, inventory, and customer service management and continuous improvement. He also has led the implementation and optimization of SAP in the Supply Chain at two companies.