In today’s volatile and uncertain market, companies can no longer afford to operate without a structured, data-driven approach to forecasting demand. Demand planning is more than just predicting sales—it’s about building an integrated, agile business that can respond to customer needs while managing resources efficiently. Despite its importance, many organizations still rely on outdated tools, such as spreadsheets, which can lead to bias and siloed decision-making, ultimately compromising their forecast accuracy.

The potential improvements in predictive analytics and the integrated demand planning process can significantly streamline decision-making processes, create new insights, and save several business functions a huge amount of time and money.

Understand that a business will most likely invest in a new process to solve pain points, drive quantified savings, or deliver other clearly defined improvements. To successfully build a business case, you need to both help the organization understand the need and see the benefits.

Why Focus on Demand Planning?

Most companies that decide to invest or improve their process are primarily driven by one or more of the following:

• Obvious forecast accuracy challenges
• A highly variable process that requires a dedicated process to support it
• Detail-level forecasts are needed to support a more efficient manufacturing or distribution system
• Downstream inventory problems that are clearly driven by unseen variability
• An attempt to drive more cooperation between Sales and Operations through a consensus-based planning.

At its core, demand planning acts as the foundation for synchronized operations. It allows marketing, sales, supply chain, finance, and production to operate from a common set of assumptions. Without an accurate demand plan, supply planning becomes reactive; finance struggles with forecasting revenue, and customer service deteriorates due to stockouts or excess inventory.

Consumer behaviors have become increasingly unpredictable. Economic shifts, global disruptions, and rapid product cycles mean that relying solely on historical sales is no longer sufficient. Demand planning introduces a proactive lens that incorporates both internal drivers (such as promotions and price changes) and external signals (including market trends and customer insights) to create adaptive forecasts.

Inaccurate demand forecasts result in costly outcomes, including expedited shipping, excess working capital, lost sales, and markdowns. Improved demand planning helps reduce forecast error, allowing for better inventory placement, production planning, and supplier coordination. Even a 5- to 10-percent improvement in forecast accuracy can have a significant bottom-line impact.

Potential Improvements in Demand Planning

Organizations that invest in improving demand planning benefit from:

• Reduced Inventory Costs – Through better alignment of supply and demand.
• Improved Service Levels – By placing the right product in the right place at the right time.
• Higher Forecast Accuracy – Leading to more reliable plans across finance and supply.
• Faster Decision-Making – Enabled by real-time data and scenario analysis.
• Greater Agility – Ability to adjust to shifts in demand or supply quickly.

A mountain of research today shows that a mature demand planning process helps in improving forecast accuracy and delivers a high ROI. Improved forecast accuracy, when combined with software that translates the forecast into actionable insights, will decrease inventory and operating costs, increase service and sales, enhance cash flow and gross margin return on inventory investment (GMROI), and boost pre-tax profitability. The forecasting error, no matter how small, has a significant impact on the bottom line. In our experience, a 15 percent improvement in forecast accuracy will deliver a pre-tax improvement of 3 percent or higher.

In a previous IBF study of 15 U.S. companies, we found that even a one percentage point improvement in under-forecasting at a $1 billion company results in a savings of as much as $1.52 million, and for the same amount of improvement in over-forecasting, $1.28 million.[i]

The reduction in downstream finished goods inventory resulting from a well-established process and forecast accuracy improvements provides a one-time saving, as well as recurring savings arising from reduced carrying costs. There are significant benefits in a make-to-stock or distribution company. The downstream inventory reduction could range from 10 percent to 20 percent, as forecasting inaccuracies typically account for around 75 percent of the required safety stock.

Building and Investing in Demand Planning

• Build an Unbiased, Unconstrained, Consensus-Based Forecast: Organizations often confuse the demand plan with the sales target. Sales may overestimate to push for stretch goals, while operations may buffer to protect service. Demand planning needs to separate judgment from aspiration. Instituting a formal demand consensus process ensures that all voices are heard, while forecasts remain grounded in data and are evaluated against actual performance.
• Upgrade from Static Spreadsheets to Dynamic Models: Many companies still use Excel as their primary planning tool. While familiar, spreadsheets lack scalability, version control, and real-time integration. Upgrading to a dedicated demand planning system (or enhancing existing tools with forecasting models) introduces automation, improves collaboration, and enables real-time adjustments. It also supports more advanced techniques such as decomposition models or AI-based forecasts.
• Understand and Match Models to Patterns: Not all items follow the same demand pattern. Some are seasonal, some have trends, and others are highly volatile. Applying a one-size-fits-all model can lead to overfitting or underperformance. Instead, classify SKUs by their demand characteristics and apply the appropriate model, whether that’s exponential smoothing, moving average, or more complex causal models.
• Focus on Data Quality and Forecastability: Forecasting is only as good as the data behind it. Cleanse data for outliers, missing periods, and promotions. Measure forecastability using the Coefficient of Variation (CV) or Demand Intermittency. The demand planner becomes the integrator, ensuring that inputs from various departments are translated into a structured forecast. Establish accountability through KPIs such as bias, MAPE, and forecast value added (FVA).
• Invest in training and upskilling through IBF: Empower your teams with proven forecasting and planning knowledge by leveraging IBF’s certifications, workshops, and learning resources, building internal capability that drives consistent, confident decision-making.

Many companies are leaving money on the table with lost sales or poor service levels. An integrated demand planning process can result in increased revenue of 0.5 percent to 3 percent, along with improved inventory availability and demand shaping capabilities. Total annual direct material purchases, along with logistics-related expenses arising from demand variability and lost opportunities, can see direct improvements of 3 percent to 5 percent. We can also benefit from a 20 percent reduction in airfreight costs. Figure Y illustrates the anticipated benefits from a 15 percent improvement in forecast accuracy (these averages are based on individual results, which can vary depending on other variables and may be higher or lower for specific organizations).

Fig. Y | Graphic showing typical benefits from a 15 percent improvement in forecast accuracy

It is essential to understand these average savings amounts and determine what savings you believe you can achieve with a mature predictive analytics and demand planning process. Sometimes you need to know what finance and executive leadership anticipate in terms of benefits; you need to be on the same page in terms of expectations. It is here that the Institute of Business Forecasting Advisory Services (IBF.org) can shed some light on what is realistic based on past implementations.

Demand planning is not just a supply chain function; it’s a strategic business process that empowers smarter, faster decisions. In an environment where disruption is the norm and expectations are high, companies that implement disciplined, data-driven demand planning will not only survive, they will lead.

The path forward is clear: Separate judgment from strategy, invest in tools and talent, and build a collaborative process that evolves with your business.

In a world of uncertainty, demand planning offers clarity. It’s not just about predicting the future, it’s about preparing for it. Companies that invest in robust, unbiased, and collaborative demand planning are the ones that outperform, outmaneuver, and outlast their competition.

But you don’t have to do it alone.

The Institute of Business Forecasting (IBF) has been the trusted authority in forecasting, demand planning, and Sales and Operations Planning (S&OP) for over four decades. Whether you’re just starting your planning journey or looking to refine and elevate your process, IBF offers the training, certification, tools, and global community to help you succeed.

Join IBF and take the next step:

• Get certified with globally recognized credentials
• Attend industry-leading conferences and events
• Access exclusive research, case studies, and best practices
• Learn from and connect with top planning professionals around the world

[i] Chaman L. Jain (2018). The Impact of People and Processes on Forecast Error in S&OP. IBF research report #18. August 31, 2018

In today’s volatile and uncertain market, companies can no longer afford to operate without a structured, data-driven approach to forecasting demand. Demand planning is more than just predicting sales—it’s about building an integrated, agile business that can respond to customer needs while managing resources efficiently. Despite its importance, many organizations still rely on outdated tools like spreadsheets or allow bias and siloed decision-making to corrupt their forecast accuracy.

Employing predictive analytics and integrated demand planning can significantly streamline decision-making processes, create new insights, and save several business functions a lot of time and money.

This article explains why businesses need to leverage demand planning to improve their operations and explains the quantifiable value of doing it so that it can be sold within an organization.

Why Focus on Demand Planning?

Most companies that decide to invest in demand planning or improve their process are primarily driven by one or more of the following:

• Forecast accuracy challenges
• A highly variable process that needs improvement
• Need for a more efficient manufacturing or distribution system
• Downstream inventory problems driven by unseen variability
• Desire to improve cooperation between sales and operations

At its core, demand planning synchronizes operations. It allows marketing, sales, supply chain, finance, and production to operate from a common set of assumptions. Without an accurate demand plan, supply planning becomes reactive, finance struggles with forecasting revenue, and customer service deteriorates from stockouts or excess inventory.

Consumer behaviors have become increasingly unpredictable. Economic shifts, global disruptions, and rapid product cycles mean relying on historical sales alone is no longer sufficient. Demand planning introduces a proactive lens incorporating internal drivers (promotions, price changes) and external signals (market trends, customer insights) to create adaptive forecasts.

Inaccurate demand forecasts translate to costly outcomes: expedited shipping, excess working capital, lost sales, and markdowns. Improved demand planning helps reduce forecast error, allowing for better inventory placement, production planning, and supplier coordination. Even a five to ten percent improvement in forecast accuracy can have a significant bottom-line impact.

Potential Improvements Resulting From Demand Planning

Organizations that invest in improving demand planning benefit from:

• Reduced inventory costs through better alignment of supply and demand.
• Improved service levels by placing the right product in the right place at the right time.
• Higher forecast accuracy can lead to more reliable plans across finance and supply.
• Faster decision-making is enabled by real-time data and scenario analysis.
• Greater agility because of the ability to quickly adjust to shifts in demand or supply.

A mountain of research today shows that a mature demand planning process helps improve forecast accuracy and deliver a high return on investment (ROI). Improved forecast accuracy, when combined with software that translates the forecast into meaningful actions, will decrease inventory and operating costs, increase service and sales, improve cash flow and gross margin return on inventory investment (GMROI), and increase pre-tax profitability. The forecasting error, no matter how small it is, significantly affects the bottom line. In our experience, a 15 percent forecast accuracy improvement will deliver a 3 percent or higher pre-tax improvement.

In a previous IBF study of 15 U.S. companies, we found that even a one-percentage-point improvement in under-forecasting at a $1 billion company delivers a savings of as much as $1.52 million, and for the same amount of improvement in over-forecasting, $1.28 million.[i]

The reduction in downstream finished goods inventory resulting from a well-established process and forecast accuracy improvements provides a one-time saving, as well as recurring savings arising from reduced carrying costs. There are great benefits in a make-to-stock or distribution company, the downstream inventory reduction could range from 10 to 20 percent since forecasting inaccuracies typically drive around 75 percent of the required safety stock.

Building and Investing in Demand Planning

Here are some best practices when it comes to demand planning.

• Build an unbiased, unconstrained, consensus-based forecast. Organizations often confuse the demand plan with the sales target. Sales may overestimate to push for stretch goals, while operations may buffer to protect service. Demand planning needs to separate judgment from aspiration. Instituting a formal demand consensus process ensures all voices are heard, but forecasts remain grounded in data and evaluated against actual performance.
• Upgrade from static spreadsheets to dynamic models. Many companies still use Excel as their primary planning tool. While familiar, spreadsheets lack scalability, version control, and real-time integration. Upgrading to a dedicated demand planning system (or enhancing existing tools with forecasting models) introduces automation, improves collaboration, and enables real-time adjustments. It also supports more advanced techniques such as decomposition models or AI-based forecasts.
• Understand and match models to patterns. Not all items follow the same demand pattern. Some are seasonal, some have trends, and others are highly volatile. Applying a one-size-fits-all model can lead to overfitting or underperformance. Instead, classify SKUs by their demand characteristics and apply the appropriate model, whether that’s exponential smoothing, moving average, or more complex causal models.
• Focus on data quality and forecastability. Forecasting is only as good as the data behind it. Cleanse data for outliers, missing periods, and promotions. Measure forecastability using the Coefficient of Variation (CV) or Demand Intermittency. The demand planner becomes the integrator, ensuring inputs from various departments are translated into a structured forecast. Establish accountability through KPIs like bias, MAPE, and forecast value add (FVA).
• Invest in training and improving skills with IBF. Leverage IBF’s certifications, workshops, and learning resources to empower your teams with proven forecasting and planning knowledge, building internal capability that drives consistent, confident decision-making.

Taking steps to practice demand planning optimally will increase the bottom-line benefits you gain from it.

Bottom Line Benefits for Practicing Demand Planning

Many companies leave money on the table with lost sales or poor service levels. An integrated demand planning process can translate to increased revenue of 0.5 percent to 3 percent with improved inventory availability or demand shaping capabilities. Total annual direct material purchase, along with logistics-related expenses arising from demand variability and lost opportunities, can see direct improvements of 3 to 5 percent. We can also benefit from a 20 percent reduction in airfreight costs. The figure below shows the anticipated benefits from a 15 percent improvement in forecast accuracy. (These are averages and individual results for organizations. They are dependent on many other variables and can be higher or lower.)

This illustrates the possible benefits from a 15 percent improvement in forecast accuracy

It is essential to understand that these are average savings amounts. It is up to you to determine what savings you believe you can drive with a mature predictive analytics and demand planning process. Sometimes you need to know what finance and executive leadership anticipate in terms of benefits; you need to be on the same page in terms of expectations. It is here that the Institute of Business Forecasting Advisory Services can shed some light on what is realistic based on past implementations.

Demand planning is not just a supply chain function; it’s a strategic business process that empowers smarter, faster decisions. In an environment where disruption is the norm and expectations are high, companies that implement disciplined, data-driven demand planning will not only survive but also lead.

The Benefits of Demand Planning: The Final Word

The path forward is clear: Separate judgment from strategy, invest in tools and talent, and build a collaborative process that evolves with your business.

In a world of uncertainty, demand planning offers clarity. It’s not just about predicting the future, it’s about preparing for it. Companies that invest in robust, unbiased, and collaborative demand planning are the ones that outperform, outmaneuver, and outlast their competition.

But you don’t have to do it alone.

The Institute of Business Forecasting (IBF) has been the trusted authority in forecasting, demand planning, and S&OP for over four decades. Whether you’re just starting your planning journey or looking to refine and elevate your process, IBF offers the training, certification, tools, and global community to help you succeed.

Join IBF and take the next step:

• Get certified with globally recognized credentials
• Attend industry-leading conferences and events
• Access exclusive research, case studies, and best practices
• Learn from and connect with top planning professionals around the world.

[i] Chaman L. Jain (2018). The Impact of People and Processes on Forecast Error in S&OP. IBF research report #18. August 31, 2018

Are you interested in a challenging career that will put you in an influential position at work and provide significant career growth potential?

Then, working in demand planning might be an excellent option for you.

Demand planners are crucial in forecasting future demand, optimizing inventory, and improving overall business efficiency. The field provides opportunities for cross-functional collaboration, exposure to diverse business areas, and the chance to significantly impact a company’s profitability. In addition, it plays a critical role in consumer satisfaction. Demand planning is a growing field offering career opportunities, limitless learning potential, and the opportunity to work in many industries.

Individuals who want to become demand planners must be interested in data tracking and analysis, understanding consumer behavior, and anticipating market trends. That’s because their ultimate purpose is to help businesses meet consumer demand efficiently.

If you choose a demand planning career, be prepared to develop a specific skill set, gain relevant experience, and continuously adapt to the ever-evolving world of supply chain and demand planning, where change is only accelerating with the introduction of AI.

This guide explains everything you must know to become a successful demand planning professional.

Education Requirements for Demand Planners

The first step in becoming a demand planner is to meet the necessary educational requirements.

A bachelor’s degree in supply chain management, business, statistics, economics, or a related field is typically required. Plan to take courses in data analysis, supply chain principles, and inventory management. Beyond that, consider pursuing a master’s degree or certifications like those offered by the Institute of Business Forecasting, which can help you stand out.

Analytical and Technical Skills Demand Planners Need

Demand planning is all about data analysis and forecasting. Develop your analytical skills by learning to interpret complex data sets and identify trends. Gain expertise with statistical software and tools. Start with Excel and then build up to more advanced ones such as SAS and R. Demonstrate your systems proficiency by mastering enterprise resource planning (ERP) systems and demand planning software. These are crucial for developing accurate demand forecasts and effective supply chain strategies.

Soft Skills for Demand Planners

One of the career-enhancing opportunities that demand planning offers is the opportunity to work with so many cross-functional partners. Many demand planners cite this as why they were offered advancement opportunities quicker than their peers.

Because demand planners must handle many types of tasks and work with a wide array of stakeholders, they will be more successful if they develop specific soft skills, including:

• Communication: Demand planners should be able to clearly communicate complex concepts to different stakeholders, including people in sales, marketing, finance, operations, and company leadership. This includes not just explaining the what behind forecasts but also the why.
• Collaboration: Demand planning often requires collaboration across many departments and functions. Getting everyone in a room to agree is a skill in and of itself. It’s easier to do this with solid collaborative capabilities, supporting partnering with other teams, information sharing, and working together to achieve common goals.
• Adaptability: Many factors, including market changes and unexpected events, can impact planning. Demand planners must be flexible and adaptable enough to adjust forecasts and plans in real-time.
• Problem-solving: Supply chains are becoming ever more complex. Consumers seem to change their minds more than ever. As a result, planners will frequently encounter challenges and uncertainties during their workday. Solid problem-resolution skills are necessary to identify and resolve potential issues, such as forecasting mistakes, data errors, or supply chain disruptions.
• Continuous improvement: Demand planning changes rapidly, even more so since the introduction of artificial intelligence. Planners must stay up-to-date on the latest trends and best practices in the field.
• Leadership: Leadership doesn’t only refer to managing other people; it comes in many forms. Demand planners must inspire other teams and stakeholders to achieve common goals, which requires the ability to both listen and influence others to drive a consensus among the team.
• Attention to detail: In demand planning, little things make a big difference. Attention to detail is key for success. Identifying small issues can save a company millions of dollars in inventory reductions and increased efficiency.
• Organization: Demand planning is all about juggling many plates at once. People with differing priorities will pull you in many directions. Planners must be capable of prioritizing their work and staying organized and structured in their approach to data analysis, forecasting, planning, and working with others.
• Time management: Planning is time-bound. That’s why demand planners must master time management and set priorities.

Experience Needed for Demand Planning Roles

Hands-on experience is incredibly valuable for understanding the complexities of demand planning and handling challenging situations.

Start by looking for internships or entry-level inventory management, procurement, or logistics positions. Larger organizations offer rotational programs for new grads that can provide excellent exposure to the various parts of the supply chain. This will help you learn the factors that influence demand and how supply chains operate. Aim to participate in cross-functional projects to find out how different departments influence supply and demand planning.

Build a Professional Network

No demand planning professional achieves success on their own.

Start by seeking out internal mentors. Look for people in roles you may aspire to one day and ask for their guidance.

Both internally and externally, networking and building connections are essential.

Join professional organizations like the Institute of Business Forecasting to connect with peers and industry experts and continue your education. Attend conferences, workshops, seminars, boot camps, town halls, and other events to stay on top of industry trends and best practices. (These are also great places to seek out external mentors.)

Networking can help you broaden your industry knowledge and open doors to career opportunities. People love to help others; you just have to ask.

Show Off Your Demand Planning Work

As you gain demand planning work experience, develop a portfolio that showcases your projects and achievements. (Consider building a website you can link to from your LinkedIn profile or share with prospective employers.) Include case studies, forecasts, testimonials, and strategies. Document how your work resulted in business improvements and efficiencies and helped prevent supply issues.

This is also a great time to start giving back. It is said that there is no better way to master a subject than by figuring out how to teach it. Write an article for a publication like the Journal of Business Forecasting. Present what you have learned or a case study at a conference.

Keep Learning and Stay Informed

Demand planning is dynamic, with methodologies and technologies constantly emerging. Introducing artificial intelligence into the practice has only accelerated the pace of change.

Too many people sit back and expect others to establish their ongoing development plan, only to be frustrated when they realize they are being left behind. Take ownership of your career development. Stay informed about the latest trends in supply chain management, data analytics, and demand planning. Engage in continuous learning through online courses, webinars, and publications like those offered by IBF. Participate in local industry networking meetings. Keeping your skills and knowledge current is critical for advancing your demand planning career.

Taking these steps is the traditional way to achieve success in demand planning.

Other Paths To Get Into Demand Planning

Not everyone follows the traditional path into a career in demand planning. Think of all of the inputs that go into creating a solid forecast. With the right analytical skills, cross-functional partners who understand what goes into a demand consensus process can become great demand planners. Some alternatives include:

Move into Demand Planning from Customer Service or Sales

People who work in customer service or sales positions have valuable insights about consumer behavior and market trends that can benefit demand planning.

Moving from these areas into demand planning is a relatively common career trajectory. People who do this have a solid understanding of product demand and customer needs. To become effective demand planners, they must develop analytical skills and familiarity with demand forecasting tools.

Shift from Analytical Roles into Demand Planning

Professionals with analytical experience in industries like finance, marketing, or healthcare often find these skills transferable to demand planning roles. Because they can interpret data and identify patterns, they usually become valuable members of demand planning teams. Once they learn supply chain dynamics, inventory management, and effective soft skills, they can leverage their analytical expertise in a new way, making demand planning richer through cross-industry insights.

Transfer from Inventory or Logistics Positions

People already working within or adjacent to the supply chain, such as those in inventory or logistics jobs, have a basic understanding of the flow of goods and the issues impacting it. In the end, their lives have been made easier or harder by, among other things, a good forecast. Moving up to a demand planning position is often a positive career move.

Before making the shift, candidates must expand their skills to include demand forecasting while also developing a broader perspective of the supply chain. Training like that offered by IBF will be critical to ramping up quickly.

The alternative paths people can take into demand planning positions demonstrate how expansive the field is. Building an effective demand planning team requires many people with different skill sets. There is no single way to become a demand planner, and based on our extensive experience with the industry, every career and path into it is unique. That’s why IBF offers so many resources to help practitioners and hopefuls achieve success.

How Long Does It Take to Become a Demand Planner?

The timeframe for becoming a demand planner varies from a few years to several, depending on your educational background and work experience. With a bachelor’s degree in supply chain management or a related business field, you might expect to spend about three years gaining relevant experience in inventory management, analytics, operations, or other associated areas before moving into demand planning.

For people who come from unrelated disciplines or do not have a college degree, it may take more time to develop the skills and industry knowledge needed to qualify for demand planner positions. Seeking opportunities to learn about market trends, forecasting, and inventory management can speed the process.

Becoming a Demand Planner: The Final Word

While there is no single path to becoming a demand planning professional, there are a few things people need to succeed in the field.

• Expertise in data analysis. Demand planners must be solid at interpreting data. It’s the only way to forecast demand accurately. They must constantly improve their analytical skills and master specialized forecasting software. Understanding historical trends and predictive modeling is critical for achieving success.
• Understanding of supply chain dynamics. It’s critical to know how supply chains function. Understanding how the inputs into the forecast impact its accuracy, and how your forecast accuracy impacts others downstream, is the true demonstration of your understanding of the demand planner role. Learn about the complete process, from procurement to distribution, especially the effect that demand planning can have on each stage.
• Communication and negotiation skills. No demand planner works in a vacuum. It requires building solid relationships with many stakeholders and ongoing coordination with internal teams, suppliers, and manufacturers. Every team is managing to different metrics. Many speak the language of their function (i.e., dollars vs. units). Learn how to communicate and negotiate effectively to ensure operational efficiency and cost-effectiveness.
• Focus on leanness and efficiency. Become familiar with lean and agile management practices, which are how companies operate to improve efficiency and reduce waste.
• Master project management. Supply and demand planning is project-driven. That is why understanding the fundamentals of project management is beneficial. Learn how to plan, execute, and monitor projects while limiting risk. This will help you manage initiatives successfully.
• Be adaptable. Demand planners must be able to adapt to change and solve problems. Pay attention to what’s going on in the world around you. Practice resilience by exposing yourself to different demand planning scenarios, such as market shifts or supply disruptions. This adaptability will help you feel confident that you can handle any situation, even in challenging times.
• Find a mentor. Partnering with a trusted and experienced professional is a great way to gain fresh insights and perspectives. Stay on the lookout for mentorship opportunities, and don’t be bashful about asking for support, either from senior demand planning leaders or others in the organization. The worst they can say is no, but most will want to help or will be willing to refer you to a colleague better suited to supporting your goals.

These tips will equip aspiring demand planners with the skills and knowledge to transition successfully into a new position and help people already in the field advance their careers.

Get a jump start by taking advantage of all the resources available through IBF, including our training and networking opportunities, journal, podcasts, and more.

And for students, and others just starting out, IBF offers free events including webinars and regional events. You can also volunteer to help out at IBF conferences and events and receive free admission. Contact IBF to find out more.

In today’s disruptive global marketplace, more and more companies are laser focused on supply and demand planning and how to get it right.

This guide explains the two disciplines, their differences, and how they work together. Use the information to build a solid foundation for controlling your inventory in these challenging times.

What is Demand Planning?

Demand planning uses analytics, data, insights, and human experience to make predictions and respond to various business needs. It leverages demand forecasts—not as an end in themselves—but as a tool to highlight opportunities and risks, establish business goals, and support proactive planning across functions.

There are two types of demand planning — unconstrained and constrained. With unconstrained demand forecasting, the planner focuses exclusively on raw demand potential, not factoring in possible constraints like capacity and cash flow. This method determines how much you could sell if supply were not an issue. Constrained forecasting, however, considers these factors, creating a more realistic picture.

Businesses should leverage both unconstrained and constrained demand planning to deliver the most value to consumers while keeping costs down.

Essential Considerations in Demand Planning

Businesses must focus on these four areas of demand planning to succeed during this global unrest.

• Historic product sales: What you’ve sold in the past may indicate what you can expect to sell in the future, although that may not always be true. What’s critical to getting things right is to select the correct historical periods and market and economic conditions.
• Internal trends: Using historical data, identify sales trends for one product or group of products.
• External trends: Some factors that may impact a company’s ability to efficiently meet its customers’ needs. These include competition, sociocultural issues, legal factors, technological changes, the economy, and the political environment. (The last two are particularly critical today.)
• Promotional events: When companies run sales, events, or promotions, sales often increase. Demand planning must account for this as well.

Accurately forecasting demand is complex, but businesses must master it during challenging times like today.

What is Supply Planning?

As we covered, demand planning is the process of predicting consumer demand.

Supply planning, by contrast, determines how a business will fulfill demand within the organization’s financial and service benchmarks. It must factor in things like inventory production and logistics. Specifically, it must consider factors like on-hand inventory quantities, open and planned customer orders, minimum order levels, lead times, production leveling, safety stocks, and projected demand.

The five key functions of supply planning are:

1. Business operations is where demand forecasting comes in. Once you’ve calculated the demand, you are able to decide how much inventory you need. At this step, you should know how much product must be ordered and produced.
2. Acquisition involves purchasing materials or final products. Buying supplies is a critical part of having adequate inventory on hand. It requires partnering closely with your suppliers — and their suppliers — especially during uncertain times.
3. Resource management is where companies ensure adequate resources are available and distributed to the correct locations.
4. Workflow of information keeps supply chain management on track by using standardized systems across all departments preventing disconnects.
5. Transportation and logistics pull together all the components of planning, buying, manufacturing, storage, and transportation to ensure an adequate supply of items reaches the consumer.

Practicing supply planning effectively can help keep companies successful during challenging times.

Supply Planning Versus Demand Planning

Demand planning and supply planning aren’t two completely different things. They are actually two halves of a whole.

Demand planning aims to predict how much of a product you need to have available to meet consumer demand. Supply planning determines how to meet that demand within your company’s cost and service rules.

Demand impacts supply, and supply is dependent on demand.

You cannot meet demand without sufficient supply. Similarly, you can’t ensure adequate supply without clearly understanding demand, especially in changing times. You need both to keep your business healthy.

The key difference between the two types of planning are the characteristics of the data that fuels them.

Much of the information used for supply planning is internal or comes from sources connected to the company. It involves analyzing production capacity, time constraints, supply costs, delivery times, storage requirements, and other factors. Because you have relatively easy access to — and control over — supply chain data, it is u easier to master the supply side of the supply and demand equation.

Businesses typically have less control over demand data. While some of it is internal, like historical and seasonal sales records, much is external, like economic trends. This makes demand planning less dependable and more challenging than supply planning.

In short, because supply planning uses more defined and owned data points, it is typically more concrete and reliable. It provides practical direction on how you’ll meet consumer needs. By contrast, demand planning uses less definite and owned information. While certain algorithms and data sources are more accurate than others, forecasting always involves some level of prediction. Supply planning and its practical calculations using more reliably sourced data are typically less volatile.

Another way to view supply planning versus demand planning is to compare their ultimate goals. Demand planning delivers predictions that impact supply planning and other business decisions, while supply planning pays off with inventory optimization.

• Predictions: Demand planning considers a wide array of factors to develop as accurate forecasts as possible. Demand predictions inform supply planning and support other business decisions, such as when to offer promotions or find new vendors.
• Optimization: Supply planning determines how you’ll meet projected demand within your organization’s operational constraints and business objectives. It considers available resources and other factors to develop a plan prioritizing efficiency, cost savings, and speed. The supply plan must align fully with company goals and allow it to take action to achieve them. For instance, if an organization wants to reduce costs for a project, a supply plan might recommend buying materials with a slower fulfillment timeframe. This approach wouldn’t be appropriate for a business driven by tight deadlines.

A balanced approach to demand and supply forecasting is essential for ensuring appropriate stock levels without storing extra inventory, but striking that balance looks different for every business. High-quality data is a key component of both planning types, making analytics and robust supply chain management software and systems especially valuable.

Supply Versus Demand Planning: The Final Word

Supply planning and demand planning aren’t competing factors within a company. Instead, they should be viewed as complementary functions that allow businesses to operate more efficiently and effectively. This is especially critical when operating in dynamic and challenging times like today.

What is Business Forecasting?

Business forecasting is the process of using analytics and experience to make predictions about future customer/consumer demand. The goal is to go beyond knowing what has happened to arrive at the best assessment of what will happen in the future so a company can make optimal business decisions, whether that be operational or strategic. Business forecasting incorporates a lot of different data and viewpoints, uses forecasting tools for modelling, and generates numbers (forecasts) that be used in multiple areas of the business.

What is Demand Planning?

Demand planning is the process of identifying and managing customer/consumer demand for a company’s goods or services and formulating responses to meet that demand. The idea is to balance demand and supply, i.e. serving the customer with the products they want while optimizing the operational elements that go into it.

People use the terms ‘demand planning’ and ‘forecasting’ almost synonymously but there are some differences. Demand planning is the process that drives operational supply chain activities like resource planning, production, logistics, and inventory policies. Forecasting generates the numbers used to inform those activities.

Demand planning is typically manifest in cross-functional processes like Sales & Operations Planning (S&OP) or Integrated Business Planning (IBP) that bring different functions together to decide on what the company can deliver and manage the trade-offs between Production, Supply Chain, Finance, Sales & Marketing etc.

Whatever you call it, you’re trying to predict what a company will sell in the future to successfully be able to supply it when it’s needed.

What Happens When a Company Doesn’t Have Good Forecasts?

If you have bad demand forecasts you may make poor decisions. If you underestimate demand, it can result in lost sales or, even worse, lost customers. If you overestimate demand, it can mean wasting money on inventory you can’t sell and tying up capital that could be better utilized elsewhere.

With a good forecast you give the customer what they want, when they want it, thereby maximizing sales and helping deliver on the strategic goals of the company. With an idea of what’s going to happen before it occurs, you can set inventory policies, set production schedules, determine investments, predict market impacts, control costs, and understand the lifecycles of your products.

What are the Key Steps in Demand Planning?

Demand planning is about more than just a number – it’s a process with a lot of different elements.

Data Collection: Data can come from multiple sources. We must understand what exactly is out there as far as inputs and insights and know how we can bring those into the forecast. Data typically includes historical sales data and qualitative information from Sales about key customers and from Marketing who can reveal how promotional activity will impact demand.

Data Analysis: The data you get won’t always be clean and usable in its current format it will require some preparation before analysing it. We need to look for anomalies in the data as well as formatting issues, determine what data is relevant and what isn’t, and make sure we’re using the right amount of data.

Forecast modelling: Multiple time series methods can be used to take the data, extrapolate it forward, and arrive at a forecast. Increasingly companies are turning to advanced systems to do machine learning and AI which use a wider range of data and automate much of the process.

Gaining Consensus: A challenging part of the process for a lot of companies is arriving at one number used by the different functions. You need everyone on the same page in terms of what you think is going to happen in the future – and collaboration is fundamental to this. This where collaborative planning forums like S&OP and IBP come in.

Communicating the forecast assumptions: This is often overlooked. We need to explain the expected result (forecast) and the reasons behind as this is key to those forecasts being trusted and therefore used across the business.

What Data is Used in Business Forecasting?

It can be internal data such as sales orders, or external data which a lot of companies are starting to look at now. External data includes customer information, macro information, and demographic data, as well as causal information like sales promotions or weather data.

Data is either structured (easily managed in a spreadsheet and easily accessible) or unstructured (not easily managed in a spreadsheet and often difficult to access). Unstructured represents over 85 percent of the data out there and includes data from social media comments, product reviews, and audio and video content.

What Forecasting Models are Used in Business Forecasting?

There are a lot of different models available. This is because there’s a lot of different types of data out there which require different forecasting approaches. At one extreme we have pure qualitative and knowledge based judgements. This could be a sales team giving their own estimate of sales and then you’re aggregating those things up. At the other extreme you have pure quantitative approaches like machine learning with less human judgement and intervention.

In the middle there are various types of Time Series methodologies and causal models. There’s no right or wrong model or approach – rather we must choose the best approach for the data we have and the resources and time we have to generate a forecast. According to IBF research, right now most companies use Time Series types of data in their modelling and their preferred method is exponential smoothing. Does that mean exponential smoothing is the best? Not necessarily, but it is versatile method and it’s good for a lot of Time Series data.

What is Bias in Forecasting?

Bias is consistent over-or under-forecasting. It can be conscious or unconscious. For example, Sales may always forecast higher sales numbers because they want the inventory on hand in case they make the sale, or Finance may always push the number down to to avoid tying up cash in inventory. Whether it is high or low, bias is dangerous and gives a false picture of the future. It creates bad decisions and deteriorates the trust in the forecasting process. Bias is actually often worse than uncertainty.

To learn the fundamentals of business forecasting and demand planning, join us for IBF’s Chicago Demand Planning & Forecasting Boot Camp from March 15-17, 2023. You’ll learn how to forecast demand and balance demand and supply from world-leading experts. Click here for more information. 

I cannot discuss forecasting bias without mentioning MAPE, but since I have written about those topics in the past, in this post, I will concentrate on Forecast Bias and the Forecast Bias Formula.
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What Is Forecast Bias?

Forecast Bias can be described as a tendency to either over-forecast (forecast is more than the actual), or under-forecast (forecast is less than the actual), leading to a forecasting error.

There are many reasons why such bias exists including systemic ones as discussed in a prior forecasting bias discussion. Some core reasons for a forecast bias includes:

1. Optimism bias: I have seen this primarily with the sales team who seem to have an abundance of confidence in their ability to sell and therefore inflate the end results.
2. Sandbagging bias: This is the reverse of the above and I have seen this where well-meaning executive have created a system of bonuses based on exceeding the forecasts, and this has created a culture of sandbagging.
3. Anecdote bias: I have heard so many instances where regardless of what the data is telling them, client personnel would be wary of seeing it because a terrible thing that happened in the past and is part of the company folklore. Their forecast is therefore biased based on the anecdotes.
4. Recent data bias: This is probably true for all processes where humans are involved. The more recent occurrences weigh heavier in our mind. In the case of forecasting, this can create an overreaction based on the latest events.
5. Silly bias: In a study conducted by Amor Tversky and Daniel Kahneman, they asked respondents to guess the number of countries in Africa. However, they showed them a number right before asking them to guess. What they found was on average, the estimate of some countries went up when the user was shown a bigger number and went down when the users were shown a smaller number before answering the question. This makes me think a forecast could be impacted by silly things you saw before you start doing the forecast. For example, what if they saw the temperature and it was a hot day? Does that high number skew the forecast higher? What if they called someone before forecasting and the phone number was comprised of larger digits?

How To Calculate Forecast Bias

A quick word on improving the forecast accuracy in the presence of bias. Once bias has been identified, correcting the forecast error is quite simple. It can be achieved by adjusting the forecast in question by the appropriate amount in the appropriate direction, i.e., increase it in the case of under-forecast bias, and decrease it in the case of over-forecast bias.

Rick Glover on LinkedIn described his calculation of BIAS this way: Calculate the BIAS at the lowest level (for example, by product, by location) as follows:

• BIAS = Historical Forecast Units (Two-months frozen) minus Actual Demand Units.
• If the forecast is greater than actual demand than the bias is positive (indicates over-forecast). The inverse, of course, results in a negative bias (indicates under-forecast).
• On an aggregate level, per group or category, the +/- are netted out revealing the overall bias.

The other common metric used to measure forecast accuracy is the tracking signal. On LinkedIn, I asked John Ballantyne how he calculates this metric. Here was his response (I have paraphrased it some):

• The “Tracking Signal” quantifies “Bias” in a forecast. No product can be planned from a severely biased forecast. Tracking Signal is the gateway test for evaluating forecast accuracy. The tracking signal in each period is calculated as follows:

• Once this is calculated, for each period, the numbers are added to calculate the overall tracking signal. A forecast history entirely void of bias will return a value of zero, with 12 observations, the worst possible result would return either +12 (under-forecast) or -12 (over-forecast). Such a forecast history returning a value greater than 4.5 or less than negative 4.5 would be considered out of control.

At Arkieva, we use the Normalized Forecast Metric to measure the bias. The formula is very simple.

As can be seen, this metric will stay between -1 and 1, with 0 indicating the absence of bias. Consistent negative values indicate a tendency to under-forecast whereas constant positive values indicate a tendency to over-forecast. Over a 12-period window, if the added values are more than 2, we consider the forecast to be biased towards over-forecast. Likewise, if the added values are less than -2, we find the forecast to be biased towards under-forecast.

A forecasting process with a bias will eventually get off-rails unless steps are taken to correct the course from time to time. A better course of action is to measure and then correct for the bias routinely. This is irrespective of which formula one decides to use.

Good supply chain planners are very aware of these biases and use techniques such as triangulation to prevent them. Eliminating bias can be a good and simple step in the long journey to an excellent supply chain.

Whether your first job out of college is in the dynamic world of demand planning or you are an experienced Demand Planner transitioning to a new company, there are some key principles that will jumpstart the value you bring to your new organization. Here I reveal what they are and how they’ll help you settle into your new role.

As a Demand Planner, the first year in a role is not only focused on learning about the products and processes specific to your company, but also developing trust and credibility with cross-functional partners. Generating forecasts require inputs from key process stakeholders and cross-functional buy-in.

But for Planners, the job does not stop once the forecasts are published. Often, forecasts and assumptions need to be presented during demand reviews and to upper management during Executive S&OP meetings. This requires another set of skills that must be established to be an effective and credible demand planner. With so much to learn, where should time and effort be focused during the first months on the job?

1. Be A Sponge – Absorb As Much Information As You Can

The minute you walk through the door at a new company, your prior experience and education only helps to a certain point. A career is like a book and this new job is a new chapter with blank pages waiting to be filled. A critical component to being a successful Demand Planner is knowing the product lines you plan for inside-out.

Planners need to know the history of the products they work with including when they were first launched and why they were launched.  How has the product performed compared to assumptions documented during the development and new product launch process? What products, if any, are the product line cannibalizing? What are the main challenges and opportunities the product has faced since launch? Understanding the history allows for better awareness of where the product is at now and what potential scenarios lie ahead.

This information, along with knowledge of the other products in the portfolio, will help determine where it is positioned in the Product Life Cycle (introduction, growth, maturity, decline).

Knowing where the product is at in its life cycle is essential for forecasting. This will also give some insight into what is driving the annual revenue and volumes, and the year-over-year growth or decline. If a product is in the decline stage of the product life cycle, it is unlikely that the annual volumes will be increasing year-over-year. Therefore, qualitative information provides an important foundation before digging into the numbers.

Building on the topic of Product Life Cycle Management, a product might be in a different stage of the product life cycle in different markets across the globe. For example, a product line that may be on the decline in North America may just be getting introduced in Asia. The global split of the product’s annual revenue and volume needs to be understood as well.

Another example: the product line may have stronger demand in the European market compared to Asia. Even more granular than that, some SKU’s in the product line may have greater demand in certain areas than others.  An effective Demand Planner not only knows these facts, but also knows what drives that demand and customer behavior. Other qualitative information includes questions such as what is the customer target market and who are the competitors in the industry? Is there any seasonality with the product throughout the year or throughout the quarter?  How about during the month or week?

As you can imagine, it is not likely that all this information is prepared on a document as part of your new hire orientation. Most of this information cannot even be deduced from a spreadsheet or demand planning software. This is where a strong relationship with the marketing and sales organization is not only helpful, but critical to the success of a Demand Planner.

2. Set The Foundation For Strong Relationships

A forecast is so much more than a set of numbers; it is a combination of market intelligence and anecdotal feedback from those closest to the customer. Documenting the assumptions for the demand plan and how the plan connects to the overall portfolio and organizational strategy will help when communicating the forecast during demand reviews and executive S&OP meetings.

Because of the different inputs into the forecast, a Demand Planner cannot just rely on Excel or a forecasting system to develop an accurate forecast. They must put in the time, effort and patience that is foundational to a strategic partnership with cross-functional groups. This includes marketing product managers and product directors, sales operations, commercial finance, customer fulfillment, and R&D.

Just like any relationship, when it comes to building partnerships with other groups in the organization, it takes time to build trust and credibility. Set up introductory meetings with those in departments listed above and learn about each person’s role in the Sales and Operations Planning process and with the product line(s) you will be responsible for. Ask them how long they have been with the company, what a typical day is like for them, and whether they prefer formal meetings or quick touch base discussions. Most importantly, ask what their experience has been like working with the demand planning team and for general advice for being a strong contributor in the organization.

If your goal is to create a strong, long-term partnership with your colleagues, follow up after the meeting with a quick thank you email that is personalized and genuine. Add that you will be scheduling a follow-up meeting in a couple of months after you have had more time to learn about the organization and continue building that relationship. Be sure to provide an agenda in advance of the meeting with the specific questions you want to ask. This preparedness starts building credibility and following through with the follow-up meeting starts building trust.

Even more important than building strong relationships outside of your team is building bonds with those in your team. Being genuine, bringing a positive attitude each day and working hard to learn and start contributing are all things you can control. These actions are foundational to being a great team member.  As you learn from team members, take note of who is an expert in different areas on the team. Everyone brings a set of unique strengths, experiences, and skills.

In addition to learning about your specific product lines, you will need to learn about the different reports, processes and planning systems the planning group and organization uses. This is where your peers will be your greatest resource and support system. Learn who loves teaching certain topics and go to that person when you have a question on that topic. Not only will you be learning from each of the experts in your group, but your team members will be happy to have helped you. It is a win-win opportunity and great for developing that relationship.

3. Develop The Craft of Executive Communication

The most successful Demand Planners are not necessarily the ones with the most accurate forecast. Succeeding at the skills above are prerequisites to publishing your demand forecast. That forecast means nothing if you do not get the buy-in from others in the organization. That can include those who share responsibility for the forecast, such as marketing or sales.

It can also include supply planning and operations as they are responsible for ensuring enough inventory is available to fulfill global demand. It includes senior management who are considering the risks, opportunities, and assumptions you present to make critical decisions for the organization.

How you present the forecast and demand plan needs to be tailored to the specific audience you are delivering information to. A key part of developing the craft of executive communication is knowing your audience and presenting in a way that is simple for them to understand and answers the questions lingering in their mind. Consider that marketing and senior management speak in dollars and do not care much about units. On the flipside, supply planning and operations speak in units and are concerned with how a forecast change is going to impact absorption, inventory dollars and capacity utilization.

Being able to present the data visually and provide concise, documented assumptions takes practice. It also takes confidence. This is where the first topic we discussed about absorbing as much information as possible helps you learn your product line inside-out. In college it was always easy to tell which groups prepared and did their research and practiced before a presentation. It was also evident when other groups were just “winging it”. Some natural presenters may have completed the presentation unscathed, but the façade would inevitably be broken during the Q&A portion of the presentation. As a Demand Planner, you must spend extra time in the first months of your role preparing for demand reviews and other S&OP meetings because you will still be learning everything you can about the product lines you are planning for. That means spending time truly understanding the data you are presenting, crafting a style of communication that delivers valuable information in a way suitable for your particular audience, and asking others on your team about the structure and expectations for each of the meetings in the S&OP process.

Conclusion

The powerful combination of knowing the numbers and background of all your products, investing in relationships throughout the organization and communicating with confidence all help build organizational street cred. This is how others will gradually trust and turn to you when major decisions need to be made.

It is vital to remember that in forecasting there is always something to learn and improve. Every product line and company bring a unique set of challenges and opportunities that add to your craft as a Demand Planner. Leveraging the keys to success outlined in this article will help you beat the steep learning curve and accelerate your success as a Demand Planner in any organization.

This article was originally published in the Spring 2021 issue of The Journal of Business Forecasting. Become an IBF member to get the Journal delivered to your door quarterly, plus a host of other member’s only benefits including discounted IBF training and conferences, exclusive member’s only workshops, and access to the entire IBF knowledge library. Click here to register.

To develop your S&OP skills, there is no better training than IBF’s Forecasting, Demand Planning, & S&OP Live Online Training, held in May 2021. You’ll learn all aspects of the field from university professors and Directors of Supply Chain and Demand Planning at multinational companies. Pick and choose each module for $379 ($329 when you become an IBF member) or the full course plus exams to get IBF CPF certified. Find out more.

What are the goals of business? To maximize profits! From a supply chain perspective, how do we accomplish this? Let’s look at some of the key aspects of how supply chain contributes to the goals of the company.

We know how important our demand planning function is to ensuring operations are timely, efficient, and cost effective. We want to ensure product availability to maximize revenues in the marketplace but also know inventory is a tradeoff as it ties up capital. Effective demand planning then requires a variety of information (timely, as accurate as possible, useable, qualitative and quantitative) in order to properly forecast the products we sell. The end goal is to provide usable information for the S&OP process to ensure we are properly planning demand.

As noted by Supply Chain Insights, “demand planning is the most misunderstood-and most frustrating-of any supply chain planning application.” For our demand planning and forecasting function to be successful, ­­­­­the following aspects are critical.

Understand The Demand For Our Products

This goes beyond the basic of what type of demand are we seeing. For any given product, there may be independent demand, dependent demand, inter/intra plant demand, and service parts demand. We are usually forecasting independent and possibly service parts demand but all types of demand have to be planned for in our supply chain processes to ensure availability when needed.

One of the top pain points is demand volatility. In general, the more we know about the demand for our products, the better our forecasts will be. For example, the bullwhip effect creates demand volatility that becomes amplified as it moves through the supply chain. While this can be a big problem, it is also an opportunity for collaboration and information sharing, two ways to ensure a better understanding of what your demand really is.

Understand What Demand Planning Is And How Forecasting Fits Into The Process

Demand planning is defined as “using forecasts and experience to estimate demand for various items at various points in the supply chain.” In general, who is responsible for the forecasts, what are our products, where are they in their product lifecycle, what is their demand pattern, do we understand the variability/volatility seen in the marketplace, and who is providing the additional information required to ensure an appropriate forecast? Of course, depending on the individual company, there may be additional questions that need to be answered.

For example, a company consistently over forecasts several large product lines, leading to increased inventories and lower inventory turns. While the company may or may not view this as a problem, the demand planning process can aid in understanding what the inventory goals should be and why, as well as what an appropriate forecast should be through ongoing analysis and tracking of the forecast.
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Understand How Demand Planning and Forecasting Tie Into S&OP

Demand planning and forecasting are not stand alone processes. They must be integrated into other aspects of operations in order to provide value. One of these processes is S&OP. The Institute of Business Forecasting defines S&OP as “a process that integrates demand, supply, and financial planning into one game plan for business. It also links strategic plans to operational plans, and attempts to develop the most desirable product portfolio and product mix to maximize sales and profit.”

An Aberdeen Group study noted more than 60% of Best-in-Class companies see the S&OP process as a strategic priority within their organization. This process can be critical to a company’s success as it provides a decision-making tool to be used in managing sales and operations. But S&OP is important to more than just these areas of a company. In addition to supply chain, Tom Wallace, S&OP thought leader noted, S&OP is also an important aspect of Manufacturing, Finance, Sales and Marketing, R&D, and top management.

Cross-functional Collaboration Is Key In S&OP

Demand planning, with the major output being the forecast, although critical is just one important aspect of the S&OP. We still need to balance our demand with our supply capabilities. Manufacturing needs to know what product to make, the quantities to make, and the timing of when it is needed. The supply side tells us what our capacity and capabilities are to ensure these needs can be met. Understanding those capabilities allows us to shape our demand to more closely match our supply.

This is an important aspect of demand planning as well as S&OP. R. Hirneisen stated in his article, Sales & Operations Planning , “a key concept of S&OP from a demand perspective is that we are building a plan or commitment of what the sales & marketing organization will deliver.” So, we need to understand the potential issues and relay the subsequent information to other parties within the company.

S&OP uses include a mid-range view (18-24 months), which provides a company with increased visibility of what is expected to happen. Incorporating a better understanding of the demand for our products, as well as improved demand planning and forecasting, will provide better inputs into the S&OP process as we move forward.

Simple initiatives add up to big gains. Many professionals feel that establishing a robust demand planning process in an organization is a long and arduous journey. Undoubtedly, there are many challenges, but focusing on some simple steps can make this journey a lot smoother, more enjoyable, and lead to a satisfactory outcome. Here are six simple steps that can go a long way toward ensuring success and a sustained demand planning process with effective demand planning process flow.

Step No.1: Document The Process Roadmap

Depending on the stage of maturity of the demand planning process, an organization has to have a clear and documented process roadmap for improvement, which should include:

A.) Gap analysis of the existing process, and defined/agreed improvement areas along with an outline of future needs and requirements to close the gap.

B.) Priorities of above requirements in stages: short term (3-6 months), medium term (6-18 months), and long term (18 months–36 months). Priorities should be based on quantified benefits that they will bring to the organization. Most process improvement roadmaps focus on qualitative improvements, which should be avoided as much as possible.

C.) Roadmap for each stage. The roadmap should be a SMART (specific, measurable, achievable, relevant, and time bound) output.

D.) Critical Success Factors (CSFs) for each stage. The management team should actively participate, support, and follow up on the CSFs.

Speak the language of the CEO and CFO; that is, strictly in monetary terms pertaining to each demand planning initiative.

Step No. 2: Bridge Cross-Functional Disconnects

This probably remains one of the biggest challenges in a demand planning process. Conflicts of interest, silo approaches to work, lack of awareness, and turf wars are quite common in the corporate environment. However, some simple measures to build cross-functional teamwork and get everyone on board can help. Involve people across functions when developing a demand planning process roadmap. It builds awareness, ownership, and fosters a spirit of partnership. Here is a great article on building relationships and resolving conflict.

Focus on organizational goals of every activity that is being undertaken

Such goals will quickly bring things into the spotlight while generating buy-in from the top leadership. Be it operational meetings, S&OP, business plans, or targets, etc., make sure that the focus on organizational goals is not compromised. It will reduce friction, and actively promote the function critical for business.

Start with the big picture and then work down to the details

Too often when discussions are based on details, the larger picture is lost. Demand planners should lead the discussion starting from a bigger picture, and then move on to details. It is more important to do so when it comes to critical decisions that could cause conflict or inter-departmental friction.

Share success and avoid blame games

This builds trust and ensures that the process is credible and sustainable. One thing that works well is when demand planners start meetings with a note/slide on what worked well as a team and what more could be achieved by working together.

In mature organizations, Sales, Marketing, Supply Chain, and Finance jointly own demand-planning KPIs.

Step No. 3 Build Organizational Awareness and Commitment

In business nothing speaks better than money! The best way to build awareness and commitment is to quantify your goals and objectives clearly and in financial terms. Speak the language of the CEO and CFO; that is, strictly in monetary terms pertaining to each demand planning initiative.

A.) Talk about how each percent improvement in demand planning accuracy can contribute to the company’s profitability. To accomplish it, we have to improve forecast accuracy, say, from X% to Y%.

B.) If focusing on product life cycle management, then quantify the probable financial benefit arising from improving its process.

C.) If implementing a collaborative planning process with a customer, then quantify the benefits in financial terms that are likely to accrue to both the company and the customer.

Step No. 4: Define Key Performance Indicators

KPIs (Key Performance Indicators) are not to measure people. They are the indicators of process performance. The idea behind KPI measures is to focus on improvement and improvement alone. I have seen many organizations where people calculate KPIs only for evaluating the performance of individuals, and/or for a management presentation. Similarly, I have seen people looking for avenues to improve KPI scores if they are linked to compensation. All this dilutes the purpose of KPI measurement. Here are a few of my suggestions:

A.) Review KPIs regularly and religiously. Look for ways to improve the process. Evaluate the process, and identify its root causes. If low KPIs require focus on capability development (people, skills, knowledge etc.), then concentrate on developing those capabilities

B.) Make sure that the demand planning process’s performance is linked across functions, and KPIs are owned across functions. In mature organizations, Sales, Marketing, Supply Chain, and Finance jointly own demand-planning KPIs.

C.) Every month put the KPIs on display where everyone can see how things are going. What is shared is seen. Very often KPI measures are not shared adequately or frequently. If they are visible, they are likely to be discussed. That is a start!

A tool or system by itself does not solve any problems. People do. Training is necessary to ensure that the organization is benefiting from their applications.

Step No. 5 Implement Required Systems and Tools

A robust IT infrastructure and tools help improve productivity and profitability. It is imperative to understand the learning curve required in implementing a forecasting tool or a demand planning setup. Here are a few things that should be kept in mind while implementing systems and tools:

A.) Ask yourself what incremental benefit you will get by implementing a given tool. Make a business case with quantified financial parameters. Only if you are convinced should you proceed to make a request for such a tool.

B.) Don’t implement half measures. In many organizations with advanced ERP systems, the biggest chunk of forecasting continues to be done in MS Excel. Either invest in smart affordable Excel-based forecasting applications available in the market, or invest in training and resources needed to make the most from the existing ERP systems. A tool/system by itself does not solve any problems. People do. Therefore, investment in training and development is necessary to ensure that the organization is benefiting from their applications. Such investments often add up to millions of dollars, and should not be wasted.

Step No. 6: Manage Change

A demand planning process should be equipped to absorb change in the business environment. Typically, the process is challenged when a business is not heading in the right direction. At other times, when business is good, the process might not get proper attention. So managing the change is critical. To accomplish that you must:

A.) Sell demand planning to your organization, while understanding fully your business environment.

B.) Communicate, communicate, and communicate regularly. At least once a quarter share with your stakeholders process roadmaps, tangible benefits arising from it, successes achieved, improvement areas, etc. Do so positively and with zest.

C.) Make sure that demand planners are seen as high performing individuals in an organization. No role allows the kind of business visibility that a demand planner gets in an organization—from customers to production and suppliers. To attract talent, sell the demand-planning role as a stepping-stone for bigger strides in your organization.

D.) Rotate your demand planners once every two to three years. Give them a new category to handle or assign new responsibilities to them. The demand-planning role is a high pressure job and can get very predictable if the process maturity in an organization is high. It can get monotonous after two to three years if the job is not redefined properly.

E.) In tough times, the leadership function should assume the role of guiding the demand planning process. They should ensure that the process is not challenged for quick gains. In a volatile business environment, it is critical that the demand planning role is duly recognized for the value that it can bring to the organization.

These simple steps can add significantly to the value of the organization. I hope readers will find them useful and insightful enough to put them to practice!

This article originally appeared in the Journal of Business Forecasting Winter 2011/2012 issue. To receive The Journal of Business Forecasting and other benefits, become an IBF member today.

Seth Godin, bestselling author of the books Tribes and Linchpin, once said in an interview that if you can only do what someone else tells you to do and nothing more, then they can find someone (or something) cheaper than you to do it. If you can creatively think through problems, present solutions and make decisions, then you’re a resource that can’t be replaced.

The Institute of Business Forecasting (IBF) asked professionals a few months back a few simple questions to gauge where people in the profession saw Demand Planning and forecasting in the year 2025. A summary of the report came out in the Winter issue 2017/2018 of the Journal of Business Forecasting (JBF). This and other articles will look deeper at those answers and what the future may hold in regard to people, process, and technology in the realm of Demand Planning.

While we did not ask directly if the role will be fully automated in the future, we did ask what the core competencies for the role will be in the year 2025. This sees a changing and possibly elevated Demand Planning role, one that evolves from analyst to a master of orchestration and provider of insights.

Where do You Fit In The Digital and Demand Planning Revolution?

According to many industry observers, we are today on the cusp of a Fourth Industrial Revolution. Developments in previously disjointed fields such as Artificial Intelligence and Machine Learning, robotics, advanced analytics, 3D printing, and cognitive technology and deep learning are all building on one another. The Internet of Things will help tackle problems ranging from Supply Chain Management to Operations. Concurrent to this, the digital revolution threatens to not just give us more data, but do your job faster, better, and cheaper than you do it.

What does this mean to us, will we be replaced? Your view of a demand planning robot of the future really depends on how you view your role today. If you are only doing what someone else tells you and aggregating data, or relaying what the forecasting system is generating, then they can find something cheaper. If we just need a number, technology can do this faster and more efficiently with greater number of inputs and more accurate outputs.

If you view Demand Planning as discipline that uses data, forecasts and experience to estimate demand and provides solutions for various business needs, then you are the next generation and ahead of the curve.

For the last few decades or more, a forecaster’s role has been considered primarily to provide an accurate single point estimate to a supply chain based on history and inputs from sales people. The fact is that the entire business, not just supply chain, needs insights into what will happen and the focus should be on growing profitability of the enterprise. This requires more complete, detailed analysis and quicker answers. What we are seeing today is that the Demand Planning role is changing and we need to migrate from Big Data to big answers.

We Conducted a Survey Into The Future of The Demand Planning Role And Here’s What You Said

The ability to apply quantitative insight to the wider business context is crucial to the future of the demand planning role.

This was clear as well in the results from the recent online survey conducted by IBF in September 2017. Unsurprisingly, the number one soft skill needed for Demand Planning was Advanced Decision Making (first choice for 34 of the 200 respondents).  I say not this is unsurprising because we are seeing this theme play out across multiple functions (like in FP&A) and is becoming a wider business need. Right after Advanced Decision Making comes our ability to Synthesize Data and Information, followed by Analytics. These top three needs captured almost half (42%) of all responses.

So what does this say about the role of Demand Planning in the future?

The Demand Planner Of The Future Will Be The Story Tellers Who Use Numbers As Their Language

As I mentioned in an earlier post, “My Case for A Centralized Forecasting Process”, Demand Planning can help provide synergies to many other functions and is uniquely qualified and positioned to help a company paint a fuller picture of what is to come. In that article, I referred to us a storyteller who uses numbers as their language. This is seen in the survey with Analytics which received a combined total of 85 first, second and third choices, placing it as a joint top priority. This is not analytics in the sense of a data junkie and a wizz kid at algorithms, but someone who has the ability to develop and plan analytics projects including gathering and visualizing data in response to business needs.

The Demand Planner Of The Future Will Not Report To Supply Chain

It may not (and I believe it won’t) be a Supply Chain role but will be elevated to a more unbiased centralized function with specialties that support multiple purposes and enables decisions making across the organization. The focus of Demand Planning will be more on sales enablement as well as wider ‘business enablement’. When you have more than a dozen people acting as decision-makers and influencers and competing priorities for their time, attention and money, having the right information at the right time to provide context and direction is highly valuable – and that is where the Demand Planner should come in.

The Demand Planner Of The Future Will Focus More On Pre And Post Analytics

The Demand Planner of the future may not be the statistician and programmer you may think we need in the digital world of tomorrow. The truth is that as technology continues to advance, it will not be the creators of the algorithms who will be in high demand but interpreters of them. We see this point clearly illustrated in the survey results; skills like Software Engineering count for only 1% of peoples’ first choices, and Mathematics and Statistics are also low down in the list of priorities.

This is not to say highly sought-after skills like knowledge of R and Python and advanced analytical programming are not needed today but it does provide a glimpse into the Demand Planning role of the future. What will be in more demand is the pre and post analytics that provide insights into what questions to ask, and assist in communicating the impact of the results to the business. These are two soft skills that may never be replaced by machines and are indeed likely to be in greater demand than ever before.

While clearly all of these soft skills or core competencies are important, judging from the responses and what we are in our own organizations, the Demand Planner of 2025 will be an elevated role that will creatively think through problems, present solutions, and make decisions.  And most of all, you will be a resource that can’t be replaced.

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The survey data referred to in this article is based partially from The Institute of Business Forecasting’s (IBF) online survey “Future of Demand Planning and Forecasting”, conducted between September 1, 2017 and October 24, 2017.  The survey focused on three key areas of people, process, and technology as it relates to the demand planning field in the year 2025. The survey consisted of 4 high-level opinion questions asking respondents to rate their first, second, and third choice for each question. Each question had a keyword, along with a definition of that word of how it was to be interpreted for this survey. There were no incentives other than the opportunity to advance the body of knowledge in the profession and we received over 200 responses from people involved or related to the forecasting and demand planning functions.

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