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.

IBF NEWS REPORT: U.S. COMPANIES ANTICIPATE A 40% FALL IN SALES OVER THE NEXT 3 MONTHS AS THEY BRACE FOR ‘THE NEW NORMAL’

Companies Face Triple Threat of Plummeting Demand, Unprecedented Supply Chain Disruption, & Shift in Consumer Spending Habits.

The Institute of Business Forecasting (IBF) reports that a majority of U.S. companies are planning for a 40% decrease in sales over the next three months due to the impact of coronavirus. According to a survey of business leaders conducted by IBF, businesses have never seen such a rapid downturn. As Covid-19 spreads globally, they are dealing with the combined threats of a drastic drop in demand, unprecedented supply chain disruption, and shifts in consumer spending habits.

Eric Wilson, Director of Thought Leadership at IBF said, “Companies have lost a lot of sales due to Covid-19 and initially there was a sense that demand would return once things stabilize – they’re now realizing that may not be the case. Companies are now bracing for the new ‘normal’.”

In a recent series of virtual townhalls focused on supply chain and demand forecasting, IBF hosted senior leaders from Medtronic, Lenovo, WD-40, and others, as well as leading academics, to answer questions from people in the business community. IBF polled the thousands of town hall participants and 52% of respondents plan to reduce their current forecasts by 25% to 40% over the next three months.

Wilson commented, “We cannot predict a pandemic, but we can anticipate consumer behavior during and after such an event with good tools, data, and skilled business forecasting professionals. Companies have begun to look at the data, factoring in the longer-term impact of businesses closing permanently and consumers changing their buying habits – and the outlook is bleak. With forecasts now reflecting this new reality, companies will have no choice but to take measures to reduce costs which could include even more layoffs.”

IBF’s next live virtual town hall is on Thursday, April 23. Register here.

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.

A key element in sustaining a competitive advantage in today’s global business environment is an effective Sales & Operations Planning (S&OP) process. Supply-chain focused companies use S&OP to develop a business-wide game plan to improve its overall business performance. It is designed to enable value-based management and ensure optimal overall business results.

What is S&OP?

Sales & Operations Planning (S&OP) is the process by which we bring together all the plans for the business (Customers, Sales, Marketing, Development, Manufacturing, Sourcing, and Financial) into one integrated set of tactical plans. S&OP gives management the ability to direct its business to achieve a sustainable competitive advantage. The overall objective of S&OP is to arrive at a business “Game Plan” to help manage and allocate critical resources to meet the needs of the customer at the lowest cost. S&OP is a five-step process as illustrated in Figure 1.

Figure 1: The S&OP Process

S&OP is a process that coordinates different areas of the business to meet customer demand with the appropriate level of supply.

Implementation of S&OP should be undertaken in phases. Most businesses start with a pilot program in one business unit in one country, for example. S&OP has been around for over 20 years now, and many firms have implemented it at the country or region level. However, in today’s globalized economy, firms must evolve to using S&OP at the global level.

The Global S&OP Process

 Globalization has occurred at such a rapid pace that many firms today find themselves thinking “globally” but acting “locally.” It is only natural that priority has been given to establishing a presence in new and emerging markets. However, it is time for firms to begin the journey to global planning and execution in supply chain.

The first step in implementing Global S&OP is to understand the configuration of the firm’s demand and supply planning, and execution processes. For example, do plants only serve their region and if so, is this the best approach? What region-specific product requirements exist? For example, do different packaging and labeling have to be used in each region? Global S&OP is applicable regardless of existing constraints within regions. However, it must be customized based on that situation. Obviously, one goal is to eliminate self-imposed constraints that make global planning more difficult.

This article will present details for two scenarios. In the first, most products can be produced at all plants globally. Products are assigned to plants based on profitability. In the second, most products are sold and produced at a regional level. Both scenarios can benefit from Global S&OP.

S&OP Scenario 1: Most Products Can Be Produced At All Plants Globally

 Let us assume a global business has five producing plants located on four different continents. All five plants can individually produce approximately 80% of the total products offered. The other 20% of the products must be produced at a particular plant. This constraint is programmed into the toolset used to optimize the production schedules. The S&OP process for this scenario is outlined in Figure 2 (see below).

In this environment, regional demand is consolidated to arrive at a figure for global demand. Then, demand is allocated to the producing plants based on projected gross margins. The overall objective of the Global S&OP process is to maximize operating results within the service level and inventory constraints. Highlights of the process include the following:

• Demand planning is performed on a regional basis as regional marketing and sales are closest to their market and are held accountable for meeting the sales plan.
• The regional demand plans are consolidated into a global demand plan, which is compared against the global business plan. Global marketing can and does make adjustments to the overall demand plan.
• The Global Master Production Scheduler develops the supply plan and assigns products and volumes to individual plants using the optimizer tool. The results are shared with the regions.
• A Global S&OP meeting is conducted to review and discuss the supply plan. Open issues or individual regional concerns are addressed in this meeting.
• The Regional Master Production Schedulers develop more detailed plans for plants in their region. They are constrained by decisions made in the Executive S&OP meeting.
• The Region conducts an S&OP meeting to finalize and communicate the plan.

The size of the business, the complexity of the network, replenishment lead times, etc., are used to determine whether the Global S&OP plan should be revised quarterly or monthly. Exceptions that arise during execution of the plan are resolved through the coordination of the Global Master Production Scheduler. Pre-established policies and procedures are used to control changes during the plan period and ensure focus is on total economics. The Global Master Production Scheduler routinely monitors performance to plan.

S&OP is a multi-step, collaborative process, with inputs from various stakeholders to develop an operational plan.

In this scenario, key inputs in development of the plan include:

• Total Delivered Cost (Source-to-Customer)
• Current Prices
• Inventory Constraints
• Production Capacities

Emphasis in measuring performance must be total profitability and the plan must result in higher utilization of assets and lower costs.

S&OP Scenario 2: Most Products Are Sold And Produced At A Regional Level

In the second scenario, the business offers many products in small quantities across a dispersed market. Some product-to-machine links must be maintained to ensure satisfied customers, and lead times do not allow for global sourcing. In this case, the Global Business Plan is allocated and maintained at a regional level.

The primary purpose of the Global S&OP process is again to ensure maximum profitability within service and inventory constraints. However, the supply plan is maintained at the regional level and no Global Master Scheduler exists. The aggregate S&OP Plan is reviewed by the Global S&OP team, which consists of marketing, supply chain, and finance personnel from each region as well as the global leader and members of their staff. (See Figure 3)

In most organizations, regional teams develop forecasts and demand plans which are then reviewed by a centralized team.

In this scenario, the supply plan is not determined globally and allocated to the regions; rather, the supply plan is determined at the regional level and then aggregated for final review via the Global S&OP process. Balancing of service-cost-inventory occurs within the regional planning processes based on globally agreed-upon targets. In this approach, less emphasis is placed on cross-regional interaction and more on regional levels with the idea that the good regional performance will lead to good global performance.

Global S&OP Organization

To enable the global approach to planning, the organization must change, which requires vision and plan for change management. Responsibility for the process, the scorecard, and the technology become global. Regions participate in the selection of metrics, the design of the process, the development of the policies and procedures, etc. Also, both the demand planning and supply planning processes involve interaction between regional and global personnel. However, the ownership for the global processes is with the global personnel. The structure of the Global S&OP team is outlined in Figure 4.

Figure 4:  Global S&OP Team

Global S&OP structure.

With a global approach, the firm can expect the number of persons involved in the S&OP meeting to increase. More and more emphasis will be placed on resolving most of the issues and doing most of the planning before the meeting. Only those issues and imbalances that were not resolved in the pre-S&OP meeting processes will be placed on the global meeting agenda.

Global S&OP Policies & Procedures

Given the complexity and number of stakeholders in such a global process, the business must develop and use policies and procedures to ensure overall goals are the focus, and make every effort to avoid disruptions due to differences in opinions. For example, rules are needed to control tradeoffs between production plans at regions. Policies are required for handling unplanned demands or production disruptions. Figure 5 describes key planning rules/policies to be established for a successful Global S&OP process.

Figure 5:  Key Planning Rules/Policies for a Successful Global S&OP Process

Global S&OP policies are required for all regional teams to follow the same procedures and best practices.

The Global S&OP team must periodically review and revise rules/policies and procedures as required. The team must reach consensus on the policies and procedures as all key stakeholders must support the planning outcome.

Keys to Successful Global S&OP

The primary difference in performance management is that metrics need to focus on global performance as appropriate, and must be cross-functional in nature. Some typical metrics used in Global S&OP include:

• Total Operating Result, or Gross Margin vs. Plan
• Total System Inventory vs. Plan
• Actual vs. Planned Demand by Product Group
• Actual vs. Planned Production by Product Group
• Overall Forecast Accuracy

There are several challenges that are inherent when establishing a global planning process. These include:

• Timely and accurate communications across regions and functions. To make certain this happens, adopt easy-to-use tools that can be accessed globally. Develop a meeting schedule on a rolling 12-month basis to ensure participation. Use a planning calendar and measure adherence to agreed-upon dates.
• Align goals and objectives across regions and functions to ensure participants are not punished for shifting their focus on overall performance.
• Design and implement global IT support with the goal of minimizing overall cost while providing key participants the data views and data aggregations they need.
• Change management needs. This may require educating the Global S&OP participants in the process, and provide implementation and facilitation support for the first few months of the process.

At first, participants will not be focused on the global good. This takes time. The leadership will need to set the example. Clear roles and responsibilities must be developed, and documented procedures are needed to help remove emotion from the process. Performance against the business scorecard metrics will be the ultimate measure of success.

Benefits of Global S&OP

There are many benefits gained from implementing a Global S&OP process. Of course, with that, the firm improves overall financial performance. The typical benefits include:

• Shift in focus on value added from local or regional to global.
• Increased visibility across the entire supply chain enabling better business decisions and quicker reaction to issues.
• Improved communications and teamwork across regions and functions leading to more balanced tradeoffs in decisions resulting in improved bottom line.

The regions and countries of a global firm will not optimize plans from a global perspective in the absence of a global process. Instead, they will maximize benefits to their region or country without regard for the overall business results. Leveraging S&OP by shifting the focus to the global bottom line will yield significant financial, customer, and internal benefits.

“30% forecast accuracy? Seriously? What do I pay you for?  I could flip a coin and get better results than this!” Yes, we hear this as demand planners. And yes, it hurts – deeply, personally, unjustly.

It’s one of the most frustrating and demoralizing feelings as a Demand Planner to know that you’re trying your darnedest to improve the accuracy of something which you know is largely unforecastable. You’ve maxed-out modeling and model-tuning and have resorted to fishing for any judgemental recommendations that you can get your hands on. The latter likely only helping to see accuracy further struggle with snowballing bias and negative FVA of compounding “expert” overrides. Having thrown everything but the kitchen sink at the problem, you shift your efforts to building-up verbal defences with a Pixar-worthy storyboard of empathy-seeking data challenges and culpability-shifting anecdotes. If only there was a way we could prove to management that this product is not actually forecastable….

We Need To Set Management’s Expectations About What Is Forecastable

Management may be aware of standard forecast metrics – many are introduced in MBA programs, SCOR and Operations textbooks. But typically executives are more worried about how quickly they can show improvement in these measurements than how they are calculated.

Similarly, as demand planners, we are trained and certified on the most common algorithms, performance measurement computations, and off-the-shelf forecast modeling data structure requirements. If we are to set expectations about what is actually forecastable, and what we can actually achieve as demand planners, we need to look beyond these basics. If we don’t we will forever be taking unfair criticism for things outside of our control. What we need to do is not only present our forecast accuracy, but present it alongside forecastability. Forecastability reveals the extent to which an SKU can be forecasted, and provides the crucial context for our forecast accuracy.

Forecast accuracy depends on how forecastable the product is.

Questions To Ask To Gauge An SKU’s Forecastability

What change in forecast accuracy is realized when the best-fit model is recalculated from different assortments of time series horizons?

Are the changes more prevalent for certain model types (hint – they should be for some, especially for more factor-inclusive model types like exponential smoothing)?

What differences in forecast accuracy are observed in monthly, bi-monthly, and quarterly period bucketing?  (Is poor forecast accuracy at the monthly level dramatically improved if consumption and forecast accuracy are looked at in quarterly buckets instead?)

Are any SKU-to-SKU, product line to product line, and product family to product family correlations observed when regression comparisons are run to look for like patterns in the demand history?  Are any of these like patterns accounted for in existing planning bills or bills of materials?

What record counts and financial weighting do the products and model types comprise when categorized into basic segmentation schemas (high value, volatile; high-value, stable; low-value, volatile; low-value stable)?

What are the historic forecastability ranges, within each segments and per product families? (Note: Segmentation can be combined with ABC and Pareto analyses, as well as calculated for markets, customers, or for products within each market/customer.)

Within low-value, volatile records, is inherent demand variability such that the cost of error is more prohibitive than a simple order policy (ex. reorder point or make-to-order)?

By asking these questions, we gain an insight into forecastability – what can be forecasted accurately, and what cannot. We will be able to go the S&OP executive meeting, or sit down with Sales and Marketing, Finance or senior executives, and be able to say with confidence that for a particular SKU, 30% forecast accuracy is a good thing. We can explain why an SKU cannot be accurately forecasted and then make suggestions based on that – after all, knowing that demand for a product cannot be predicted has serious implications for the business. Knowing this allows us as demand planners to mitigate risk and propose the best course of action.

What’s more taking the time to understand what one can forecast and what one cannot, and what results can be expected, one can set better expectations and understanding upfront.

How To Prove That 30% Forecast Accuracy Is A Good Thing

In the opening example, proving that 30% is actually a job well done given the forecastability is important (try re-calibrating your BI tools to show forecast accuracy in terms of variance to CoV). Go one better by showing that the cost avoidance of whatever initiative is actually outweighed by the cost of forecasting for it. If you communicate that the ‘juice-isn’t-worth-the-squeeze’ you can get work off of your plate, allowing you to focus on what matters.

Variability can be lessened by extending the time buckets planned for (daily to weekly to monthly to quarterly to semi-annually), but it is more costly. In certain markets and in certain products, this may be the only option and one that demand planners should constantly be evaluating and influencing. On the flipside is also finding ways to try to improve forecastability by forcing the square peg to better fit into that round hole.

For example, CoV movement over time can be tracked. Where increasing, investigations can be conducted to identify with Commercial colleagues the causes and then the script flipped to challenge what can be done to shape back. Analyzing positive correlating 4P’s effects in more stable products can sometimes yield a playbook to try for your more volatile areas.

Parting Thoughts On Forecastability 

This friendly neighborhood forecaster’s closing reminder is this: You measure how something is setup to execute, and you measure to control or to improve. But if the setup is wrong for the metric, or the metric is wrong for the setup, then you’re allowing the box that you’re in to dictate your success. Break out of the box, see if you need to redesign the box or redesign the metric. In forecasting, one size does not fit all – don’t let spinning on the wheel stop you from asking the question “why?” more often. That is how we understand what is actually forecastable and what isn’t, how to get the credit we deserve, and push the discipline forward.

Stay inquisitive, my friends. That’s the mark of the best Demand Planning professional.

Question

Dear Dr. Jain,

I work for a large multinational FMCG – it is considered a group norm to use a high level, statistically modeled forecasting tool for our demand forecasting. However, I believe the tool we have for this is old fashioned (as is the company’s thinking).

Within the section of the business I work in, we use a more granular forecast process (surrounding big retailers, customer implants, dedicated business planners etc.) but we are not happy with the overall result (either at customer level or top line). Let’s say in this model we have 8 customers at 80% of our total volume.

The top down decision is to implement the high-level forecasting tool and work on an aggregated forecast for all of these customers combined.

I am struggling to see that this is the correct and modern-thinking approach. Everything I have learned says that going to customer detail (when you have said detail) is the correct approach when dealing with sophisticated customers with their own promotional plans etc. But I am struggling to convince my peers.

What do you think on this point? Is there any modern best practice I can refer to?

Thanks,

Chris,
Large UK based FMCG company

Answer

Dear Chris,

I agree with you that we should forecast by customer, particularly where a large percentage of sales come from just a few customers. Forecasts are likely to improve if we incorporate their plans, especially their market plans, into the forecasting process. I am not sure whether your company has tried enough. Maybe you would like to see whether or not customer-based forecasts are better. If customer-based forecasting does not give the accuracy you want, then we have no choice other than to forecast at an aggregate level, which your company is currently doing. Forecasts tend to improve when forecasted at an aggregate level.

Better forecasting tools always help. But if you are thinking about forecasting tools only in terms of sophistication of forecasting models, then I am not sure. Forecasting is simply matching the data pattern with the pattern that model captures. With the right marriage between the two, we can have the best forecasts. It is not unusual for a data pattern to match with the pattern that a simple model captures. Among three different types of forecasting models (Time Series, Cause and Effect and Judgement), Time Series models are the easiest and most often used. Based on the recent IBF survey, 62% of the companies use Time Series models. Within Time Series models, 56% of them use the simplest models, which are, Averages and Trend. The best approach, therefore, should be to start with simple models. If they don’t give the accuracy you need, then move to more sophisticated ones. 

I hope this helps.

Dr. Chaman Jain

St. John’s University

As businesses continue to recognize the growing importance of accurate demand forecast planning, so does their need for quality Demand Planners. But how does one go about gaining the knowledge and experience required to be a Demand Planner, and be attractive to employers? As a Supply Chain professional looking to move into Demand Planning myself, here’s my advice.

Get A Foot In The Door

While the job description may be the same, the paths taken to get there can be very different. People enter at a variety of ages and with a variety of educational and professional backgrounds. Within large companies it can be difficult to know which positions to apply for and what attributes are needed for each. The first step is getting in the door with an entry level Supply Chain related role, or a role in a department that has exposure to the S&OP process like Sales and Marketing. Whether you are fresh out of college or changing careers, securing an entry level position is not always as easy as it sounds, even if you are sufficiently qualified. What’s more, some large companies do not hire entry level positions directly, so you may need to find out which staffing agencies have contracts with your company and begin applying.

Be Selective In The Jobs You Apply For

Be relatively selective in the positions you apply for, as applying for every open positon can appear desperate or unfocused –  you don’t want the hiring manager to think you don’t value the position they are trying to fill. More than likely, the first position you are able to land isn’t exactly the dream job you have always wanted but it can be the that all-important stepping stone. Remember, you have time – this profession pays well and the rewards are there, even it may take a while to get there [Ed: See average Demand Planning starting salaries.]

Know The Right People,  And Know Your Stuff

So, you’ve got your foot in the door in a Supply Chain related role. What do you do, now that you are a part of the company? As the old saying goes, “It’s not what you know, it’s who you know”. That is very true – to a point, but what you know is what will get you the job. In that regard, keeping abreast of developments in forecasting and business analytics, and having a solid grounding in the fundamentals of Demand Planning, is important. Read up, consider certification, (I am studying for IBF’s Certified Professional Forecaster Certification) and exchange ideas, so that when interview time comes, you have a grasp of the basics and can demonstrate a passion for the discipline – you’ll have worked hard to get to this point, so make sure the hiring manager knows it.

Network, Network, Network

Networking within your company is extremely important for many reasons and if used correctly can open doors that you never knew existed. Many large companies have volunteer networks within the organization that are always in need of new members. Even things as small as participating in the office secret Santa during the holidays is a way build a reputation as someone people like to work with. You already have a skill set, and networking allows people to realize that.

Talk To Demand Planners And Understand Required Competencies

One thing that I have found very helpful in keeping focused on my goal of becoming a Demand Planner is setting a career path. Go and talk to Demand Planners within your company and find out what their background is and what competencies are key to performing the job at a high level. Make sure to follow up after these meetings for feedback and to continue to stay in touch, as current Demand Planners may be the ones hiring for those positions in the future.

Remember that there are many pathways into Demand Planning so stay flexible with the plan you set for yourself. For example, I started in the Logistics department of my company working with our accounts payable team. This gave me a good foundation in seeing how my company’s products get from our production facilities to our customers and the costs involved in doing so. I now work in Raw Material Scheduling, which provides further contextual knowledge that helps understand Demand Planning, and that will help me once I get there. No matter what position you currently have, there will always be something you can take away from it that will help you down the line.

Get A Demand Planner Mentor

Get a mentor. Find someone who has the Demand Planning position you want and ask them to be your mentor. This may only mean one or two meetings a month for a half an hour but it will allow you to stay plugged into the successes and challenges currently faced by the Demand Planners in your company. It also shows that you are serious about pursuing a career in Demand Planning, and that will be noticed.

Job Shadow A Demand Planner

One problem I come across in applying for my first scheduler/planner position was that I didn’t have any actual experience in the positon except for mock scenarios I had worked through during my undergraduate studies. While these scenarios gave me a general idea of what needed to be done and how the role functioned, I wasn’t able to relate my knowledge to my company’s specific process in dealing with different constraints. How do you gain that experience? The answer is job shadow. Take the time to spend an hour here and there watching someone do the job you are looking to apply for. Ask good questions about their process and ask to sit in on planning discussion meetings even if it is just a conference call and take notes. Find out the biggest hurdles as it relates to Production and Logistics within your company and ask different planners and schedulers how they deal with them. These are the types of answers you can then give in an interview even if you have never actually held the position you are applying for.

Consider A Position in Sales If Demand Planning Isn’t An Option Right Now

What if a planner/scheduler positon isn’t available right now? In speaking to current demand forecasters within my company, all have recommended spending some time in Sales. Learning how market trends are identified through a sales position can give you a well-rounded background for when you become a Demand Planner. While there may be a Sales and Marketing representative in the S&OP meeting, it is good to know how they are coming up with the data they are contributing. Another area would be Logistics. While it is ideal to have an asset producing at 100% capacity 24/7, if the goods are unable to consistently move then that will factor in greatly when producing a demand forecast. Learning the constraints of the shipping methods available will provide areas for improvement as well as better accuracy in the planning. For example, in my company the availability of railcars for shipping and storage is constantly changing production schedules. These logistical concerns affect the demand planning and forecasting of our business.

Finally, stay up to date with the latest trends within demand planning and forecasting. Read the latest news from the IBF and discuss them with your mentor or other planners within your company. Study the capabilities of new analytical tools emerging for forecasters to improve accuracy. Subscribe to blogs and newsletters that are at the forefront of change within the industry of Demand Planning and Forecasting. Doing those things will keep you current and engaged with what those hiring managers are looking for, and before you know it, the job of Demand Planner could be yours.

Visit IBF’s jobs board for the latest vacancies in Demand Planning, Forecasting, Analytics and S&OP. For further information about the role of Demand Planner, Demand Planner salaries, career progression and access routes, visit IBF’s Employability page. 

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.

I must admit I was wrong.  I recently helped pen an article in the Journal of Business Forecasting (JBF) Fall 2017 edition entitled “Why Is the S&OP Process Stuck in Third Gear?”. The truth is most Sales and Operations (S&OP) processes are not stuck at all – they don’t even get out the starting block and are stuck in park. 

I believe one of the major reasons why so many companies struggle to get started, or not succeed at traditional S&OP, is they fail to understand the magnitude and scope of the task at hand. To help understand why so many firms fail at S&OP, I will explain not what S&OP implementation is, but what it isn’t.

• S&OP is not a supply chain procedure – it needs to be a business process.
• S&OP is not a project – it needs to be a continual development.
• S&OP is not about adjusting plans – it needs to become the way you create strategies.
• S&OP is not about change – it needs to be transformational.

There is a misconception about what constitutes change versus what it means to have deliver transformation. Many companies have a good idea of how to manage change, but most organizations continue to struggle with transformation. Change means implementing finite initiatives, which may or may not cut across the organization. Organizational transformation and a fully implemented S&OP process is altogether different. The objective of transformation is not just to execute a defined change initiative, but to reinvent the organization, change the culture and behaviors, and discover (rather than create) a new process and new way of planning.

You will need to be a model of “extreme leadership” to keep people energized even as the challenges mount in front of them.

Transformation Management Instead of Change Management

As opposed to change management, transformation is far more challenging for two distinct reasons. First, the future state is a concept you start with, and the final process is achieved through effort, and sometimes, trial and error. This makes it difficult to “manage” transformation with pre-determined, time-bound and linear project plans. Second, the future state is so radically different from the current state that the people and culture must change to implement it successfully. New mindsets and behaviors are required.

Understanding this distinction is crucial to knowing why some organizations fail to get the traction needed for transforming to an integrated business planning process or to a successful S&OP process.  Treating your journey like a traditional change management project may provide incremental improvements which can be sustained with ongoing thought, effort, and persistence but it will be difficult to sustain.  What you may need is a transformation management process that shifts the entire organization into a new way of thinking and planning that sustains itself.

Make continuous efforts to ensure that the transformation is seen in every aspect of your organization

Transformation management is a more complex process which varies according to each individual organization’s needs. There will be different approaches taken depending on a wide range of factors including the type of organization, the S&OP objectives and the external environment. To help you on your journey the following are the twelve process steps for transformational management and the factors critical for S&OP success.

Transformation Management 12 Step Process

1. Admit you have a problem: For transformation to happen, it helps if the whole company understands there is a problem and thinks we need a solution. Develop a sense of urgency around the need for new or improved Business Planning Process. This will help you spark the initial motivation to get things moving. If many people start talking about the transformation, the urgency can build and feed on itself.

2. Engage Leadership: Engage leaders and stakeholders, rather than seeking sponsorship, where the sponsor’s role is open to interpretation. Engagement is a process of being actively involved, and being seen to participate in the process at every level.

3. Form a Powerful Coalition: S&OP is about collaboration and you need a solid team. For transformation, you need to bring together a coalition, or team, of influential people whose power comes from a variety of sources, including job title, status, expertise, and political importance.

4. Listen First: Stakeholders have insights to provide regarding the transformation being proposed, and you provide the opportunity for those insights to be shared. Strive to listen and you may not only find good ideas that contribute to the overall vision but also a substantial amount of goodwill with people involved in the transformation.

5. Create a Vision for Change: A clear vision can help everyone understand why you are asking them to do something. When people see for themselves what you are trying to achieve, then the directives they’re given tend to make more sense.

6. Show Passion: You will need to be a model of “extreme leadership” to keep people energized even as the challenges mount in front of them. One the most important characteristics of a sucessful business planning process and transformation management is the ability to have a positive outlook and belief in what can be achieved.

7. Continuous Engagement: The “S&OP Journey” is a significant part of an everyone’s experience during transformation, and when managed well, it sets the right platform for motivation and expectations. Understand that communication is a marathon, not a sprint. You can’t say everything about the S&OP Process all at once. This means that you should focus on communicating small, focused messages on a regular basis to targeted audiences.

8. Training: Develop a new set of skills across the organization, including relationship building, interpersonal communication, conflict resolution and coaching/mentoring. This includes building out functional capabilities in areas like demand planning and finance and augmenting skill sets and professional training as well.

9. Be Able to Adapt: Put in place the structure for change, and continually check for barriers to it. Removing obstacles will empower the people you need to execute your vision, and it can help the transformation move forward. The ultimate vision may not change, but the route to success will require continuous adaptation to overcome obstacles and exploit opportunities.

10. Credibility: Nothing motivates more than success. Give people a taste of victory early in the transformation process. Within a short time, frame you will want to have some “quick wins” like improved planning for a holiday or key customer, or reduction of inventory that your company can see. Without this, critics and negative thinkers might hurt your progress.

 11. Transparency: Setting expectations and providing transparency throughout the S&OP journey can go far in minimizing conflicts and keeping everything on track. With a transparent process, people know what is happening and why. They feel more involved and trust the direction you are going in. 

12. Anchor the Changes in Corporate Culture: Finally, to make any S&OP process or any transformational project stick, it should become part of the core of your organization. Your corporate culture often determines what gets attention, so the impact and process must show up in everyone’s day-to-day work. Make continuous efforts to ensure that the transformation is seen in every aspect of your organization. This will help give the S&OP process a solid place in your organization’s culture. It’s also important that your company’s executives continue to support it. This includes existing staff and new leaders who are brought in.

The New Reality

Everyone agrees that change management is important. But many people underestimate the challenge of implementing a mature Sales and Operations (S&OP) process and the transformation that must take place inside the organization for its success. This type of transformation is far more unpredictable, iterative and experimental than traditional project or program management, and consequently entails much higher risk. The key elements needed to build success are understanding why you are changing, a clear vision of the final outcome, good stakeholder engagement and flexibility to adapt the process to meet the business need and strategic initiatives. Done well, transformation is a shift in consciousness. In fact, transformation creates a new reality.

In most companies, Enterprise Resource Planning (ERP) provides the informational backbone needed to manage day-to-day tasks and processes. The system connects programs from business functions (Finance, Marketing etc.) into one program that runs off one centralized database. In short, it connects different areas of a business, allowing for sharing of information, faster processes and crucially, centralized decision making. The result? Cost savings, improved forecasting in supply chain and superior strategic decision making.

ERP allows for integrated planning across the functional areas in an organization, allowing us to better meet demand with supply

ERP Is Designed To Support Modern Business Management

To understand what ERP is and does requires an understanding of how business management has evolved. Managing a large company can be done in one of two ways. One approach is to essentially decentralize the company around autonomous units. This way, each entity operates as a satellite, working independently from a sales and manufacturing standpoint and sharing products developed by the research centers. These units are not coordinated operationally or strategically. This is largely the way the companies operated prior to the standardizing initiatives that began the 1990s. The other approach to managing a large company is based on integration and coordination so that different parts of the business act as one whole, regardless of geographic location. The benefits of this are significant, but achieving it relies on successful implementation of ERP and effective change management.

Enterprise Resource Planning Software

ERP systems vary according to the vendor but typically they are intended to support functions in Finance, Manufacturing, Logistics, Sales and Marketing, and Human Resources. As demand planners, forecasters and S&OP professionals, we are interested in ERP because it allows for integrated planning across the functional areas in an organization, allowing us to better meet demand with supply. By working to the same information and having a system that allows for effective collaboration on a global scale, we can serve customer needs faster and more cost effectively. If implemented properly, ERP can:

• Reduce inventory
• Standardize manufacturing processes
• Improve visibility in order flow
• Integrate financial information and customer information
• Speed up the whole order fulfillment process

I see the evolution of ERP systems in much the same way as car models evolve. Automobile manufacturers introduce new models every year or two, making minor changes and refinements. Major changes are much less frequent, perhaps every 5 to 8 years and the same is true of ERP software. ERP vendors are constantly looking for ways to improve the functionality of their new software, so new features are often added. Many of these minor changes are designed to improve the usability of the software through a better user interface, or added features that correspond to the ‘hot’ idea of the time. Major software revisions that involve changes to the structure of the database, changes to the network, or computer hardware technologies, are made only every 3 to 5 years

Process reengineering is more difficult to achieve than the implementation of ERP computer hardware and software

Implementing ERP On A Global Scale

I was part of a multinational company with 35,000 staff and several manufacturing plants across different countries. An ERP system was implemented to manage the coordination of the manufacturing, sales and research facilities around the globe as new products were developed and introduced. Developing and deploying a new product is a complex process, requiring marketing plans and manufacturing coordination, and an ERP system facilitates this, coordinating different areas of the business to make the process as smooth as possible.

ERP Software Is Only The Start

The decision to move to an ERP system is only one part of true enterprise integration. Reengineering processes to fully utilize the integrated information support is essential. In practice, process reengineering is more difficult to achieve than the implementation of ERP computer hardware and software. Moreover, if processes are not changed to support the software, the ERP system will create additional work for people rather than less.

Global Policies For Implementing ERP Systems Are Crucial For Success

I highly recommend adopting a set of global polices that are documented and included in users’ handbooks. Create a common set of measures to guide change management across each function and location. This should contain a comprehensive set of policy activities, measures, and goals that define how manufacturing, planning and control system activities are evaluated.

Deployment of this common set of policies to all manufacturing units provides a shared vision of manufacturing excellence around the world and allows you to see which areas are doing what is required, and which need improvement. Further, processes as well as measurements and goals are also commonly based on the those defined in the policies.

Implementing new technology is straightforward compared to getting people to adapt to new roles

Golden Rules For ERP Implementation

• Ensure top management visibly supports the project at Kickoff, status meetings etc.
• Hold firm on project scope and management expectations.
• Assign ownership of deliverables to business leaders.
• Effective change management and user training is imperative.
• Have a solid, integrated project plan down to the people/task level so everyone understands their responsibilities.
• Work to critical path delivery dates and make timely decisions.
• Develop management performance objectives that are tied to savings and deliverables from the start.
• Avoid interfaces wherever possible.
• Always challenge consultants to do better than the timeline and set high expectations for the entire project team.
• Ensure knowledge transfer from consultants to internal employees.
• Document procedures and ensure they are part of end-user employee tasks.
• Whenever possible, change process before technology.
• Do not underestimate the “people change” side of the equation. Implementing new technology is straightforward compared to getting people to adapt to new roles, responsibilities and measurement systems.

How Much Can You Improve Demand Planning, Forecasting and S&OP Through ERP?

The value of ERP to a company depends to a great extent on the potential savings that can be derived from the ability to centralize information and decision making, and the synergies obtained from quick access to information from multiple functions in the company. Everything thing you do throughout this process must contribute to these fundamental ideas.

When it comes to improvements in operational performance, results vary greatly since much depends on how well the company handles the implementation process. But benefits should be gained from the elimination of redundant process, increased accuracy in information, superior processes and improved speed in responding to customers’ requirements.