Question

Dear Dr. Jain,

I am am keen to know the best practices for 3 points :

1. The KRA’s (Key Result Areas) for Demand Planners regarding: areas of responsibilities, weighting % for each KRA, measurement criteria/KPIs , goals and targets, and action plans to give expected results of these KRAs.

2. ROI of a Demand Planner in terms of bottom line profit.

3.  Specific roles and responsibilities of Demand Planners as opposed to Supply Planners and other roles.

Regards,

Supply Chain Planning Manager at a multinational chemical company 

Answer

1.

a) The key responsibilities of a Demand Planner is to manage forecasts, which are often prepared through a consensus process; and manage demand, which is often done through the Sales & Operations Planning (S&OP)  process.

b) Both activities—running consensus and S&OP processes— are equally important, and should thus be weighed equally.

c) KPIs used the most are amount of inventory held, customer service, margin, total revenue, market share, etc.

d) Goals/targets vary from industry to industry, company to company. It may be expressed in terms of total profit, total revenue, forecast accuracy, inventory level, customer service, etc.

e) Manage correctly both the consensus and S&OP processes.

2. It is difficult to measure precisely ROI resulting from a Demand Planner. One can get some idea by looking at the improvement in total sales and profit, inventory level, customer service, etc.

3. Demand Planners won’t be able to do their job well unless:

• All functions work together, not in a silo, and do what is good for the company, and not for a specific function.
• Senior management fully supports the role and the S&OP process.
• There is complete transparency where everything is on a radar screen so everyone knows what is going on.
• Metrics are in place to measure the performance.

I hope this helps.

Dr. Chaman Jain,

St. John’s University

Dear Dr. Jain,

I work for a large company, a group which provides services for Oil & Gas Companies. It has several activities including :

– Air transport
– Logistics (rig-moves, location of heavy transport)
– Civil engineering,
– Catering services

How can I implement a Demand Planning process to improve forecast accuracy, service level, cash flow and reduce costs of operations whilst insuring involvement of the sales department in our service activities? Is there any best-in class process you implement in a service company?

Thank you,

Mehdi Mostefaoiu

RedMed Group

Answer

Fundamentally, there is no difference in implementing a Demand Planning process for physical products or service related products. The key to all – whether improving service level and cash flow or reducing operational costs – is forecast accuracy. When forecasts improve, everything else will improve. The best practices in preparing forecasts is the use of a consensus process, where forecasts are first generated statistically, and then in a monthly meeting all the functions including Finance, Sales, Operations and Marketing get together and review the numbers.

Where necessary, they overlay judgement over the statistically generated forecasts. Judgemental overlay is needed because there are certain elements that have a bearing on a forecast but cannot be quantified, or certain information was not available at the time forecasts were generated. Also, at times, you look at the forecast numbers for certain products and see they don’t make any sense. Based on your experience, they would do much better or worse than what were forecasted. Here again, judgemental adjustment is needed. In so doing, make sure adjustment is not politically motivated. After actuals are in, do a postmortem of forecasts to see what worked and what didn’t, and why. This will help to improve your next forecasts.

Make sure forecasts are transparent so everyone knows what happened. The problem in forecasting generally arises from the use of wrong data, wrong assumptions and the wrong models. Sometimes, they are biased. Check each one thoroughly and see if there is an opportunity to improve them further.

I hope this helps.

Dr. Chaman Jain

St. John’s University