Erin Marchant, a senior leader in demand planning in the aviation industry, draws on her experience to reveal how to plan during times of disruption. Forecasting models have their place, she says, but it’s specific market, customer, and industry knowledge that are going to win the day. And for that, cross-functional collaboration and consensus are key.

In the past few months, the world has been keeping a very keen eye on the developing COVID-19 epidemic-turned-pandemic. How will the disease be contained? Will this just be an Asia-Pacific issue? Oh, okay, now Europe is experiencing similar challenges in stopping the spread of the disease. Now international borders are closing. Will it spread to North America?

Okay, WHEN will it spread to North America? In my industry, aviation, the spread of the virus and its significant impact have been studied with a certain amount of incredulity. How could an industry that has seen such explosive growth in the last few years suddenly be pondering frightening worst-case scenarios? I am sure that our industry is not unique in these stunned feelings.

That’s how Black Swan events work. They force you to consider worst-case scenarios that would have been unthinkable just months or even weeks prior. They surprise us with their breadth and depth and leave us scrambling to make sense of a “new normal.” They are, by definition, unable to be predicted. So what does this unpredictable, unprecedented time mean for the demand planning function in an organization?

The short answer is that demand planning is needed more than ever during a Black Swan event. The organization is waiting on pins and needles for the resident experts in market and customer behavior to weigh in on what this unprecedented event means for the business. How far does the organization need to cut back on expenditures? Will reductions in headcount be required? Do we need to determine creative solutions to continue to meet customer requirements in an environment where economies of scale are not able to be achieved? The analysis of these and many other issues hinges on an evaluation of the demand plan. What follows are some insights into how demand planning should move forward to provide this business support in a time when many tried-and-true inputs no longer make sense.

Don’t Panic

There will be significant pressure to complete all analysis of the future demand plan very quickly. This makes logical sense, given all of the critical business decisions predicated on it. There is a balance to be struck here between taking the time to properly consider this new business environment and waiting too long to take action. Many industries, my own included, are going to find that the information trickling in from customers and market analysts is going to be incomplete, speculative, and sometimes contradictory. Your customers are likely in the same position as your organization: uncertain of where to proceed from here and receiving incomplete information. This is where the specialized knowledge of the demand planning team is going to become crucial to the organization. Demand planning is the function best equipped to review the existing dataset and make educated conjectures about what may happen in the future. We do it daily, even when there is no global crisis, and are comfortable with the ambiguity. The organization will need level heads to lead in a time of uncertainty, and demand planning can provide this leadership. Stay calm, use the data at your disposal and your accumulated knowledge, and push back if the time parameters to complete the work with efficacy are unrealistic.

Drive Consensus

Black Swan events are a pivotal time to involve all stakeholders in the construction and finalizing of the demand plan. Unpredictable times are not made for the often idealized “nerd in the corner,” who can whip up a fancy algorithm and predict the future. These are events that are, by definition, unpredictable! While some modeling may help set the context, specific market, customer, and industry knowledge is going to win the day. Given the extraordinary circumstances and potential decreases to demand that may take the organization well below its previously targeted operational and financial plans, additional, supply-side considerations may also need to be considered.

In a “normal” environment, everyone in the organization seems to have an opinion about what the demand plan should be. In many instances, those insights are grounded in fact and when shared with demand planning are a catalyst for a better demand plan. During a pandemic… maybe not so much. Demand planning could encounter a fair amount of emotional pushback as they present the facts as they are known today. There could be “sticker shock” at the demand changes proposed, or even a lack of feedback from stakeholders as they reel from the amount of uncertainty being presented and the proposed length of time to recovery. There could be a hesitancy to provide insights or align on the proposed changes, and that’s born out of fear. It is the role of demand planning to assuage those fears with the available facts and help drive the stakeholders to a decision they can feel reasonably comfortable with under the circumstances. Now more than ever, the demand plan does not just belong to the demand planning organization – it is the plan that runs the business and all stakeholders should feel some level of ownership.

Document, Document, Document

Demand planning is no stranger to the often non-value add phenomenon of perfect hindsight – after an unexpected event, there will undoubtedly be some members of the organization – perhaps even within the planning function – that will begin to ruminate on why we didn’t act faster or clearly see the signs of this monumental event headed our way. The pitfall of 20/20 hindsight is, rather unfortunately, another tenet of Black Swan Theory. It’s difficult to rationalize how something so major could have blindsided us. This is why the documentation of demand planning assumptions is so key – both in “normal” times and even more so during these abnormal events. As the skies begin to clear, organizations sometimes develop amnesia about how cloudy the weather once was.

Demand planning is often called upon to be the historian of the organization – reminding the various stakeholders of the decisions that were made in the past and why we made them. As industries recover, this historian function will be ever more important as we become farther and farther removed from the initial crisis. In order to move forward, the organization may need a clear picture of where we have been that is free from any Monday morning quarterbacking.

Stay the Course

Organizations around the world and across many industries are finding themselves facing a future they were not expecting even a few weeks ago, and will be looking toward their demand planning teams to help them make sense of what future demand will look like. It is important that we adhere to our established processes as much as possible, and remain a calm and objective voice of reason for our stakeholders. You will be called upon to make sure the organization stays focused, doesn’t get caught in a victim loop, and takes action as appropriate. Finally, be ready to remind the organization of where it has been once the crisis has been averted. In these ways, demand planning can continue to provide value and context to the organization during uncertain times.

Hang in there, everyone.

Join us for IBF’s 2 or 3-day Virtual Best Practices Conference: Business Planning, Forecasting & S&OP/IBP (with Fundamentals of Forecasting Workshop). You’ll access great workshops from experts in the field designed to improve your planning processes, and be able to put your questions to our panels of experts. It’s the convenient and low-cost way to access our world-leading conferences from your home or office.

Talk to any department in your organization about their internal metrics. Within a few minutes, you’ll easily be able to gauge whether or not it’s time for said department to revisit what they are measuring and why.

In departments with new members or constantly changing leadership, the rationale for measuring something is all too often“we’ve always measured this”. This response is enough to make an outside observer cringe, but inertia reigns supreme in many departments, and sometimes we cannot see the wood for the trees. Even more troubling, a metric that no one can explain may be utilized to make crucial business decisions. Doing a regular sanity check of what you are measuring is a great exercise to ensure that the department is in alignment with the organization’s goals.

What Business Outcome is the Metric Meant to Answer?

As obvious as this may be to some, everyone using a metric should know precisely what that metric is meant to answer, as well as what it is not meant to answer. Over time, as we are all moving from troubleshooting one issue to the next, it is easy for that metric to morph in people’s minds, to be reinterpreted as something that it isn’t. This is a great check to do both inside and outside the department. What does this measurement tell us about the health of the business? What does the measurement tell us about our effectiveness in meeting a particular business goal? If alignment on the definition isn’t there – or, worse, if no one any longer has a clue what the measurement is for – it’s time to determine if reeducation on, or elimination of, the metric is most appropriate.

If a metric doesn’t lead to increased utility for an internal or external customer, there’s a chance it isn’t worth measuring.

Would the Customer Pay For a “Good” Metric Score?

Occasionally, a metric is developed that may seem to be a great measurement of the department’s operations, but isn’t in line with the needs and expectations of our internal and/or external customers. Considering whether or not the health of this metric would be important to your customers is a great litmus test. Customers are generally willing to pay for product or service elements that add value. If a metric doesn’t lead to increased utility for an internal or external customer, there’s a chance it isn’t worth measuring.

Is the Metric Actionable?

A metric for which the department can’t put corrective actions in place to action is worthless. If, for example, a metric is identified as out of tolerance, but no actions can be taken to improve the performance, it’s probably worth examining the processes that prohibit improvement in this area.

A metric should be able to be controlled by whomever is doing the measuring

Does the outcome of the metric directly affect a business outcome, pass the test of customer value, but no actions can be taken to get better in this area? In this case, a reevaluation of process, interactions with other departments, or the involvement of upper management may be required. A metric should be able to be (at least for the most part) controlled by whomever is doing the measuring.  

What Does This Mean For Demand Planning?

While an honest review of the metrics catalog is good for any department, it is particularly fitting for a Demand Planning organization – the department that is, by design and by nature, acknowledged as never perfect and yet constantly maligned for that fact. We’ve generally got more measurements for ourselves than most other departments, and it is important to always keep in mind why we are measuring what we are measuring. The minute we lose sight of the end goal of all this measuring we’ve lost. The end goal is, of course, to create a forecast that is as accurate as it possibly can be to allow the downstream supply chain to deliver customers the right product at the right time. 

We’ve all heard Peter Drucker’s old business wisdom, “what gets measured, gets managed.” It’s all too true. This is why it’s so critical to measure the right things. In an ever-shifting business climate, it’s important to recognize that the measurements that drove the business in the past may not be appropriate for the future.

[Ed: Read more about two forecasting metrics that definitely do add value to any forecasting process, MAPE and FVA.]

Erin will be discussing forecasting metrics like volatility analysis and Forecast Value Add (FVA) at IBF’s BUSINESS PLANNING, FORECASTING & S&OP: BEST PRACTICES CONFERENCE in Orlando from October 16-19 2018. To see her and other world-leading experts, REGISTER HERE.

Over the past few years, the Demand Planning community has become quite starry eyed over advancements in predictive software and tools. The concepts of “Big Data” and “advanced analytics” are enough to make seasoned practitioners stand to attention – and even catch the interest of the Executive Team. But when many of us still struggle with the fundamentals, it is worth investing in new-fangled technology?

Admittedly, in a field where you know you will never be “right”, this fancy technology and impressive phrases are quite attractive – they bring to mind a picture of a utopian state where analytical horsepower and near infinite data points lead to a 100% accurate forecast. There may even be a unicorn there. For me, I can’t help but be reminded of two much-loved colloquialisms that I urge Demand Planning professionals to consider as we journey into the future with new tools and ideas that may or may not usher in a new age of Demand Planning.

The only thing we know about Advanced Analytics is that you must have clear, fully costed plan as to how it is going to provide a return.

“Is The Juice Worth The Squeeze?”

This is a phrase I say probably too frequently when considering new tools, methods, and processes to improve Demand Planning. Does the effort required to explore and/or implement the new approach measure up to its expected return? For some organizations, intensified data collection (or data purchase) and the machine capability to chug through it may be cost prohibitive.

Computing equipment and data aside, the organization may not have the human resources on hand to give these capabilities their due. Perhaps the organization already enjoys a high level of forecast accuracy. Is the expenditure worth that extra percentage point? Maybe, maybe not. The only thing we know is that you must have clear, fully costed plan as to how this new tech is going to provide a return.

“Don’t Throw The Baby Out With The Bathwater”

Or, “don’t throw the fundamentals out when you get your shiny new tools”. Even if your organization does decide to invest in Big Data and/or Advanced Analytics, it’s important to not abandon some of the tried-and-true measures and methodologies of effective forecasting. If your organization decides not to invest in these buzzworthy tools, there is still a great amount of improvement that can be made using some tried-and-true Demand Planning basics. Additionally, these concepts can assist in answering the juice-vs-squeeze question of a potential upgrade or data investment if the organization chooses to entertain new solutions. Some of the most impactful are as follows:

Put down the Big Data Kool Aid – FVA is great low-hanging fruit to pursue prior to making a new technology investment.

Forecast Value Add Analysis (FVA)

Whether or not Advanced Analytics and insights are in your future, the impact of a simple Forecast Value Add (FVA) analysis cannot be overemphasized. FVA is a measurement of your forecasting process – from the statistical models utilized, to the overrides added by analysts and the insights from salespeople. Each step in the forecasting process is measured to determine the added value the step brings to the overall process. Advanced Analytics or sophisticated tools could of course be an added forecasting layer to be measured, but I would caution that if steps in your process are continuing to devalue the forecast, there are things to look at first. Put down the Big Data Kool Aid – FVA is great low-hanging fruit to pursue prior to making a new technology investment.

Keeping an eye on tracking signal is important no matter how sophisticated the forecasting methodology.

Tracking Signal

While somewhat reactive in nature, I love using tracking signal as an indicator to let me know if my forecast needs a second look. Tracking signal is simply a measure of consistent bias over time. In short, if actual demand has come in lower than forecasted for each of the last three months, you may want to reinvestigate your demand assumptions.

Not only is consistent under- or over- forecasting a reliable indication to an analyst that their projections may be incorrect, it is also a great signal of potential inventory shortages or surpluses. Keeping an eye on tracking signal is important no matter how sophisticated the forecasting methodology.

[bar id=”527″]

Forecast Accuracy

I’m sure many of you are rolling your eyes at this point. Of course we measure forecast accuracy, this isn’t even worth talking about! I challenge you to revisit and audit your metric. Most organizations are familiar with the debate on precisely when forecast accuracy should be measured – is it a month before the actuals are due to come in? Three months? A week before the actuals come in? The answer is likely that a measurement at material lead time is the most appropriate. After all, this is the time in which the supply chain can, in a perfect world, respond appropriately and without expediting to the demand signal.

Recent analysis in my own organization found that the traditional “T (time) minus a generic lead time” approach was not allowing us to gather the proper insights from our forecast accuracy metrics because lead times are so wildly disparate. As a result, a change to the metric was required and more insightful conversations are now being driven during the S&OP process.

There’s No Unicorn In Your Advanced Analytics Utopia

The latest and greatest technologies offer a very tempting vision of what the future could be; after all, who doesn’t want the powerhouse predictive analytics of an Amazon or Target? However, it’s important to approach these decisions with a healthy dose of skepticism. Be mindful to evaluate the promises being made and ensure they are aligned with your needs. And, if the juice truly is worth the squeeze and you embark along the new frontier of Demand Planning, don’t forget the babies floating in that bathwater.