As a trainer and advisor for IBF, I have worked for several amazing companies with talented people. As part of the 3-day training program we deliver, we always spend time thinking about the improvement areas that will help the team to implement demand planning best practices.

The Start/Stop/ Continue format is used. What will the company start doing? What will they stop doing? What will they continue and improve? For most groups in our training programs, this list comes readily and most people agree on what to change.

But then a funny thing happens. When we start to discuss how and when these changes can happen, the teams face a common challenge. Their resources are often spread amazingly thin, and therefore can’t devote the time to start working in a new area.

Even more frustrating, Demand Planners often do not feel they’re able to stop activities that take up precious time. Fortunately, there is a proven methodology we take from Operations used to improve focus, effectiveness and efficiency.

The Lean philosophy provides an approach to evaluating an operation to reduce waste, providing resources that can be applied to value added activities. The approach to Lean Demand Planning is fairly simple and we can adapt this methodology for the purpose of improvement and freeing up time. Here are the five steps:

1. Identify value
2. Map value stream
3. Create flow
4. Establish pull
5. Seek perfection

Step 1: Identify Value

In a traditional Lean approach, one focuses on the end customer. The key is to understand clearly what the customer values (i.e., what they will pay for) and what they will not. This helps
the organization to focus on what is important, and strip away work that is not important or just superfluous.

For demand planning, the customers are internal. And our internal customers want an accurate demand plan. Although that statement is true, it needs to be refined. There are different uses of forecasts, and different people need different forecasts. SKU level accuracy may be important for replenishment planning over the next 8 weeks, but, for capacity planning, we need accuracy at a more aggregate level, and for a much longer timeframe.

Beyond the core of forecast accuracy, it is the information that is generated through the demand planning process that should also be valued within the organization. Highlighting forecast variance from the plan and the reasons why is also important for making decisions. Other examples include analysis of new product sales performance to provide business insight to the organization.

Step 2: Map The Value Stream

In a typical Lean program, it is important to understand the process used to deliver a product to a customer. A visual map is used to mark each process step for a given scope, usually led by a Lean process expert with process participants. Other elements such as resources required,
waiting time, and hand-offs are added to the value stream map.

In many cases, after a current state map is developed, an ideal state or future state map is
also created to highlight areas of change. For demand planning processes, companies can use the same methodology. Instead of a product being delivered, it is information that is being shared.

For example, teams can review the information that is prepared for a consensus meeting, or how new product forecasts are developed. Each step can be documented, including handoffs, wait times, and resources needed. Some teams may need to perform simple time studies to see where the work hours are going. In larger projects, it may be helpful to create a value stream map of the entire monthly cycle for demand planning. Again, an ideal state or future state
can also be helpful. During this step, it is critical to see which steps are really adding value.

According to the Lean Enterprise Institute, these criteria truly add value if:

• The customer is willing to pay for it.
• The activity transforms a product or
service in some way.
• The activity is done correctly the first
time.

These steps are important not only for Lean Supply Chain Planning but also for Lean demand planning.

Step 3: Create Flow

In the end, the value stream map is used to evaluate opportunities for improvement. This is known as creating flow. Non-value-added steps are identified and then removed. Processes that have bottlenecks are solved through improved processes and/or more resources. Continuous improvement projects and kaizen (improvement) events are used to streamline the process and get more output with less waste.

Using the value stream map to create better flow is essential in the demand planning world. Too often we implement a tool, setup a consensus meeting, and ask for reports, without having a good process to support these requirements. Demand Planners do their best to figure it out but can greatly benefit from the support of others.

In most cases, there are several quick wins that free up a Planner’s time, and other projects that spin off to gain even greater efficiency. Some specific ways to create better flow in demand planning are:

• Automate repetitive tasks. Data entry is often a key area of opportunity, as are accuracy metrics and other reports.
• Create standard work flows. For process steps like exception management,
forecast allocation, and others, best practices should be documented and
followed. Work flow tools can help to organize hand-offs between groups and further document time between steps.
• Clean up and organize data. Factories use “5S” principles to make tools and materials available for seamless operation. Demand Planners should make sure that data files are easy to access and are clean and up to date.
• Remove non-value-added steps. Every action should have a purpose. Lean promotes the ruthless pursuit to eliminate waste, and demand planning is no exception.

Step 4: Establish Pull

The idea of pull in the Lean philosophy is very simple. Operations should not spend time on activities that are not directly requested by the customer. Pull process for materials mean that
operations do not start until the need is signaled through a consumer shipment or material consumption in a factory.

Pull helps to avoid unnecessary work along the way, and also synchronizes activities whenever needed. In demand planning, we can apply this idea in a different way. Because demand planning is an analytical group with access to data, it is often called on to generate lots of reports and ad hoc analysis.

I recently advised a company where most of their time was spent publishing current month sales trends, which didn’t add any value to the core of demand planning. A simple solution is to take an inventory of reports and analysis done by a Planner. Some reports can be discontinued ASAP (one Demand Planner in my previous company produced a weekly report for a general manager that left the business years ago).

The best way is to ask our internal customers whether certain reports are needed. Per our Lean methodology, our work is adding value if the customer is willing to pay for it. This is the one way to assess whether to keep certain activities, discontinue them, or get budget for more staff.

Step 5: Seek Perfection

The final step in the Lean methodology is not the end of story, but rather just the beginning. Continuous improvement is at the heart of the Lean approach. Individuals and work teams are encouraged to improve well after the original value stream map has identified opportunities. Teams meet regularly to discuss progress and may often have specific kaizen events to focus on new areas of change.

For demand planning groups, this is absolutely critical to sustainable improvement. There are ways to improve statistical forecasting, gathering market intelligence, planning new products, managing consensus, and so on. Of course, the market is also changing, so our approach must adapt and improve to stay relevant. As managers, we need to instill the culture of continuous improvement in our teams. Planners who seek new approaches and challenge the status quo need to be recognized and rewarded. And managers need to free up some “thinking time” for our Planners, so they don’t get trapped in the habits of the monthly process.

The concept of Lean is not new; its roots are found in the operating systems of Toyota and other large manufacturers. These companies saw the need to eliminate waste and sustain reliable, and effective delivery while reducing the resources needed to provide them. Demand planning is an operational role, with core process steps and customers who expect services at the lowest cost. If we apply some of the concepts of Lean, we can meet our organizational needs and support our teams in the way they work.

John will be sharing further insight into forecasting and planning at IBF’s Business Forecasting, Planning & S&OP Conference in Orlando, held from October 19-22 at the Wyndham Orlando Resort. The biggest and best event of it’s kind, it’s your opportunity to learn best practices in S&OP, demand planning and forecasting, and network and socialize in a fantastic setting. See here for details.

A 25-year high-tech supply chain veteran, Wade McDaniel is vice president of Solutions Architecture for Avnet Velocity, Avnet, Inc.’s global supply chain solutions business unit.

Tradeoffs! When you hear this term, you typically think of giving something up; settling for less. But when we talk about tradeoffs in supply chain segmentation, what we are really talking about are priorities. For some companies, speed is paramount while others may place a higher value on service or differentiation. For others cost may be the singular target. Whatever the value characteristic may be, supply chain segmentation is about managing multiple supply chain configurations to assure each customer gets what they most value.

A basic example of segmentation would be grouping high-volume, low-mix customers in a supply chain built for efficiency, while the supply chain for low-volume, high-mix customers would focus on maximizing flexibility. OEMs that configure their supply chains based on these trade-offs can consistently satisfy customer demands without adding cost or risk to the supply chain.

One of the most common misconceptions about supply chain segmentation is that replacing a standard supply chain model with several customized models will strain an already complicated process. In reality, however, segmentation can help in that it can simplify your supply chain. Business advisor McKinsey & Co. reported that in high tech, segmentation typically improves service levels by 5 to 10 percent while reducing inventory levels by 15 to 20 percent. In my professional experience, I’ve seen results that are even more significant.  Through segmentation, companies can better align their resources so that they are not, for example, spending money delivering commodity products ahead of demand or holding up production waiting for custom parts to arrive with a consolidated shipment of standard products from overseas.

Establishing an effective segmentation strategy requires a deep understanding of how customer and product complexity drive cost and service levels. To assure that you are starting with the most accurate picture of the supply chain, it is important to include inputs from across the organization’s business disciplines, including marketing, sales, manufacturing, planning and procurement.

At Avnet, we recommend customers use the Supply Chain Council’s SCOR methodology to define their current supply chain activity. We then help them to analyze this information in conjunction with the results of a Supply Chain Maturity Monitor (SCM2) survey, a self-assessment questionnaire that helps to identify their organization’s current supply chain reliability, responsiveness and agility levels.

What’s great about segmentation is that it is a method most companies of any size can do. As customer needs continue to diversify, the ability to effectively managed segmented supply chains will become a significant differentiator. So, if you haven’t thought about segmenting your supply chain, I’d suggest you start now, before you find your company skirting along the trailing edge of the competitive landscape.

Wade McDaniel
Vice President of Solutions Architecture
Avnet Velocity

Wade McDaniel is an upcoming presenter at the 2014 Best Practices Conference at Disney’s Yacht & Beach Club Resort.  For more information please click on the link below.

Business Planning & Forecasting: Best Practices Conference w/ Leadership Forum
Disney’s Yacht & Beach Club Resort
Orlando, Florida USA
October 26-29, 2014

Recently Eric Wilson, CPF , Director of Global Demand Planning and S&OP at Tempur Sealy International delivered an IBF Webinar on Risk Mitigation, Forecast Value Added (FVA) and Demand Planning Segmentation Strategies.  Below are some of the Questions & Answers that took place with Eric.

Q: What is Forecasting Value Added (FVA) and how is it calculated?

FVA% (Forecast Value Added) is considered the change in a forecasting performance metric that can be attributed to a particular activity in the forecasting process.  In management speak, it is are we doing better / worse or adding value to a process step?  It may be measured at any point in a forecasting process that adjusts or changes the forecast which may include lags or time horizons but also may be inputs, comparative to a base statistical or naive, or even aggregation (going from month to weeks).  FVA simply is the change in error before and after a touch point or change in forecast due to process (see below). For one analysis, we may compare the baseline model forecast error to the collaborative forecast error to determine the effectiveness of market intelligence.

Q: Where do the judgmental and causal inputs come from in collaborative forecasting? 

We have a formalized monthly and weekly forecasting cycle.  In that we are all tied across the organization to a single forecast and number.  In this process, we are not asking sales or others to forecast, but to contribute to that process.  Everything starts with a baseline and adjustments are made up or down to that baseline and measured at each touch point (FVA%).  Our inputs come from a variety of sources including sales, marketing, channel leaders, brand management, customers, management, and even supply &operations.  Many causal inputs come from these sources as well as our own planners’ expertise and insights into the data.  What we strive to do is find the best and most efficient inputs to our process, which is part of the logic for segmentation.

Q: Do you segment further within the quadrant?

Yes, I did not show it, but typically we will also plot inside each quadrant, a revenue and margin matrix.  This is especially important in the bottom right quadrant in the image below (High FVA% and Low Error).  Collaborative Forecasting can and should be considered as a variable or input in most areas, but within this one we have found it more important to examine the margin returns of planners or other input to the time and contribution requirements.  In other words, high revenue, high margin, or critical items justify more time and resources even if the return is a marginal single percent. On the other hand, low value almost commodity type items such as stable products may fall into this quadrant with lower forecasting error, but spending a lot of time or resources to gain 1% or 2% is not value added to the overall process.

Hear Eric Wilson speak @IBF’s

Business Planning & Forecasting: Best Practices Conference w/ Leadership Forum
Disney’s Yacht & Beach Club Resort
Orlando, Florida USA
October 26-29, 2014

Craig McLaughlin

Back in early 2013, when I moved into my current role of leading the global Integrated Business Planning (IBP)/ S&OP program for Mondelez, I came into the job from a Business Unit operations leadership role.

As any of you operational folks will relate to, getting “stuff” done “now” is what keeps the lights on, but moving into a global job takes some adjusting because in our case, my focus shifted from decision making to decision influencing. A frustrating shift if you aren’t ready for the change.

In my first 90 days, as I learned the ropes of the IBP program and how to navigate the waters of the global job, I quickly realized that implementing a standard IBP program across the globe was going to require a shift in how I approach problem solving and decision making. I realized that implementing such a program started with basically making a team of high performing, type A executives understand that the way that they are running their business can be improved. Now picture this…you have a team of senior executives who are in their positions because they have been successful and they are leaders in their field, being told by someone they don’t know, that they can do better…  That’s the first meeting!

It takes time for executives to embrace the need for change and the scope of that change. It requires them to reflect, ask questions and understand the change. They then need to cascade their support down through the organization, repeatedly.

Successful IBP implementation only occurs when the General Manager of the business believes that they own the process and explicitly states it. It requires for their management team to also embrace this ownership and finally the employee population needs to see the leadership living the values of IBP, so that they begin acting in new, improved ways. This change doesn’t occur overnight and requires an approach of repetitive follow-up and re-education. It requires a clear communication strategy. It requires a change management approach. It requires patience.

I’ll be sharing more on my journey in implementing IBP at IBF’s upcoming Business Planning & Forecasting: Best Practices Conference in Orlando, Oct 26-29, 2014.  Plus, I will be also sharing views at the Leadership Forum taking place on Oct 27.  Hopefully, we’ll see you there.

Craig McLaughlin
Head of Global Integrated Business Planning
Mondelez International