So you’ve got a long list of possible options for when you decide to upgrade or replace your demand planning software. In the previous articles we looked at the functional and service, technical, and implementation requirements of your new software. We have carefully calculated what we believe we can see as benefits and improvements, and created our budget to look for an 18 month return on our investment.  Now it is time to find that perfect match and seal the deal.

Unfortunately, there is no perfect dating app for this and no opportunity for you to simply put in what you like and when you and the solution provider both find a connection, you both swipe right.

From here, the next step is to begin conversations with the various vendors that meet your needs.  A great place to start – outside of some simple internet searches – is by attending an IBF conference.  Many of the top solution providers are available with booths to allow you to find all of the vendors under one roof or exhibition hall. This provides the opportunity to ask questions and even the opportunity for demos to see the functionality they offer.

For some, this is where things get even more confusing. How do you narrow down the list, scheduling demos and ensuring the right content is covered?  Are you missing anything? Are you asking the right questions? If what you need is not overly complicated, many people can sort through the next steps of the process to a final selection. If done right, you’ll have all the necessary information to make an informed choice and get the solution you need.

But there is another potential option that may help save time and money…

Should I Use a Third Party Company?

Many companies believe that going it alone or directly to a software manufacturer to obtain new forecasting or demand planning solutions is the best way to get exactly what they are looking for. For many companies this will work and there are good solution providers that will help you get what you need. Unfortunately, the reality is that no matter how good you or the software provider is, there is still bias and you have no way of knowing if the software gives you exactly what you need unless you have used it before. What’s more, you may not be completely confident you know what you need and want an independent, second opinion before you commit a big chunk of your department’s budget.

Rather than relying on the biased opinion of a specific software developer, it may be best to involve a third-party, such as a software consulting company

Rather than relying on the biased opinion of a specific software developer, it may be best to involve a third-party, such as a software consulting company. These businesses exist with the sole purpose of helping companies sort through their specific needs and budget, and navigate all available software options to find the best solution. They can also provide you with an in-depth analysis of the pros and cons of each of your options, along with an estimate of the likelihood of a specific software platform to stay at the “top of the heap” based on current software trends.

Beware The Limitations Of Consultants

Consultants are not all-knowing though. You still need to do your own homework and due diligence.  Just because you pay someone $200 an hour does not mean they know everything. Many naively assume all consultants are geniuses and later find out they are far from it. It is vital you still understand your own needs and requirements, budget, estimated benefits and stay heavily engaged. No matter how much analysis consultants do, they will never know the business details and issues as well as your employees. When the project team is not fully engaged and not adequately trained on the software, even the best of systems will give you problems from the outset.

There are many things good third-party consultants can do for you. Because a software consulting company needs to know the ins-and-outs of the industry, they will be able to help you assess your needs and requirements too. Many consultants can facilitate process mapping exercises and drill down to better understand current and recommended future processes.

A software consulting company also has the ability to help you obtain a fair contract

Although no third-party company can guarantee you the best rate or a glitch free roll out, they can help you avoid the potentially serious issues that companies face when they decide to implement a new software package. In addition to helping you locate the right software, a software consulting company also has the ability to help you obtain a fair contract. They will have the necessary industry experience to know which contract terms to insist upon and which ones to avoid.

How Much To Pay A Consultant

All of this will come with a price tag. Many factors contribute to the total third-party consultant cost. The greatest aspect is time investment. Generally, you are looking at anywhere from $150 to $225 an hour plus travel costs but some do charge project flat rates as well which is highly dependent on scope and everything they will be doing. The time or scope can be as basic as the software selection to full service project management, so it is difficult to put a number on it.

Let us be clear though, hiring a consultant can be expensive. At the same time, with the many software vendors to choose from and potential pitfalls of the selection process, a good consultant can pay for themselves in project or contract savings alone. Additionally, if you are unable to do the implementation with your internal resources, the benefits of having an implementation consultant can be huge and ensure you launch your system as effectively as possible.

Is it expensive? Yes. Is it worth it to have the job done right? Absolutely!

A third-party company to help you identify your needs and negotiate the path of implementation of a new demand planning and forecasting system plays a huge role. Is it expensive? Yes. Is it wort it to have the job done right? Absolutely!

Remember though, third party consultants will not make us successful. Consultants can educate, suggest, coach, and help choose the right software but cannot make your company forecast better than the people and processes are capable of. It is important you focus first and foremost on the right talent, culture, processes and best practices that allow you to get the most out of the technology.

I and other S&OP leaders will be discussing this topic and more at IBF’s Leadership Forum in Orlando on October 17, 2018.  Designed for leaders in planning, forecasting and S&OP, it’s the best of its kind, and is designed to help managers with implementation and management of people, process and technology. It’s a great event – you can see the schedule here.

In the last blog we started our discussion on selecting the right forecasting and demand planning software to fit your organization’s needs. We started with first understanding your needs before you talk to vendors, and what to include in your list of requirements. 

When it comes to forecasting software, it should be noted that popular doesn’t always equate to quality, and an ERP or an advanced planning system that claims to do it all may not have the forecasting tools you need. There are plenty of specialized and lesser-known products that deliver brilliant results. But how do you narrow them down, and what does something like that cost?

Most companies making the decision to move to a new forecasting/planning system are primarily driven by one or more of the following:

• Obvious forecast accuracy challenges
• A highly variable process that requires dedicated technology to support
• Detail-level forecasts required to support a more efficient manufacturing or distribution system
• Downstream inventory problems that are clearly driven by demand variability
• An attempt to drive more cooperation and ownership between sales and operations through a consensus-based forecast

Figure Out How Much You Can Save With Improved Forecast Accuracy

A mountain of research today shows that improving forecast accuracy delivers a high ROI. Improved forecast accuracy, when combined with software that translates the forecast into meaningful actions, will decrease inventory and operating costs, increase service and sales, improve cash flow and GMROI, and increase pre-tax profitability. [Ed: IBF has a forecast error calculator that will tell you how much your company can save for every percentage improvement in accuracy – this will help you decide how much to spend.]

From our experience, a 15% forecast accuracy improvement will deliver a 3% or higher pre-tax improvement

The forecasting error, no matter how small it is, has a significant effect on the bottom line. From our experience, a 15% forecast accuracy improvement will deliver a 3% or higher pre-tax improvement. In an IBF previous study of 15 US companies, we found that even one percentage point improvement in under-forecasting error at a $50 million turnover company gives a saving of as much as $1.52 million, and for the same amount of improvement in over-forecasting, $1.28 million.

These potential savings should help you decide what is worth paying when it comes to buying forecasting software.  That leads us to our next question in our series of blogs to help you with demand planning and forecasting system of many company’s digital transformation:

What Is This Forecasting Software Going To Cost Me?

Cost can be determined by users, size, or complexity of your processes and data. You’ll pay either via a subscription or have an annual service contract that provides access to the software along with support.  In addition to these annual or monthly fees, there is generally an up front consulting or installation fee that should include project design, configuration, assistance of data extracts and education. While sometimes this may be flat rate, it is usually on a per hour or per project phase basis. The scope of the project with key deliverables should be provided by the vendor before you start, and an indication of what it will cost.

Typical software costs anywhere from $5,000 to $30,000 per user

Typical software costs (assuming data repository has already been licensed) anywhere from $5,000 to $30,000 per user or very roughly about $2,000-$6,000 for every $100,000 of revenue. These are ballpark numbers and vary based on packages, features and other cost over and above basic systems.

Typical consulting service costs range from $110 to $220 an hour

Typical consulting service costs range from $110 to $220 an hour per resource depending on the collaborative process and you’’ll require anywhere from 600 to 2000 hours depending on the complexity (these costs exclude travel and other expenses). This information can be difficult to get from some vendors upfront because they know costs can add up when dealing with teething problems following installation.

Never rush into a deal. If you try to do things as quickly as possible you will likely miss the full scope of what you need and end up with a solution that fails to deliver the functionality you need, putting you in a position where you have to spend more money down the line.  With all of this said, cost should be based on what you get out of it – it is important to understand what your benefits will be before you look at what vendors are charging. The benefits derived from an automated Demand Forecasting solution can be realized in both soft and hard cost savings, as well as overall process improvements.

Indirect Cost Savings From Forecasting Software

Forecast process automation will reduce the time spent on creating and managing the overall forecast process but rarely results in hard labor cost savings due to redeployment. There should be operational efficiency gains from planning and scheduling improvements resulting from more accurate and (sometimes more detailed) forecasts.  More predictable financial planning resulting from a more accurate forecast as well as consensus planning driven by the collaborative process changes.

There should be operational efficiency gains from planning and scheduling improvements

Other soft benefits include saving time and energy by focusing resources on the right items. Do I really need to forecast hundreds of C items, or can they be grouped into more natural segments, allowing me to focus on the highest revenue/margin products and customers?  This is soft, non-quantifiable benefit. What ROI would you put on having a system that captures the planning process and business intelligence of your teams? Most companies have this spread across hundreds of spreadsheets owned by just a few users –  it is impossible to dollarize improvements like this, but they are valuable.

Hard Cost Savings From Forecasting Software

The reduction in downstream finished goods inventory resulting from forecast accuracy improvements provide a one-time saving, as well as recurring savings arising from reduced carrying costs. In a pure make-to-stock or distribution company, the downstream inventory reduction could range from 10% to 20% since forecasting inaccuracies typically drive around 75% of the required safety stock.

Forecast accuracy can translate to increased revenue of 0.5% to 3% with improved inventory availability or demand shaping capabilities

Many companies are leaving money on the table with lost sales or poor service levels. Forecast accuracy can translate to increased revenue of 0.5% to 3% with improved inventory availability or demand shaping capabilities. Total annual direct material purchase, along with logistics related expenses arising from demand variability, can see direct improvements of 3% to 5%. We can also benefit from a 20% reduction in airfreight costs.

It is important to understand these average savings amounts and you should determine what savings you believe you can drive with technology. Sometimes you need to know what finance and executive leadership anticipate in terms of benefits – you need to be on the same page in terms of expectations. It is here that many software providers can shed some light on what is realistic based on past implementations (keep in mind they are trying to sell you a product). Do your own analysis and reach a consensus with any key people in your company before signing on the dotted line.

When To Expect A Return On Investment

Most technology should reasonably have a payback in less than 24 months with many showing ROI in under 18 months. If you’re looking at a particular solution and the numbers are not adding up, you may consider a less expensive solution that meets your company size, and reconsider some of your functionality requirements. Remember not to settle and you just may want to keep looking for other providers that will not only give what you need but also at the price you can afford, complete with the benefits you want. Shop around – there’s a lot out there.

Which brings us to the next question: how do you know you are getting everything you need, and should you consider a third party to help you in this journey? Subscribe or check back soon for the next blog and I’ll answer this question.

I and other S&OP leaders will be discussing this topic and more at IBF’s Leadership Forum in Orlando on October 17, 2018.  Designed for leaders in planning, forecasting and S&OP, it’s the best of its kind, and is designed to help managers with implementation and management of people, process and technology. It’s a great event – you can see the schedule here.

Despite the importance of forecasting, demand planning software continues to be misunderstood by many businesses. Industry research has revealed many of us are left unsatisfied with our software, even though demand planning tools can bring major improvements in business performance.

Unfortunately, many companies continue to labor under the illusion that an ‘almost’ match is a good enough option. They either fixate on the most expensive products that has all the bells and whistles or they over simplify and assume any product will provide a decent forecast. The real focus should be on tracking demand streams and processes and finding the right technology that provides the right kind of support for the right operations.

Knowledge is power when it comes to choosing software solutions. Therefore, it’s a good idea to do your own research and read up on the most popular providers. It is also important to do your due diligence and come prepared with what exactly you need and understand the process and how it should work for you. To help with this, over the next few blogs I will provide insights and the key points to help you identify the kind of demand planning and forecasting system you need.

What Do I Need The Software To Do?

This depends. I know it sounds like a cop-out but it would be truly irresponsible for me to tell you this software will fit your needs without knowing exactly what your needs, maturity, budget, value chains, resources, data etc.  look like. To this point, it is also irresponsible for any vendor to sell you anything without understanding your process and business. If they tell you a particular product is perfect for your needs, be very wary. And contrary to popular belief, it is not good enough if a system provides 80% of what you require. You do not need to settle -there are enough options out there for you to get what you need.

The first step any company should take when looking for a new demand planning software is determining your process, technical and system needs; your budget and other constraints; and a detailed list of requirements. Most systems will have the usual industry standard time series forecasting algorithms but maybe you also need some of the more advanced tools on the market. These include advanced analytics like machine learning, AI, Monte-Carlo simulation and Stochastic Optimization.  

Going through the design process first gives you a systematic way to work from abstract concepts down to specific technical details and physical designs for the solution i.e. you start with the benefit you want yo gain from the system and work backwards until you get down to specific features. 

Map Out Your Demand Streams In A Specification Document

To ensure that you select the right technology for your operation, it is critical to map the demand streams and the demand drivers. Consider a process map that helps visualize each steps including input and output, as well as the technology or information you already rely on that will need to be integrated. Techniques like causality, seasonality, top-down and bottom-up forecasting, and forecast-value add analysis are essential to the selection of the technology because whatever system you choose must support them.

Think about your customers.  No not necessarily the end users of the company product but the intermittent internal users of your forecasting and demand plans. This can be operations, supply planning, finance etc. Each internal customer may look at your forecast at different levels of aggregation and different time horizons and may need different levels of forecast accuracy.  

From here it becomes easier to develop a detailed functional specification document that provides direction and guidance for what you need and the must haves for when you start comparing solutions. In this document, simply list out what you require. Remember to include the models you use, data and input requirements, and process steps it needs to support, and the metrics and information you need out of it. Address collaboration and process, functionality, as well as technical requirements. Your company’s list may be 10 items or 50 items long. Take your time and include the must haves and the like to haves.

 Features Checklist

Typical requirements may include, but not limited to, the follow:

• Full spectrum of statistical forecasting methods. Demand plans may use more advanced methods and a holistic approach to statistical forecasting (e.g. ARIMAX, econometric, cluster analysis etc.)
• Forecast generation using dynamic multiple hierarchies and complex event or pricing models and use of what-if scenarios
• Overrides performed at varying levels by different users, with hierarchy reconciliation 
• Manages demand planning consensus work flow
• Measurement of demand forecast error with limited accountability or understanding of causes (e.g. MAE, MAPE, WMAPE, Bias)
• Performance measurements to gauge the value of the demand planning forecasting process instead of just the output (e.g. FVA, tracking signals)
• Segmented and graphical results based on differentiating lags, hierarchy, segments, and inputs or process steps.  
• Ability to utilize POS and external data signals
• Ease of integration and reliability, and high degree of support available
• Languages/global presence and support
• Supports multiple calendars (production, fiscal etc)

Avoid a costly mistake by making sure any software you buy meets all of your specific requirements, and ensure it can integrate with existing tools and processes.

Staff Checklist: The People You Need To Run This Software

Another critical question in preparation needs to be do I have the right staff in place both from a planning and technical perspective to get the most out of this application?  This part is really critical to the success of planning to prepare to look for a tool.

Typical internal resources may include:

• Project Sponsor/manager (40% – 70% FTE).  Provides executive oversight and guidance. Works with software provider to develop project plan and manage day-to-day priorities. Reviews deliverables for quality and completeness.
• Functional core team members (15% – 45% FTE each): Represent end user and voice of customer, validate business requirements, define user workflows, validate functionality, provide testing.
• Technical core team members (5 – 15 days IT resources): Develop automated programs to extract and import data, act as SME as required in support of core team.
• Functional end-users (3 – 10 days per member): functional end user testing and training.

Note that we have highlighted demand planning and forecasting software only. For an Advanced Planning System that does forecasting as well as supply planning or inventory optimization, you will need to look at other options that have more features. With demand planning being more than just a supply chain process, and with advancements in technology and integration, do not assume it must be part of a supply chain or ERP system to get what you need. You no longer need a single solution and may be able to meet your organization’s needs with a standalone forecasting system. Predictive analytics and forecasting once again offer benefits as a separate system as long as you know what you need and understand how it will benefit your company.

Which brings us to the next question of what kind of return on investment (ROI) can I expect and how much will all this cost me? Subscribe to our newsletter or check back soon to see how I will answer this question.