In today’s volatile and uncertain market, companies can no longer afford to operate without a structured, data-driven approach to forecasting demand. Demand planning is more than just predicting sales—it’s about building an integrated, agile business that can respond to customer needs while managing resources efficiently. Despite its importance, many organizations still rely on outdated tools, such as spreadsheets, which can lead to bias and siloed decision-making, ultimately compromising their forecast accuracy.

The potential improvements in predictive analytics and the integrated demand planning process can significantly streamline decision-making processes, create new insights, and save several business functions a huge amount of time and money.

Understand that a business will most likely invest in a new process to solve pain points, drive quantified savings, or deliver other clearly defined improvements. To successfully build a business case, you need to both help the organization understand the need and see the benefits.

Why Focus on Demand Planning?

Most companies that decide to invest or improve their process are primarily driven by one or more of the following:

• Obvious forecast accuracy challenges
• A highly variable process that requires a dedicated process to support it
• Detail-level forecasts are needed to support a more efficient manufacturing or distribution system
• Downstream inventory problems that are clearly driven by unseen variability
• An attempt to drive more cooperation between Sales and Operations through a consensus-based planning.

At its core, demand planning acts as the foundation for synchronized operations. It allows marketing, sales, supply chain, finance, and production to operate from a common set of assumptions. Without an accurate demand plan, supply planning becomes reactive; finance struggles with forecasting revenue, and customer service deteriorates due to stockouts or excess inventory.

Consumer behaviors have become increasingly unpredictable. Economic shifts, global disruptions, and rapid product cycles mean that relying solely on historical sales is no longer sufficient. Demand planning introduces a proactive lens that incorporates both internal drivers (such as promotions and price changes) and external signals (including market trends and customer insights) to create adaptive forecasts.

Inaccurate demand forecasts result in costly outcomes, including expedited shipping, excess working capital, lost sales, and markdowns. Improved demand planning helps reduce forecast error, allowing for better inventory placement, production planning, and supplier coordination. Even a 5- to 10-percent improvement in forecast accuracy can have a significant bottom-line impact.

Potential Improvements in Demand Planning

Organizations that invest in improving demand planning benefit from:

• Reduced Inventory Costs – Through better alignment of supply and demand.
• Improved Service Levels – By placing the right product in the right place at the right time.
• Higher Forecast Accuracy – Leading to more reliable plans across finance and supply.
• Faster Decision-Making – Enabled by real-time data and scenario analysis.
• Greater Agility – Ability to adjust to shifts in demand or supply quickly.

A mountain of research today shows that a mature demand planning process helps in improving forecast accuracy and delivers a high ROI. Improved forecast accuracy, when combined with software that translates the forecast into actionable insights, will decrease inventory and operating costs, increase service and sales, enhance cash flow and gross margin return on inventory investment (GMROI), and boost pre-tax profitability. The forecasting error, no matter how small, has a significant impact on the bottom line. In our experience, a 15 percent improvement in forecast accuracy will deliver a pre-tax improvement of 3 percent or higher.

In a previous IBF study of 15 U.S. companies, we found that even a one percentage point improvement in under-forecasting at a $1 billion company results in a savings of as much as $1.52 million, and for the same amount of improvement in over-forecasting, $1.28 million.[i]

The reduction in downstream finished goods inventory resulting from a well-established process and forecast accuracy improvements provides a one-time saving, as well as recurring savings arising from reduced carrying costs. There are significant benefits in a make-to-stock or distribution company. The downstream inventory reduction could range from 10 percent to 20 percent, as forecasting inaccuracies typically account for around 75 percent of the required safety stock.

Building and Investing in Demand Planning

• Build an Unbiased, Unconstrained, Consensus-Based Forecast: Organizations often confuse the demand plan with the sales target. Sales may overestimate to push for stretch goals, while operations may buffer to protect service. Demand planning needs to separate judgment from aspiration. Instituting a formal demand consensus process ensures that all voices are heard, while forecasts remain grounded in data and are evaluated against actual performance.
• Upgrade from Static Spreadsheets to Dynamic Models: Many companies still use Excel as their primary planning tool. While familiar, spreadsheets lack scalability, version control, and real-time integration. Upgrading to a dedicated demand planning system (or enhancing existing tools with forecasting models) introduces automation, improves collaboration, and enables real-time adjustments. It also supports more advanced techniques such as decomposition models or AI-based forecasts.
• Understand and Match Models to Patterns: Not all items follow the same demand pattern. Some are seasonal, some have trends, and others are highly volatile. Applying a one-size-fits-all model can lead to overfitting or underperformance. Instead, classify SKUs by their demand characteristics and apply the appropriate model, whether that’s exponential smoothing, moving average, or more complex causal models.
• Focus on Data Quality and Forecastability: Forecasting is only as good as the data behind it. Cleanse data for outliers, missing periods, and promotions. Measure forecastability using the Coefficient of Variation (CV) or Demand Intermittency. The demand planner becomes the integrator, ensuring that inputs from various departments are translated into a structured forecast. Establish accountability through KPIs such as bias, MAPE, and forecast value added (FVA).
• Invest in training and upskilling through IBF: Empower your teams with proven forecasting and planning knowledge by leveraging IBF’s certifications, workshops, and learning resources, building internal capability that drives consistent, confident decision-making.

Many companies are leaving money on the table with lost sales or poor service levels. An integrated demand planning process can result in increased revenue of 0.5 percent to 3 percent, along with improved inventory availability and demand shaping capabilities. Total annual direct material purchases, along with logistics-related expenses arising from demand variability and lost opportunities, can see direct improvements of 3 percent to 5 percent. We can also benefit from a 20 percent reduction in airfreight costs. Figure Y illustrates the anticipated benefits from a 15 percent improvement in forecast accuracy (these averages are based on individual results, which can vary depending on other variables and may be higher or lower for specific organizations).

Fig. Y | Graphic showing typical benefits from a 15 percent improvement in forecast accuracy

It is essential to understand these average savings amounts and determine what savings you believe you can achieve with a mature predictive analytics and demand planning process. 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 the Institute of Business Forecasting Advisory Services (IBF.org) can shed some light on what is realistic based on past implementations.

Demand planning is not just a supply chain function; it’s a strategic business process that empowers smarter, faster decisions. In an environment where disruption is the norm and expectations are high, companies that implement disciplined, data-driven demand planning will not only survive, they will lead.

The path forward is clear: Separate judgment from strategy, invest in tools and talent, and build a collaborative process that evolves with your business.

In a world of uncertainty, demand planning offers clarity. It’s not just about predicting the future, it’s about preparing for it. Companies that invest in robust, unbiased, and collaborative demand planning are the ones that outperform, outmaneuver, and outlast their competition.

But you don’t have to do it alone.

The Institute of Business Forecasting (IBF) has been the trusted authority in forecasting, demand planning, and Sales and Operations Planning (S&OP) for over four decades. Whether you’re just starting your planning journey or looking to refine and elevate your process, IBF offers the training, certification, tools, and global community to help you succeed.

Join IBF and take the next step:

• Get certified with globally recognized credentials
• Attend industry-leading conferences and events
• Access exclusive research, case studies, and best practices
• Learn from and connect with top planning professionals around the world

[i] Chaman L. Jain (2018). The Impact of People and Processes on Forecast Error in S&OP. IBF research report #18. August 31, 2018

In today’s volatile and uncertain market, companies can no longer afford to operate without a structured, data-driven approach to forecasting demand. Demand planning is more than just predicting sales—it’s about building an integrated, agile business that can respond to customer needs while managing resources efficiently. Despite its importance, many organizations still rely on outdated tools like spreadsheets or allow bias and siloed decision-making to corrupt their forecast accuracy.

Employing predictive analytics and integrated demand planning can significantly streamline decision-making processes, create new insights, and save several business functions a lot of time and money.

This article explains why businesses need to leverage demand planning to improve their operations and explains the quantifiable value of doing it so that it can be sold within an organization.

Why Focus on Demand Planning?

Most companies that decide to invest in demand planning or improve their process are primarily driven by one or more of the following:

• Forecast accuracy challenges
• A highly variable process that needs improvement
• Need for a more efficient manufacturing or distribution system
• Downstream inventory problems driven by unseen variability
• Desire to improve cooperation between sales and operations

At its core, demand planning synchronizes operations. It allows marketing, sales, supply chain, finance, and production to operate from a common set of assumptions. Without an accurate demand plan, supply planning becomes reactive, finance struggles with forecasting revenue, and customer service deteriorates from stockouts or excess inventory.

Consumer behaviors have become increasingly unpredictable. Economic shifts, global disruptions, and rapid product cycles mean relying on historical sales alone is no longer sufficient. Demand planning introduces a proactive lens incorporating internal drivers (promotions, price changes) and external signals (market trends, customer insights) to create adaptive forecasts.

Inaccurate demand forecasts translate to costly outcomes: expedited shipping, excess working capital, lost sales, and markdowns. Improved demand planning helps reduce forecast error, allowing for better inventory placement, production planning, and supplier coordination. Even a five to ten percent improvement in forecast accuracy can have a significant bottom-line impact.

Potential Improvements Resulting From Demand Planning

Organizations that invest in improving demand planning benefit from:

• Reduced inventory costs through better alignment of supply and demand.
• Improved service levels by placing the right product in the right place at the right time.
• Higher forecast accuracy can lead to more reliable plans across finance and supply.
• Faster decision-making is enabled by real-time data and scenario analysis.
• Greater agility because of the ability to quickly adjust to shifts in demand or supply.

A mountain of research today shows that a mature demand planning process helps improve forecast accuracy and deliver a high return on investment (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 gross margin return on inventory investment (GMROI), and increase pre-tax profitability. The forecasting error, no matter how small it is, significantly affects the bottom line. In our experience, a 15 percent forecast accuracy improvement will deliver a 3 percent or higher pre-tax improvement.

In a previous IBF study of 15 U.S. companies, we found that even a one-percentage-point improvement in under-forecasting at a $1 billion company delivers a savings of as much as $1.52 million, and for the same amount of improvement in over-forecasting, $1.28 million.[i]

The reduction in downstream finished goods inventory resulting from a well-established process and forecast accuracy improvements provides a one-time saving, as well as recurring savings arising from reduced carrying costs. There are great benefits in a make-to-stock or distribution company, the downstream inventory reduction could range from 10 to 20 percent since forecasting inaccuracies typically drive around 75 percent of the required safety stock.

Building and Investing in Demand Planning

Here are some best practices when it comes to demand planning.

• Build an unbiased, unconstrained, consensus-based forecast. Organizations often confuse the demand plan with the sales target. Sales may overestimate to push for stretch goals, while operations may buffer to protect service. Demand planning needs to separate judgment from aspiration. Instituting a formal demand consensus process ensures all voices are heard, but forecasts remain grounded in data and evaluated against actual performance.
• Upgrade from static spreadsheets to dynamic models. Many companies still use Excel as their primary planning tool. While familiar, spreadsheets lack scalability, version control, and real-time integration. Upgrading to a dedicated demand planning system (or enhancing existing tools with forecasting models) introduces automation, improves collaboration, and enables real-time adjustments. It also supports more advanced techniques such as decomposition models or AI-based forecasts.
• Understand and match models to patterns. Not all items follow the same demand pattern. Some are seasonal, some have trends, and others are highly volatile. Applying a one-size-fits-all model can lead to overfitting or underperformance. Instead, classify SKUs by their demand characteristics and apply the appropriate model, whether that’s exponential smoothing, moving average, or more complex causal models.
• Focus on data quality and forecastability. Forecasting is only as good as the data behind it. Cleanse data for outliers, missing periods, and promotions. Measure forecastability using the Coefficient of Variation (CV) or Demand Intermittency. The demand planner becomes the integrator, ensuring inputs from various departments are translated into a structured forecast. Establish accountability through KPIs like bias, MAPE, and forecast value add (FVA).
• Invest in training and improving skills with IBF. Leverage IBF’s certifications, workshops, and learning resources to empower your teams with proven forecasting and planning knowledge, building internal capability that drives consistent, confident decision-making.

Taking steps to practice demand planning optimally will increase the bottom-line benefits you gain from it.

Bottom Line Benefits for Practicing Demand Planning

Many companies leave money on the table with lost sales or poor service levels. An integrated demand planning process can translate to increased revenue of 0.5 percent to 3 percent with improved inventory availability or demand shaping capabilities. Total annual direct material purchase, along with logistics-related expenses arising from demand variability and lost opportunities, can see direct improvements of 3 to 5 percent. We can also benefit from a 20 percent reduction in airfreight costs. The figure below shows the anticipated benefits from a 15 percent improvement in forecast accuracy. (These are averages and individual results for organizations. They are dependent on many other variables and can be higher or lower.)

This illustrates the possible benefits from a 15 percent improvement in forecast accuracy

It is essential to understand that these are average savings amounts. It is up to you to determine what savings you believe you can drive with a mature predictive analytics and demand planning process. 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 the Institute of Business Forecasting Advisory Services can shed some light on what is realistic based on past implementations.

Demand planning is not just a supply chain function; it’s a strategic business process that empowers smarter, faster decisions. In an environment where disruption is the norm and expectations are high, companies that implement disciplined, data-driven demand planning will not only survive but also lead.

The Benefits of Demand Planning: The Final Word

The path forward is clear: Separate judgment from strategy, invest in tools and talent, and build a collaborative process that evolves with your business.

In a world of uncertainty, demand planning offers clarity. It’s not just about predicting the future, it’s about preparing for it. Companies that invest in robust, unbiased, and collaborative demand planning are the ones that outperform, outmaneuver, and outlast their competition.

But you don’t have to do it alone.

The Institute of Business Forecasting (IBF) has been the trusted authority in forecasting, demand planning, and S&OP for over four decades. Whether you’re just starting your planning journey or looking to refine and elevate your process, IBF offers the training, certification, tools, and global community to help you succeed.

Join IBF and take the next step:

• Get certified with globally recognized credentials
• Attend industry-leading conferences and events
• Access exclusive research, case studies, and best practices
• Learn from and connect with top planning professionals around the world.

[i] Chaman L. Jain (2018). The Impact of People and Processes on Forecast Error in S&OP. IBF research report #18. August 31, 2018

In the ever-changing world of Sales and Operations Planning (S&OP), getting everyone to agree on a decision is important but hard to do. It means putting together different, and sometimes conflicting, goals and points of view into a single plan.

Consensus building helps teams and organizations work together, come up with new ideas, and be more aligned, but it can be challenging because different functions and personalities have different goals and points of view. But with the right plans, it is possible to get through the messiness of consensus building and make decisions that have wide support, leading to better strategies and company success.

The Challenge of Consensus in S&OP

There are several reasons why it’s challenging to reach agreement in S&OP. There are different priorities because each area (sales, operations, finance, etc.) has its own goals and ways of measuring success. Complex sets of data from many different sources underpin S&OP decisions, making them difficult to understand clearly. Market conditions, customer needs, and supply chain factors are constantly changing, necessitating constant adjustments and reevaluations. Furthermore, it’s important to remember that S&OP involves people, each with their own unique set of limitations, issues, perspectives, and prejudices.

This can sometimes make driving consensus and decision-making within S&OP feel like a battlefield, where each party is trying to gain ground and defeat the opposing viewpoint. In these negotiations, individuals tend to see the process as a scale, believing that by piling more reasons and facts on theirside, they can tip the balance in their favor.

However, in this warlike mentality, people search for flaws in others and arguments to bolster their own positions. Consequently, rejecting even a small idea can justify dismissing all of them, turning negotiations into a series of attacks and defenses rather than a constructive give-and-take. This adversarial mindset makes reaching a consensus challenging.

Insights to Consider

Reflecting on my experiences (and with the help of a recent book I read by Adam Grant, Think Again), I’ve found that the power of rethinking and embracing the possibility of being wrong are crucial elements in driving consensus in decision-making. Encouraging healthy differences and fostering open communication can lead to better decisions, innovative ideas, and stronger relationships. In S&OP, the harmonization of diverse opinions and objectives is crucial for achieving unified decisions.

By promoting an environment where team members feel comfortable expressing their views and challenging assumptions, we can create a culture of productive debate that enriches the decision-making process.

One of the key perspectives to consider in S&OP is collaboration, consensus, and transparency, which can mean the importance of intellectual humility and being open to new information. Encouraging team members to question their beliefs and consider alternative viewpoints can lead to more robust and flexible planning. Recognizing the limits of our knowledge and being open to new ideas helps avoid the pitfalls of overconfidence and confirmation bias, making teams more receptive to data-driven insights and collaborative solutions. By prioritizing learning and evolution over correctness, we can foster continuous improvement and adaptation in the S&OP process.

Regularly seeking and integrating feedback into planning cycles, promoting respectful discussions, and encouraging diverse perspectives can lead to valuable insights and drive consensus through mutual understanding. Embracing a mindset of continuous testing and adjustment can transform forecasts and plans into dynamic hypotheses that evolve with new data and insights, ultimately leading to more effective and resilient S&OP practices.

Applying Lessons to S&OP

Driving consensus in S&OP decision making can be challenging, but by applying these ten strategies, you can facilitate more effective and inclusive processes:

1. 1. Check Your Own Biases at the Door: Embrace the possibility of being wrong and maintain a desire to find the truth. By doubting your own judgment and remaining curious, you can adapt to new information and foster a more open-minded approach to decision-making. Clinging to outdated beliefs and opinions can be detrimental, and accepting the possibility of being wrong can be liberating. There is an importance to being willing to question and revise our thoughts, much like scientists who constantly test and refine their hypotheses.
2. Establish Clear Objectives and Guidelines: Clearly define the problem or decision at hand, outline the objectives, and ensure everyone understands the purpose and desired outcomes. Adopting a scientific mindset, where curiosity and evidence guide our thinking rather than intuition and tradition, can help us navigate complex and uncertain environments more effectively.
3. Foster Open Communication: Encourage open and honest communication among team members, creating psychological safety or a safe space where individuals feel comfortable sharing their opinions, taking risks, expressing ideas and concerns, speaking up with questions,
   and admitting mistakes—all without fear of judgment or retaliation.
4. Encourage Diverse Perspectives: Actively seek out and consider different viewpoints,
   experiences, and expertise within the group. This diversity of thought can lead to more
   innovative and well-rounded decisions, helping to identify potential blind spots and challenges.
5. Facilitate Constructive Debate: Healthy debate is critical for reaching consensus. Encourage team members to challenge assumptions, question ideas, and explore alternative solutions while ensuring discussions remain focused on issues and avoid personal attacks. Consider the importance of cognitive flexibility and the ability to switch between different modes of thinking. This includes knowing when to rely on intuition and when to seek out more data and analysis.
6. 6. Build on Common Ground: Identify areas of agreement early in the discussion, and build on these commonalities. Highlighting shared goals and values creates a foundation for collaboration and helps bridge differences.
7. 7. Seek Input and Ask Questions: Regularly check in with team members to gauge their comfort levels and gather feedback. Ensuring everyone stays engaged and promptly addressing any concerns reinforces a sense of ownership and collective responsibility.
8. Practice Flexibility and Compromise: Consensus often requires compromise. Encourage team members to be flexible and willing to adjust their positions for the greater good, finding solutions that, while not perfect for everyone, are acceptable and beneficial for the group as a whole.
9. Summarize and Confirm Agreements: Periodically summarize key points of agreement and areas that still need resolution to keep everyone on the same page. After reaching a decision, validate the agreement and delineate the subsequent steps for execution.
10. Follow Up and Reflect: After a decision has been made, follow up with the team to evaluate the outcome and gather feedback on the process. Reflecting on what worked well and what could be improved helps refine your approach to consensus-building for future decisions.

Conclusion

Driving consensus in Sales and Operations Planning (S&OP) is inherently challenging but crucial for organizational success. The process is often complicated by varying priorities, complex data sets, and the inherent biases of the individuals involved. However, by applying structure and these key insights, it is possible to foster a culture of intellectual humility, continuous learning, and collaborative problem
solving.

Embracing these principles can lead to more effective and aligned S&OP processes, ultimately enhancing the organization’s agility and responsiveness in a dynamic business environment. Creating an environment where team members feel comfortable expressing their views and challenging assumptions can lead to more robust and flexible planning, helping to avoid overconfidence and confirmation bias. Continuous learning and adaptation, prioritized over simply being right, drive ongoing improvement in the S&OP process.

IBF’s new book Practical Guide to Sales & Operations Planning is a fantastic resource to learn best practices in S&OP and IBP from world-leading planning experts. You’ll learn how to start an S&OP/IBP process, progress it along the maturity curve, and use it to drive effective decision making that has a direct impact on KPIs like inventory turns, forecast accuracy, cash flow, customer service and more.

Inventory – can’t live with with it, can’t live without it. Let’s talk about how to balance the competing trade-offs of high service levels, the need to control costs, and freeing up cash – and how to make managing your inventory a whole lot easier.

We want to have sufficient inventory on hand to service customers and maximize sales, especially in a make-to-stock environment. Inventory, is of course, necessary. And there are plenty of reasons to hold lots of it.

Why Inventory is Good

By committing to higher levels of inventory we can optimize batch sizing to lower production costs and cost per item. By ordering more stock/materials we can optimize transportation costs. We can get price breaks by ordering higher volumes on a monthly basis vs lower volumes on a weekly basis.

Having inventory on hand limits fines for late delivery in the case of retailers like Walmart and Amazon. And a high level of inventory limits costs for expediting delivery for stock we didn’t have readily available. Having inventory ahead of a sale is cheaper than having to source it last minute.

The flipside is the cost of tying up cash in stock that isn’t selling. Right now we have a perfect storm of rising inflation where inventory/materials are more expensive to source, debt is more expensive to service, and sales are going down. In such an environment your CFO will be on your back to reduce inventory.

Why Inventory is Bad

Beyond the hard cost of dollars being tied up in assets sitting in storage, there is an opportunity cost associated with tying up capital in inventory. With that extra cash your company could shore up the balance sheet, service debt or deploy it for new initiatives. Storage is also a cost, not just in terms of the space but in terms of people and equipment required for warehousing.

Inventory also comes with damage and pilferage. What’s more, companies with short lifecycles face obsolescence, never being able to shift stock for certain items which have to be disposed of (another cost). Insurance is yet another cost, the premium being paid on the total assets your company holds.

So there are advantages to holding inventory and disadvantages to holding inventory. Finding a balance between the two that is right for your company is the holy grail of planning.

Lean Into Your Company’s Priorities

If you’re thinking I want on-time, in-full to be 99%, I want to have 24 turns a year, I want to have less than one week’s worth of inventory in stock, and I want to maximize my margin – wonderful, everybody wants that! One of those objectives, one is going to win, and it is up to you to decide which is most important. What are your company’s objectives? In the Cost-Service-Cash triangle, your company will naturally lean into one dimension more than the others, and it’s up to you make the trade-offs that support enterprise strategy.

Prioritize customer service, and your costs will increase and cash will be tied up. Prioritize cash, and you’ll have to accept that customer service will suffer and costs will increase. Prioritize lower costs, and service will decrease and cash gets tied up. Which dimension you need to prioritize most will inform your safety stock levels.

Stop Self-Inflicted Uncertainty Now!

There are certain things companies do that unintentionally introduce demand uncertainty, making it more difficult to know the required safety stocks. There are certain supply planning actions we can take to make inventory management more effective.

Beware Demand Shaping: IBF research reveals that a 1% reduction in uncertainty equals a 6% reduction in my safety stock. Dynamic pricing and promotions shift demand, causing uncertainty that has makes inventory management more complicated. While promotions may be necessary, there are consequences to adding in that demand variability.

Reduce your lead times: It’s not just about demand forecasting; proper supply management pays dividends when it comes to reducing the cost of holding inventory. On average, every 1% reduction in lead time results in a 0.95% percent reduction of safety stock.

More SKUs equal more inventory: I can’t believe that some people don’t understand that logic. More SKUs serving the same demand adds uncertainty without increasing the top line. A 10% reduction in SKUs represents a  5% reduction in safety stocks.

Lower your service levels for a given customer: Some customers won’t necessarily need the service level you’re providing, meaning that you can afford to carry less inventory. What does customer X really need, and what can you reasonably get away with?

Improve your supply chain planning at IBF’s Supply Chain Planning Boot Camp in Nashville, TN, from August 9-11, 2023. Learn best practices across demand management, supply planning, S&OP, distribution planning, inventory models, and more. Register your place.

One of the most crucial elements of supply chain planning is Sales and Operations Planning (S&OP). It provides the channels of communication necessary for top management to coordinate the many planning initiatives within a company.

The major goal is to create a comprehensive business plan that combines the efforts of several functional planning initiatives. If S&OP is not integrated and operating under a cross-functional plan, the business could fail. Here are the top five advantages of S&OP and why every company should implement this method.

1. S&OP Leads to Improved Customer Service

One of the most significant benefits of S&OP is its ability to improve customer service. By bringing together different departments within a company, S&OP enables organizations to better understand customer demand and develop a more accurate forecast of future demand. This, in turn, helps companies optimize their inventory levels, ensure timely delivery of products, and avoid stockouts or overstocks.

With S&OP, companies can also better align their production and delivery schedules with customer demand, reducing lead times and improving on-time delivery performance. By improving customer service, companies can not only enhance customer satisfaction but also increase customer loyalty and generate repeat business.

2. S&OP Means Better Efficiency & Productivity

S&OP also helps companies increase efficiency and productivity by improving their planning processes. By integrating different departments and functions, S&OP helps companies identify and eliminate bottlenecks and inefficiencies in their supply chain, production, and logistics processes.

S&OP also enables companies to optimize their use of resources, such as labor, equipment, and raw materials, by aligning production schedules with demand forecasts. This helps companies reduce their production costs, improve their asset utilization, and increase their overall productivity.

3. S&OP Means Better Collaboration Between Different Functions

Better integration between functional areas in a business is one of the major payoffs of S&OP. By bringing together stakeholders from sales, operations, finance, and other areas of the business, S&OP enables companies to share information, align their goals, and coordinate their actions.

S&OP also helps companies break down silos and overcome functional barriers, creating a more integrated and collaborative culture. This, in turn, helps companies improve their agility and responsiveness to changing customer needs and market conditions.

4. S&OP Will Enhance Decision-Making

Another significant benefit of S&OP is its ability to enhance decision-making across different departments and functions. By providing a holistic view of the business, S&OP enables organizations to make informed decisions that align with their strategic objectives.

With S&OP, companies can evaluate different scenarios and options, such as changing demand patterns, market trends, or supply chain disruptions, and develop contingency plans to mitigate risks and capitalize on opportunities. This enables companies to make better decisions, reduce uncertainty and improve their overall performance.

5. Without S&OP You Lose a Competitive Advantage

Finally, S&OP can provide companies with a significant competitive advantage by enabling them to differentiate themselves from their competitors. By optimizing their supply chain, production, and logistics processes, companies can improve their delivery performance, reduce their costs, and enhance their customer service.

S&OP also helps companies become more agile and responsive to changing market conditions, enabling them to quickly adapt to new opportunities or challenges. By leveraging S&OP to improve their overall performance, companies can create a sustainable competitive advantage and achieve long-term success.

In conclusion, Sales and Operations Planning (S&OP) is a critical process for any organization looking to improve its performance, increase its efficiency, and enhance its customer service. By providing a framework for improving communication, collaboration, and decision-making across different departments, S&OP can help companies achieve a significant competitive advantage and achieve long-term success.

To get up to speed with supply planning and S&OP, join us in Nashville from August 9-11, 2023 for IBF’s Supply Chain Planning Boot Camp. It’s 2 or 3 days of expert instruction designed to give you the knowledge to establish or improve supply chain planning in your organization.  Early Bird Pricing now open. Click here for details.

One of my favorite books is Good to Great: Why Some Companies Make the Leap…and Others Don’t. Published in 2001 by business management professor Jim Collins, it outlines the fundamental ideas that set successful businesses apart from ordinary ones. I have seen first-hand how these principles can be applied to drive success in Sales and Operations Planning (S&OP).

Collins discovered that success was the result of three key elements:

• Disciplined people
• Disciplined thought
• Disciplined actions

In S&OP, we always talk about People, Process and Technology as the crucial pillars of success. We don’t think in terms of disciplined people, disciplined thought, or disciplined actions. But S&OP, when it has the right People, Process, and Technology, what we get is disciplined people, disciplined thought and, best of all, disciplined actions.

Let’s dive into these 3 pillars of S&OP and see how Vanguard organizations who take S&OP from good to great apply Collin’s key principles to each.

Disciplined People in S&OP

Jim Collins discovered that outstanding (level five) leadership was a shared trait of all great businesses. I have witnessed how strong S&OP always has involved, humble, open, and strategic leaders. These people maintain a spirit of humility and perseverance. These level 5 leaders develop core principles that go beyond just making money. Such people support the S&OP process, participate in it as advocates, and offer corporate strategy, which gives the process direction.

A cross-functional team with the correct skills and culture is necessary for an S&OP process to go from good to great. Collins emphasizes the phrase “First Who, then What?” Applying this to S&OP teams, it is essential to include more than functional representation—you must also bring the right individuals to the table. Emerging S&OP processes that make the transition from good to great begin with “who,” not “where.” Figuratively speaking, you direct the bus first, and then you convince others to follow.

Disciplined Thought in S&OP

To start, as Collins says, people must face the harsh realities of their present situation. We must be honest with ourselves and address any inefficiencies or bottlenecks in our supply chain and logistics procedures.

Companies making the shift from good to great must be prepared to recognize and evaluate their defining facts through the S&OP process. Collins lays out a four-step procedure to raise awareness of new trends and potential issues.

1) Lead with questions, not answers. Take a Socratic approach to questioning; ask questions to understand rather than to manipulate. Instead of asking “Why don’t you agree with that,” one can ask “Can you explain that to me?” or “What should we be concerned about?”

2) Engage in dialogue and debate, not coercion. Discuss and argue issues instead of using force. Use dialogue to not only secure “buy-in” but also to identify the optimal course of action.

3) Conduct autopsies without blame. Use KPIs as tools rather than as rewards or prizes. Try to draw lessons from your prior failures and achievements.

4) Build red flag mechanisms that turn information into information that cannot be ignored. Having the power to draw attention to an unpleasant fact is using the red flag. Beyond mere transparency, it involves fostering a climate in which everyone feels free to express the truth, no matter how harsh it may be.

Disciplined Actions in S&OP

Next, Collins emphasizes the significance of having a succinct and clear approach and taking focused action. Like this, a successful S&OP process necessitates that businesses have a solid grasp of their goals and create a cohesive strategy. Do not imagine that this calls for a despotic, rigid devotion to a constantly evolving process. Every team member is instead given the level of personal authority and freedom needed to realize the goals the company has set for itself. This is accomplished via a methodical procedure and a focused vision to achieve a common goal.

Collins describes the idea of the flywheel, in which persistent work generates momentum and produces ground-breaking outcomes. Like this, an effective S&OP process necessitates that businesses continually assess and enhance their performance, creating momentum toward their goals. Positive momentum is created by making choices and performing activities that support and affirm the company’s vision.

The S&OP process is energized as a result of the accumulation of observable positive outcomes. Reactive decision-making, overextending into too many various areas of focus, adhering to transient trends, and making frequent modifications to plans results in a lack of interest in the procedure and underwhelming outcomes.

Bonus Tip: Technology Accelerates Change, it Doesn’t Create it

The final tenet in going from good to great is understanding that technology accelerates success rather than creates it. Technology is crucial, without a doubt, but it is never the primary factor in determining whether an S&OP process is successful or not. Companies that have gone from good to great steer clear of trends and instead concentrate on the areas where technology can speed up the S&OP process.

None of the good to great businesses Jim Collins researched started out with cutting-edge technology. In my experience, many Vanguard organizations have led the way in applying technology after establishing their S&OP process.

In conclusion, a successful Sales and Operations Planning (S&OP) process can be achieved by applying the ideas presented in Jim Collins’ Good to Great. This entails assembling the ideal team, facing reality head-on, formulating a specific plan, fostering a spirit of cooperation, and consistently raising performance. Companies can produce ground-breaking breakthroughs and sustain long-term success by using these concepts.

Take your S&OP from Good to Great, or get started with a brand new process, at IBF’s S&OP & IBP Global Conference from June 14-16, 2023. Held in the heart of Chicago, you’ll learn from and network with S&OP/IBP experts from the world’s biggest companies. Click here for more information. 

Collaborative planning, forecasting and replenishment (CPFR) emerged from a relationship between Walmart and a major supplier, P&G, to better plan their Listerine mouthwash product. The steps were 1) information sharing, 2) joint demand forecasting, and 3) coordinated shipments.

It was a straightforward process with a very clear value-add but in the 1990s, as Lean methodology took hold, CPFR was ‘streamlined’ into more of pure order management process, and lost some of its essence. But the principles of CPFR are still golden and can be applied to great effect today. The transparency and collaboration it engenders with your supply chain partners can really take your planning to the next level, improving KPIs on both sides.

Internal Vs External Mindset

This ‘outside in’ type of planning where planning teams incorporate information from their customers and suppliers is the next evolution of not only demand planning, but supply chain management as well. Collaborative planning between companies is about sharing information (enabled with technology), and building relationships and trust to share information that benefits both parties’ ability to forecast and plan. In a nutshell, the goal is efficient and effective operations by enabling joint business processes across enterprise boundaries.

It takes from that inside-out thinking that most organizations are stuck in, to an outside-in thinking mindset. With inside-out thinking your view of demand and supply is based on information gleaned only from within your own four walls. We’re making decisions based on our own internal information and make a best estimate of what we think our customers will buy. There are of course a lot of demand drivers out there that are not necessarily captured in a demand forecast using historical data. Even with advanced modelling, it is driving looking in the rear view mirror.

Outside-in thinking incorporates information from the customer and the customer’s customer, the end-user. It allows us to know what they are looking for and why. Your retail partners have information about demand that you won’t get unless they tell you. Types of demand drivers include what you customers are doing in terms of pricing and promotions and other demand variables. By talking to them in a structured, cross-enterprise process like CPFR, we can get this information and update our forecasts accordingly, and subsequently manage our supply responses more efficiently.

Knowing what happening outside allows us to plan better inside. That’s what is so valuable about CPFR – visibility into demand drivers that you wouldn’t have otherwise.

Guiding Principles of CPFR

Collaboration, consensus, transparency. These are what enable the joint signal of “this is what we think is going to happen”. It means we can better serve our customer and their end users, while optimizing our supply responses. And guess what, this works with your suppliers as well. Joint collaboration with them, sharing forecasts, is valuable too. This transparency upstream allows your suppliers to plan better, which means more likelihood of getting what you need when you need it. Both sides benefit. It’s not trying to get one up on them or holding information back because you’re afraid they’re going to use it against you. Rather, the more transparency you have, the better the working relationship you’re going to end up with.

Benefits For You

• Reduce your forecast error
• Plan and manage uncertainty better
• Reduce your costs and optimize inventory
• Service customers better
• Fewer stockouts

Benefits For Your Customer

• Plan promotions better by knowing they have enough inventory
• Better commit to their end-users
• Reduce error
• Save money, do things more efficiently
• More robust supply plans

Committing to a Synergistic Relationship

You must truly believe there is value for your customer. That’s the reason why you want to share. It’s not a one-sided relationship. You both must see value in this process. Mutual benefit is the reason you’re doing the process.

However, I understand there’s a cultural mindset sometimes with executives whereby they’re scared to share information. Some people are scared that if they share information, they’re going to use it against us. And I get that. We need to start small, build a pilot, and work from there. Start with what you’re comfortable sharing and start building a relationship. It will take time to build the necessary confidence and trust on both sides because honestly that culture is you don’t trust the other company you’re not going to feel confident sharing your information and you won’t get the information you need. In essence, you’re dating – you’re getting to know each other, trying to establish long-term relationship. You can’t call someone up you’ve never met and expect them to tell you everything about them – you’ll scare them off.

An Example Of How CPFR Worked for Me 

There was one company I worked with, we were building a collaborative relationship and the first they were represented of a good chunk of our business and we wanted to work with them so we actually went to their team and spent the day with them, learned how they do some metrics and found out the way they measure our service on time was different than the way we measured. Their perception of how we were delivering was different than our perception – that was just thing we found out by talking that day. We also found some challenges they had. We found out that they were committing to their customers based on when we were going to ship into them and that what we were doing was impacting their customers and how they were trying to do workarounds for that. We understood their planning a little bit better talking with them.

After that we said hey, why don’t you give us some POS data and some of your customer information sales information? That way we’re going to be able to improve your service. They started providing some sales data and their service did improve. They were a little bit vulnerable with us, we were a little bit vulnerable with them and both of us came through and helped each other.

We were then able to build on that relationship – we asked for their inventory position because if we knew their inventory position we can improve their service a little bit more. We found out they were ordering once a week. We had a truck doing deliveries by their locations twice times a week, and could easily move them to that route for a second delivery. We suggested that if they order twice a week we could meet their demand a bit better, getting closer to actual demand. In so doing we optimized our transportation and they lowered their inventory – the only thing they had to do was order twice a week instead of once a week. It was a win-win situation.

Within 18 months we were jointly launching a new product together. They had exclusivity for the first six months giving them a competitive advantage in the market while allowing us to plan demand effectively. It was the most successful launch in both organizations’ history, all because of the collaborative relationship. To get to that point took well over a year and both sides had to commit to the journey but it was well worth it.

This won’t be possible with all partners. One of the keys to success is choosing the right strategic partner, and it may not be the biggest. Rather it’s the one who shares your view of the core principles of transparency and collaboration.

Some years ago I took up a new role as Director of Demand Planning at a global sporting goods company. I was charged with overhauling its planning function. This is challenging at the best of times, but this was complicated by the company’s unique growth-by-acquisition strategy. The following is a case study of the transformation project I led, covering the problems I inherited, the step-by-step improvements I implemented, and how it was designed to facilitate decisions that directly supported organizational priorities.

Company Background

This Indiana-based company imports and distributes multiple widely-recognized sporting goods and athletics brands globally. They do this through major retailers, specialty dealers, key online retailers, traditional department stores and eCommerce. The company operates primarily in North America with over fifty corporate accounts that includes companies like Walmart, and others. They also sell directly to Amazon and on Amazon marketplace. They launched their own internal website and fulfilment for direct-to-consumer sales last year and it already accounts for over 10% of their business.

Their business model was simple: grow through acquisition. During my time there, they owned forty-seven brands. While there was moderate organic growth within some of their brands, they relied on consolidation of the market to increase market share and top line growth. To do this, cash was King and the availability of capital was a key priority for the organization.

Their Existing Planning Process

Being their focus was on adding to their portfolio of brands, they had inherited a mishmash of various ERP systems and planning processes. For the most part their forecasting process was still somewhat manual, using traditional time-series methods like moving averages and seasonal random walk. They got some inputs from sales reps but their input was typically either about products that customers want in the current month or products that they thought were needed in inventory.

There were often competing objectives across inventory, purchasing, logistics, and manufacturing with attempts to get products at the lowest cost while constant pressures to reduce inventories. These problems were compounded with adding new brands and product mangers attempting to provide value to corporate accounts with unique offerings which added cost and caused SKU proliferation.

The Challenge: A Changing Marketplace

Over the past few years, they have seen a changing landscape in the way consumers are making purchases. This impacts how they needed to go to market. Direct-to-consumer was less than 10% just a few years ago. It now accounts for over 25% of their business. This includes all eCommerce business including Amazon, other retail websites, and the company’s own direct selling. It is estimated to grow by double digits over the next few years.

A major challenge they were facing is that their supply chain was designed around what retail stores were purchasing, i.e. the were planning for bulk orders with 2 week lead times. That is fine for retails order, but not for the increasing amount of direct-to-consumer orders that required single items to be delivered in 48 hours. This necessitated having inventory on hand instead of making to order, which required high quality forecasts.

To add to this challenge there is the issue of retail stores making up less of their total sales volume because now they are increasingly dealing directly with consumers. Given these shifts, their forecasts had gotten worse, as evidenced by a higher error percentage over the past couple of years.

Some challenges we faced were:

• Direct to-consumers expect a 36-hour delivery window. Prior retail customers traditionally allowed up to 2 weeks or more.
• Average lead-times to produce or source items has grown from 46 days on average to over 118 days as more products are now coming from China.
• Forecast accuracy at a weighted mean absolute percentage error (lag 1 WMAPE) with has gone from 68% to 85% due to SKU proliferation and complexity of new channels.
• Previous On Time and in Full (OTIF) was at 89%. It is now 77% due to the added volume of direct-to-consumers.
• Inventory turns have decreased from 4.2 to 3.7 as inventory rises due to SKU proliferation, longer lead-times, and poorer forecast quality.

The Solution: Integrated Planning

The company kicked-off a comprehensive digital transformation project whose goal was to standardize different planning processes to create competitive advantages, while Improving Total Cost and Enabling Inventory Optimization by integrating strategy, forecasts, planning, and perpetual inventory. Over an 18-month time horizon we would totally revamp the planning process, implement new platforms and technology across the entire organization, and introduce SKU rationalization, segmentation, and add predictive analytics—all of which was aligned to the organization’s growth-by-acquisition strategy.

Our initial focus was data and within first few months we went live with a new data warehouse and central data storage repository (DSR), and new business intelligence software (BI). These critical first steps helped the company find hidden issues in their data structure and in the information that was being used to make decisions. It provided visibility into data and was important for insuring they had the right data for planning and to create insights. It also allowed us to look at new attributes using web crawlers that extracted consumer information and other information about the new eCommerce channel that could be used in modeling.

Part of this new visibility included the development of new balanced scorecards and performance metrics to understand the trade-offs of decisions and how they impacted strategy.  We made the KPIs more relevant to what the business wanted to achieve: number of active items, minimum order quantities, and gross margin as return on investment (GMROI). Understanding more of the drivers and being able to see the interdependence of metrics, we could now decide at what cost we were willing to service our customers or not.

We knew the importance of cash to the business model and that the availability of capital was a key objective of the organization. To this point, we determined that it made strategic sense to not aim for higher levels of service at the cost of higher inventories or additional, specialized SKU’s. Further consideration was given regarding the tradeoff inherent with larger orders that have longer lead times, i.e. they save upfront costs but risk tying up cash in inventory if it is not sold quickly.

After the initial focus on data, visibility, and decision making, attention was given to people, process, and technology. By the end of the first full year of the project, we defined and created specialized roles and hired new planners and a data architect to augment the current team, and went live with an advanced planning system (APS). We used clustering methods to help segregate items and customers which allowed us not only to focus planning resources on the most important items, but to do SKU rationalization to eliminate poor performing items. We now had a planner focused on eCommerce and began forecasting weekly using a combination of traditional methods and new models such as decision trees using external data. One example of external data is social media comments about new products which we used to predict through sell through post-launch.

Results

The results came with much coordination, collaboration, challenges, and success. Due to these efforts, this company by the end of the second year saw a 10% improvement in fill rates, a 26% improvement in forecast accuracy, a 19% reduction in some supply chain costs, and an 11% reduction in excess inventory. Add to this real time visibility into data and new insights, they had a much better way to manage their business. Significantly, we saw a return on investment of the entire transformation project in less than 14 months. The company continues to be a leader in their industry and is taking full advantage of the changing consumer landscape.

This article originally appeared in the Winter 2022 issue of the Journal of Business Forecasting. To receive a print copy of the Journal every quarter, become an IBF member or subscribe. 

Supply chain is complex, encompassing a broad range of functions, including supply planning and demand planning roles. It can be challenging to distinguish between these functions, leading to confusion among companies and hiring managers.

I recently had a discussion with a friend who is a leader in placing people in supply chain, demand planning, and S&OP roles. He shared with me how companies often misidentify their needs, using certain terms interchangeably, such as calling a Supply Planner a Demand Planner and vice versa. As an example, he mentioned a job description he received for a Demand Planner to manage materials for the manufacturing process, which should have been a supply planning role. This confusion in terminology can be perplexing.

Demand Planners and Supply Planners do have one thing in common, however, and that is working together in the S&OP process. I recently spoke to an S&OP expert on the IBF On Demand Podcast, Alina Davydova, who is Senior Manager SIOP at Danfoss to clear up some of the ambiguity around these terms. The below is taken from that conversation.

First of all, how do we define demand and supply planning?

It is important that we look at the S&OP process as a whole. Within operations, we know that there is a demand (sales) part and a supply part. When we understand that demand and supply planning are one body, we can start  defining them individually.

Starting with demand, we are looking into the market needs and trying to understand what we are going to sell. Then, we transform that prediction of demand into what we can actually provide in the supplying part and how we can support sales. This is where the demand and supply functions meet, discuss, and contribute to the deployment plan at the end. This discussion has to be regular, ongoing, and looping into each other so that we are not splitting or separating demand and supply.

Does it matter what we call the different roles in supply chain?

Yes, because when it comes to roles and responsibilities within the organization, we need to be very clear who is facilitating the demand plan and who is then looking at the rough cut capacity plan, and making sure that we do the right estimation of what we can produce versus what we need to sell. And then, at the end of the day, who is reconciling and validating these numbers at the end? That would not be the same people who are creating the demand plan.

So when we are talking about creating the competencies within the organization, all of these roles need to be defined and designed: Demand Planner, Supply Planner, Demand Manager, S&OP Managers etc. These things are crucial to the effective operation of the business.

A lot of companies that have these different roles without a strong S&OP process operate in  silos. How do we break down those silos and work together?

To avoid this we need to have the whole process under the umbrella of an S&OP Manager so there is one person who is plugged into every step of the process and can bring everyone together. He/she is not necessarily dealing with any particular element like the sales forecast, for example, but knows what the main highlights are, and brings it into the supply planning where this can be discussed and agreed upon. If there are any questions or contributions regarding the demand plan, they can be brought up in the next cycle.

The person leading S&OP and the end-to-end process is crucial. You need somebody who understands exactly when things have to happen and who is responsible for this or that input and making sure that it happens, being there at the executive meetings, and facilitating the executive handshake to get the right decisions at the right time and bringing them back into the organization.

There can be a lot of confusion if the job title doesn’t match the role. What advice would you give to hiring managers when hiring Demand or Supply Planners?

I would start by describing all the steps that have to be done by that person in the normal, regular S&OP process. We have the monthly cycle, we have certain things that have to be done: Market analysis, the statistical forecast adjustments, going into the supply capacity checks, the pre-S&OP meeting, the executive S&OP meeting. All these things and their constituent steps are very clear activities that come with the role. Prepare a simple roles and responsibilities matrix. Who does what? Who opens the tool? Who signs off approval for level A, level B and so on? Who needs to call for the meeting with the executives? This will become the outline for your job description. Depending on the specific activities, it will be clear whether it is a Demand Planner or Supply Planner you’re looking for.

The Bottom Line: Supply Planning Vs Demand Planning

When we talk about demand planning, that’s the prediction side of the equation. Demand Planners are responsible for compiling a demand forecast. Supply planning on the other hand, that’s the optimization side of the problem. Supply Planners are responsible for translating the demand plan into the most efficient and executable plan that meets demand.

The goal from a supply planning perspective is to minimize cost, increase service, maximize resources, and leverage inventory to reduce cash being tied up. So it’s really a cash/cost/service triangle that must be balanced in a manner that achieves the particular financial/customer service objectives set by the company, whatever those may be.

To learn the fundamentals of business forecasting and demand planning, join us for IBF’s Chicago Demand Planning & Forecasting Boot Camp from March 15-17, 2023. You’ll learn how to forecast demand and balance demand and supply from world-leading experts. Click here for more information. 

What is Business Forecasting?

Business forecasting is the process of using analytics and experience to make predictions about future customer/consumer demand. The goal is to go beyond knowing what has happened to arrive at the best assessment of what will happen in the future so a company can make optimal business decisions, whether that be operational or strategic. Business forecasting incorporates a lot of different data and viewpoints, uses forecasting tools for modelling, and generates numbers (forecasts) that be used in multiple areas of the business.

What is Demand Planning?

Demand planning is the process of identifying and managing customer/consumer demand for a company’s goods or services and formulating responses to meet that demand. The idea is to balance demand and supply, i.e. serving the customer with the products they want while optimizing the operational elements that go into it.

People use the terms ‘demand planning’ and ‘forecasting’ almost synonymously but there are some differences. Demand planning is the process that drives operational supply chain activities like resource planning, production, logistics, and inventory policies. Forecasting generates the numbers used to inform those activities.

Demand planning is typically manifest in cross-functional processes like Sales & Operations Planning (S&OP) or Integrated Business Planning (IBP) that bring different functions together to decide on what the company can deliver and manage the trade-offs between Production, Supply Chain, Finance, Sales & Marketing etc.

Whatever you call it, you’re trying to predict what a company will sell in the future to successfully be able to supply it when it’s needed.

What Happens When a Company Doesn’t Have Good Forecasts?

If you have bad demand forecasts you may make poor decisions. If you underestimate demand, it can result in lost sales or, even worse, lost customers. If you overestimate demand, it can mean wasting money on inventory you can’t sell and tying up capital that could be better utilized elsewhere.

With a good forecast you give the customer what they want, when they want it, thereby maximizing sales and helping deliver on the strategic goals of the company. With an idea of what’s going to happen before it occurs, you can set inventory policies, set production schedules, determine investments, predict market impacts, control costs, and understand the lifecycles of your products.

What are the Key Steps in Demand Planning?

Demand planning is about more than just a number – it’s a process with a lot of different elements.

Data Collection: Data can come from multiple sources. We must understand what exactly is out there as far as inputs and insights and know how we can bring those into the forecast. Data typically includes historical sales data and qualitative information from Sales about key customers and from Marketing who can reveal how promotional activity will impact demand.

Data Analysis: The data you get won’t always be clean and usable in its current format it will require some preparation before analysing it. We need to look for anomalies in the data as well as formatting issues, determine what data is relevant and what isn’t, and make sure we’re using the right amount of data.

Forecast modelling: Multiple time series methods can be used to take the data, extrapolate it forward, and arrive at a forecast. Increasingly companies are turning to advanced systems to do machine learning and AI which use a wider range of data and automate much of the process.

Gaining Consensus: A challenging part of the process for a lot of companies is arriving at one number used by the different functions. You need everyone on the same page in terms of what you think is going to happen in the future – and collaboration is fundamental to this. This where collaborative planning forums like S&OP and IBP come in.

Communicating the forecast assumptions: This is often overlooked. We need to explain the expected result (forecast) and the reasons behind as this is key to those forecasts being trusted and therefore used across the business.

What Data is Used in Business Forecasting?

It can be internal data such as sales orders, or external data which a lot of companies are starting to look at now. External data includes customer information, macro information, and demographic data, as well as causal information like sales promotions or weather data.

Data is either structured (easily managed in a spreadsheet and easily accessible) or unstructured (not easily managed in a spreadsheet and often difficult to access). Unstructured represents over 85 percent of the data out there and includes data from social media comments, product reviews, and audio and video content.

What Forecasting Models are Used in Business Forecasting?

There are a lot of different models available. This is because there’s a lot of different types of data out there which require different forecasting approaches. At one extreme we have pure qualitative and knowledge based judgements. This could be a sales team giving their own estimate of sales and then you’re aggregating those things up. At the other extreme you have pure quantitative approaches like machine learning with less human judgement and intervention.

In the middle there are various types of Time Series methodologies and causal models. There’s no right or wrong model or approach – rather we must choose the best approach for the data we have and the resources and time we have to generate a forecast. According to IBF research, right now most companies use Time Series types of data in their modelling and their preferred method is exponential smoothing. Does that mean exponential smoothing is the best? Not necessarily, but it is versatile method and it’s good for a lot of Time Series data.

What is Bias in Forecasting?

Bias is consistent over-or under-forecasting. It can be conscious or unconscious. For example, Sales may always forecast higher sales numbers because they want the inventory on hand in case they make the sale, or Finance may always push the number down to to avoid tying up cash in inventory. Whether it is high or low, bias is dangerous and gives a false picture of the future. It creates bad decisions and deteriorates the trust in the forecasting process. Bias is actually often worse than uncertainty.

To learn the fundamentals of business forecasting and demand planning, join us for IBF’s Chicago Demand Planning & Forecasting Boot Camp from March 15-17, 2023. You’ll learn how to forecast demand and balance demand and supply from world-leading experts. Click here for more information.