Demand planners are kind of like weather forecasters -- they rarely get credit for doing their job correctly, and they're only noticed when they get it wrong. Nevertheless, it's vitally important that they get it right, or else severe -- and potentially disastrous -- supply chain glitches can occur.
"The bullwhip effect is as true today as it ever was in modern, elongated global supply chains where small errors at the front are magnified throughout the process," observes Andrew Kinder, director of product marketing for supply chain management at Infor, an enterprise software provider. Kinder offers these 10 tips to gauge your company's demand planning preparedness, and help guide you to getting the forecasts right.
- Get the process right. Demand planning is a sub-process within sales and operations planning or integrated business planning, not a stand-alone activity. Create an integrated business plan that is a cross-company activity and drives the rest of the business forward for profitably meeting customer demand.
- Decide what levels you need to plan demand at that make sense for your business. Some companies analyze and plan demand at the product family level, customer level or geographic level. The way you forecast and plan demand is unique to your business. Don't be dictated by limitations of your IT technologies -- and be prepared to change how you plan demand according to changes in your business.
- Demand planning is a collaborative process, not a test of statistical algorithms. The statistics provide a solid foundation to work with, but the real value comes from over-laying knowledge that systems cannot possibly know. Deploy internal collaboration before external collaboration, recognizing that the closer you get to the true demand signal, the better the forecast will be.
- Demand planning is not just forecasting. Forecasting is a component of demand planning and relates to your best estimate of future demand. Companies that excel in this area will challenge the forecast (and the integrated business plan) and seek opportunities to influence demand through marketing events and promotions to bring the forecast more in line with the company plan.
- You can't control what you can't measure. Put the right set of linked key performance indicators in place and measure regularly against these.
- Educate before training. Because the demand planning process is cross-functional, many people input to the forecast without realizing the importance of their contributions. As a result, the quality of their contributions may suffer. A good educational program will help everyone understand their contribution and impact on the performance of the demand plan.
- Cleanse the data so you don't spend all your time questioning it and losing confidence in the process, which can create a breeding ground for others to second-guess the demand plan and produce their own version. Demand planning deals with huge quantities of data and robust processes are required to keep the data cleansed.
- Trust the numbers and manage by exception. 80% of your return can be achieved by reviewing 20% of the items.
- Use the error in your forecast to positive effect. A good statistical forecast will have an appropriate error which drives an appropriate safety stock target. This leads to good inventory management and delivers higher service with lower total inventory.
- Deploy a proven best-in-class solution. A recent Aberdeen study shows that companies that excel in demand management -- reporting higher forecast accuracies and lower inventories -- are two-and-a-half times as likely to have implemented a best-in-class demand planning system.