8 Key Design Considerations for Optimizing Your Demand Planning Process (Part 2)
Categories: Guest Post, Supply Chain Management | Tags: Process and Best Practice, The Hackett Group
In the first installment, we focused on defining the four basic design considerations for optimizing your organization’s demand planning process. These considerations were:
1) Use time series forecasting and exception management to drive a base forecast.
2) Select the right software tool for your business.
3) Identify a set of core metrics and KPIs that help to identify opportunities and drive accountability.
4) Use external information effectively to elicit a more accurate forecast.
These design considerations are foundational in nature and effectively addressing each will ensure that your organization’s demand planning process has a solid base. However, to truly move the needle towards world-class performance, a set of more advanced considerations must be applied.
5) Drive towards a consensus demand plan.
A formal demand planning process should conclude with an aligned set of forecast numbers that the entire organization understands and can speak to. This doesn’t necessarily mean that a “one-number” forecast must be reached as this can be very difficult and cause a whole set of different issues. However, organizations should look to align on a set of numbers and be prepared to speak to and manage to the gaps. Key participants in the consensus demand plan conversation include sales and account teams, finance, supply planning, and demand planning. Each of these groups will bring a different perspective and set of information to the discussion resulting in a more informed final demand plan.
6) Identify the right level of detail.
When defining the appropriate level of detail to forecast at, leading companies strike a balance between importance to the business and complexity of the process. The below diagram defines a general set of guidelines for identifying the appropriate level of forecast detail based on the situation. As a general rule of thumb, the more important and complex the set of items is to the business, the higher the required level of detail and rigor.
7) Ensure adequate resources.
As I mentioned in the first installment, demand planning is commonly an overlooked element of supply chain planning. This often leads to an insufficient allocation of resources by the organization. Demand planning is an arduous process that requires a high level of dedication and attention. More times than not, I see organizations that have failed to realize this and leave their demand planning team without enough time to perform effectively. The result is a less accurate forecast, poor demand signals trickling through the system, and a higher turnover rate. A few simple rules of thumb to ensure that your organization is not falling into this trap include the following:
- Install dedicated analysts for demand planning. This will ensure that demand planners are focusing on value-add activities and have the right information on hand to make informed decisions.
- Make sure that your demand planners aren’t wearing too many organizational hats. It’s an odd phenomenon but demand planners often end up taking on responsibilities that are well outside of their job scope and not essential to their core function. The best way to decipher this is just to simply ask them where their pain points are. Trust me… they’ll tell you!
- Understand which segments are the most critical and complex to the business and distribute them across your demand planner resources. Ideally, each of your demand planners will have portfolio of demand responsibilities that are evenly distributed amongst the four quadrants of the above diagram.
8) Define your organization process model.
Too often I have seen organizations operating in an environment of chaos because they lack a defined process and cadence for their demand planning cycle. You may believe that you have a process in place, but can you articulate what it is? Can the demand planning resources in your organization define the calendar of events that make up the process? Many times what people believe to be a process is actually floating tribal knowledge and tends to vary depending on whom you ask within the organization. Without a well-defined process, it’s difficult to hold others accountable and overall performance tends to suffer. An optimal process must be defined for each organization based upon its unique set of variables and constraints. However, the below is a set of monthly activities that can be found in most leading company processes.
- Prepare Data – Cleanse and gather all required data for the demand planning process (internal and external)
- Generate Initial Forecast – Generate both the base statistical forecast and manage exception SKUs manually
- Incorporate Market Intelligence – Collaborate with trade partners and external contacts to incorporate quantitative and qualitative data into the forecast (e.g., POS data, customer forecast, promotional calendars, pull-forward buys)
- Consensus Reconciliation Meeting – Meet with sales and finance to reconcile the bottom-up forecast with top down financials and sales forecasts
- Refine and Publish Final Forecast – Make final adjustments to forecast before transmitting to ERP
- Monitor Performance – Monitor forecast for large anomalies and diagnose root cause of error