Demand planning is an under-leveraged business process. Neglecting it results in missed objectives, poor customer service, and lost revenue. Traditionally thought of as an analyst activity, demand planning enables cross-functional business integration and delivers competitive advantages.
Demand planning – when deployed with the right talent, objectives, metrics, process steps, and enabling technology – can become a competitive enterprise advantage. In many ways, demand planning is today where brand management was before P&G showed the world the power of brands. Or where product management was before Apple and other tech companies became household names. Product management conventionally fell on developers and engineers to comprehend user issues and produce product resolutions. However, today product management is a cross-functional role that reaches across the organization to plan, design, and bring offerings to market. Similarly, Demand planning offers an opportunity to enable improved business outcomes, deployment of resources, and working capability across an organization.
What can demand planning do for my business?
Demand planning has the power to anchor and mobilize company resources to act on an agreed-upon plan for products and services. The program should filter through the entire organization to determine purchases, production plans, capacity needs, inventory deployment, and – crucially – the company’s ability to meet and fulfill customer orders. Getting the demand planning process right is essential to achieving objectives and maximizing shareholder value.
How does the demand planning process work in practice?
In our experience, a demand planning process should have five distinct steps:
- First, generate a baseline system (statistical or machine learning) forecast.
Leverage historical data to predict future demand. - Understand demand drivers (micro and macro inputs).
Delve into any category that provides insight into the customer’s behaviors. - Gather collaborative inputs from marketing, sales, finance, and customers.
Collect interdisciplinary views on products, pricing, margins, and big deals. - Generate a demand plan.
Incorporate all the inputs. - Obtain leadership input, alignment, and agreement and publicize the demand plan.
Drive organizational consensus.
Today, demand planning is where brand management was before P&G showed the world the power of brands or where product management was before Apple and other tech companies became household names.
What kind of process ownership model fosters effectiveness?
The demand planning leader has the critical job of quarterbacking the demand planning process. Unfortunately, in many organizations, the demand planning process has been limited to one or two of the above steps and then is executed by analysts or planners in isolation. This needlessly narrow view is detrimental to successful demand planning. It results in poor outcomes, missed service numbers, missed financials, and disappointed customers and investors.
The demand planning team must work cross-functionally. The fact that the role can reside in different functions is proof of this. Regardless of where you house demand planning, it’s critical that it’s allowed to work seamlessly across the organization. Ideally, the demand planning manager should be at the right hand of the product line manager, chief merchandisers, and general manager.
Which performance metrics will define success?
Demand planning performance metrics are essential for successfully steering the process, assessing its effectiveness, and identifying areas for improvement. As with all critical business processes within an organization, having clear and visible performance metrics are vital to measuring outcomes. Core metrics for high-performing demand planning processes are:
- Demand plan accuracy as a percentage of units shipped based on a 1, 2, 3 months lead time lag
- Demand plan accuracy as a percentage of revenue forecasted at a 1, 2, 3, month lag
- Demand plan mean absolute percentage error (MAPE)
- Demand plan bias
Process steps 1 (system generated forecast), 3 (collaborate inputs), and 5 (leadership inputs) are designed as value-added steps to the final demand plan. Therefore, perform process diagnostics on a monthly basis on each of these process steps to identify the value add (or value destruction) created by each of the process steps. In addition, you should review performance metrics monthly.
The Outside-In View – An Annual Health Check
Ideally, a company increases its chances of success by engaging an independent outside consultant or audit firm in performing an annual health and performance check. But, unfortunately, day-to-day priorities and the human tendency to avoid performance report cards often get in the way of executing an objective demand planning health check. The fact is, it’s way too easy to use the notion of forecasts being wrong as an excuse for poor performance.
Partnership Opportunity for Business Leaders and Demand Planners
The demand planning process allows a business to improve outcomes through improved customer service, revenue attainment, working capital deployment, and resource alignment. The keys to success are deploying performance metrics, assigning a talented demand planning manager, and ensuring a robust process through enabling technologies. Chainalytics’ experience is that the shortfalls and challenges faced by business leaders around revenue and customer service performance can be addressed by a high-performing demand planning process. Partnering with an empowered, leadership-level demand planning manager is essential to achieving the best possible outcomes.
A robust demand planning regimen can bridge the gap between targets and performance. So reach out to us and see how we can help you turn business goals into company achievements. Using one-of-a-kind tools and approaches like digital assets and managed analytics services, we consistently deliver actionable insights and measurable outcomes to our clients.
Salman Adil is Principal of Chainalytics’ Integrated Demand & Supply Planning practice. He focuses on enabling supply chain planning as a competitive advantage for businesses through improved planning data and analytics, business process transformations, and the use of planning technology.
