Fail to plan, plan to fail - the dark art of demand planning
A running joke among supply chain professionals is that, in today’s uncertain and volatile world, what they really need is not a welter of technology, but the services of a clairvoyant armed with a crystal ball. But in the absence of such help, the next best thing is an old-fashioned, non-mystical demand-planning professional.
The importance of demand planning has been elevated by ongoing post-pandemic supply disruption, happening against a backdrop of war in Ukraine, rampant inflation, workforce volatility and the looming spectre of recession.
But what is supply chain demand planning, exactly? This is the process of predicting customer demand for products or services and determining the amount and timing of inventory needed to fulfil that demand.
The goal is to optimise inventory levels, reduce out-of-stock instances and improve customer service levels, while minimising costs and inefficiencies.
It is a skill that is built on data analysis around customer-demand patterns, market trends, sales forecasts, and historical sales data.
This information is used to build a demand plan, which outlines the expected demand for products or services over a specific time period.
Once the demand plan is in place, supply chain professionals can use it to determine the amount and timing of inventory needed to fulfil that demand. This can involve working with suppliers to ensure timely delivery of raw materials or finished goods, managing warehouse inventory levels, and coordinating production schedules to meet demand.
Effective supply chain demand planning is critical for businesses that want to stay competitive and meet customer needs while minimising costs and inefficiencies.
By accurately predicting demand and optimising inventory levels, companies can improve customer satisfaction, increase revenue, and reduce waste and inventory carrying costs.
Here, we speak to Jefferson Barr, Chief Marketing Officer at supply chain planning specialist, Netstock. Barr gives his views on how the pandemic and technology has changed the discipline, but also how key elements of it remain unaltered.
Customer understanding and demand planning
The purpose of demand planning is to generate a future plan that the organisation thinks reflects consumption by their customers, so knowing your customer is an enormous benefit. The use of statistical forecasting methods should be adopted in order to use the historical customer consumption data.
This enables organisations to derive patterns and trends and provide future projections of what could be consumed. Demand planning is after all a process of plan-and-review, and the more customer insight you have to add to the mix, the more accurate your forecasts will become.
We have also found that ‘what-if’ demand planning provides huge benefits to our customers, especially in light of all the recent supply chain disruptions.
What-if scenarios allow them to see the net effect of various actions. For example, what if they adjust lead times from 90 to 180 days for a particular channel? This would allow them to see how much more inventory they would need to order, and what the financial impact of these changes would be
How key is a deep understanding of one's suppliers?
Very. We have seen where our clients went through a process of identifying underperforming suppliers, surfacing the past results, and finding that those suppliers were completely unaware of what was happening in the organisation.
This is often the case when you deal with hundreds, or even thousands, of suppliers. Better collaboration leads to a leaner stock-holding, and the ability to jointly plan around supply chain disruptions.
Pre-digital, what did demand planning look like?
Demand planning is a process, and as with any process you have a list of steps that needs to be followed for it to work. With all the sophisticated planning tools available today, this process is sped up so that demand planners can review past results at scale and identify exceptions much faster than the old “line-by-line” paper-based review process.
Are old-school demand planning strategies important?
Most definitely the internal collaboration between different stakeholders in the organisation. Demand planning is an input-heavy, people driven process and there are also various units of measurement within the organisation.
Unfortunately, that will not be replaced by any planning tools in the near future, as people are connected to the real world and their judgement is a key input to the demand planning process. But a word of caution here: technology will only help you do ‘bad things’ quicker if you don’t have proper processes and procedures in place.
How different was demand planning, pre-pandemic?
The work-from-home movement obviously resulted in far more remote planning-sessions. We have seen that remote planning-teams often spend more time huddling around the issue at hand and less time on inter-relationship tension, which we all know exists in a highly stressful environment like a demand planning review meeting. In many cases, the ‘new-normal’ way of remote demand planning has improved the flow of insight and quality of planning.
How valuable are demand planners today?
Demand planners are becoming way more valuable to organisations that have complex supply and demand chains that need to be planned.
What the pandemic proved is how fragile the supply chain really is. We have witnessed how a seemingly obscure disruption in supply and demand can bring the whole house of cards tumbling down. Volatility within the supply chain is the new norm, which makes demand planners more crucial than ever to supply chain management.
What does best-practice demand planning entail?
Demand planning teams should be connected to other stakeholders and foster collaboration within the business. Within organisations, teams have different roles, incentives, and views on supply chain excellence. Visualising supply chain issues through collaborative planning helps organisations improve alignment and drive reliability in business results and basic business strategies such as:
- What are the goals of the various divisions in the organisation?
- What service level do we want to offer our customers?
- Are we driving towards service level or market growth?
These goals all have different outcomes, and organisations need better planning collaboration to to collectively achieve these goals.
And to successfully implement collaborative planning programs that drive supply chain excellence, companies must be clear on the role of the forecast and the inventory plan.