People-Focused Solutions to Demand Planning
Are your warehouses overflowing with unsold inventory?
Do you the stock wrong products, resulting in missed sales?
It’s Not Your Software. It’s Your Process.
Over my career of managing finance teams, I have learned effective financial planning relies on three key elements:
- Sustainable Processes
- Culture of Innovation.
I will help you create planning process in which every function has a voice – Everyone from the sales leaders to the plant controller contributes. Together, we will build a sustainable demand planning process that is undeniably accurate.
How I Add Value
The demand plan is often built in silos, with little coordination between the sales leaders, finance team, and supply chain.
The sales team doesn’t see how their sales forecasts are being used by the finance team, and the supply planner doesn’t know why he is always building excess inventory.
How I Help:
I build a robust meeting cadence in which every stakeholder has a voice in the planning cycle. This cadence is referred to as the Sales and Operations Planning (S&OP) process. Every business needs this.
Your sales team will know how their input is used to assure product supply, and the demand planner and production planner are better able to build the right amount of product.
Enable Clear Flow of Information
All too often, key inputs are missing from the planning cycle.
The sales team isn’t fully populating pipeline details in the CRM tool. Or the demand planner is not including relevant industry or economic indicators into the demand forecast.
How I Help:
I identify areas in which facts are not being shared in the planning cycle, and I work to incorporate this data.
We may ask your sales leaders to risk-adjust their pipeline based on known factors. Or, we may incorporate industry growth trends from your marketing team. We will use all relevant data to create the most accurate demand plan possible.
Establish Savings Mindset
Improvements to demand forecasting create huge savings for the business, with lower inventory, less waste, and fewer lost orders.
However, many businesses fail to adopt a savings mindset with the relevant functions. Most are simply doing their jobs, and have no idea of the savings potential.
How I Help:
I estimate the savings potential from only modest increases in forecast accuracy. We will create simple scorecards that measure accuracy and quantify savings each month. Let’s celebrate the wins, and get your team excited about creating savings!
How I Compare
- Complex, lengthy engagements
- Large and expensive team
- Intimidating style
- Templated one-size-fits-all method
- Upsell you on other services
- Simple fixes to your plan process
- Small team (it’s just me here)
- Dignified demeanor
- Personalized solution tailored for you
- People-Focused appraoch
- Algorithm based
- No support for people / processes
- Technical solutions only
Common Demand Planning Errors and My People-Focused Solutions
Inconsistent Communication With Planning Team
A product manager just got news that a large competitor announced a product recall. As a result, he expects a surge in demand for his own product. But, this information is not passed to the demand planner, and the supply chain is unable to fulfill the surge in new orders the following quarter.
Solution: Implement a Formal S&OP Process
A robust Sales and Operations Planning (S&OP) process provides a forum in which the sales, finance, marketing, and supply chain functions collaborate to jointly develop the demand and supply plans for the upcoming period.
Lack of Customer Forecasts
Sales to one distributor represents 25% of the sales for a given product line. Sales to this one account vary widely each month, so the business stocks excess inventory to ensure they can satisfy product demand from this account.
The distributor has an internal forecast that is highly accurate at predicting future demand. If asked, they would be willing to share with their suppliers.
Solution: Incorporate Customer Forecasts
Your customers know more about their business than you. I identify which customers contribute to your forecast error, and will design a simple process to collect meaningful forecast data from your largest customers.
No Statistical Planning Expertise
A plumbing supplier realizes highly volatile sales patterns, and is alternately either stocking excess inventory, or is unable to meet surging customer demand.
Sales seem to be highly correlated with new housing starts in the region, but the planning team is unsure how to incorporate this into their forecasts.
Solution: Coaching on Regression Analysis
I can create simple models that help your team incorporate such factors as seasonality and industry or economic forecasts into the demand planning process.
Demand Planning as Unique as Yourself
Your Business Thrives Because of its Unique Identity.
I provide demand planning consulting to a variety of businesses, each of which is special in its own way. Planning is so much more than a statistical calculation on a spreadsheet. It embodies key elements of your business, such as your customers, your people, and your sales team motivation.
I seek to understand the underlying behavior that drives product demand, and help you build a forecasting process tailored to your unique culture. In doing so, I will dramatically improve the accuracy of your demand plan, resulting in lower inventory and higher customer fill rate.
My Promises to You
I Will Always
- RECOGNIZE your uniqueness
- RESPECT your people
- LEARN your business
- APPRECIATE your history
- LISTEN to you. Always.
I Will Never
- FORCE a generic solution
- MANDATE system changes
- UPSELL you on other services
- ASSUME statistics can explain your business results
My Approach: Focus on People and Process
Step 1: How Does Your Demand Planning Process Work Today?
At its core, demand planning is simply a tool to communicate future demand to the manufacturing plant.
While it’s easy to focus solely on the technical aspects of this process, I take the time to learn how this communication works in your business today:
- Do you employ dedicated planners at your business?
- Do you review the demand plan with your supply chain management?
- How do you you incorporate historical data?
- Have you identified demand seasonality in recent sales data?
Step 2: Quantitative Analysis
I calculate forecast error and bias by comparing actual sales data at your company with your prior forecasts of future demand. I compare your inventory levels against benchmarks from comparable supply chains in your industry.
Step 3: Eliminate Communication Gaps
After learning the existing process, I lead you through several steps to increase the accuracy of your demand forecasts. We begin by building a transparent process that ensures clean, simple communication between your sales team, your demand planners, and supply planners. I help you define a consistent structure, such as when to include the impact of new customer wins.
We structure a regular meeting cadence in which we share the demand forecast with your key leaders from sales, marketing, and manufacturing. These meetings are designed to solicit insights and feedback from these critical functions, increasing the accuracy of the forecast.
Step 4: Identify Demand Patterns
With a repeatable communication structure in place, we can then focus on the statistical component of demand planning. I identify demand patterns from historical sales data, and use this analysis to increase forecast accuracy. Together, we identify industry or economic indicators that may help us better predict future demand.
Finally, I examine the product portfolio and identify product variants that contribute excessive volatility to historical demand. Many product variants actually generate losses for the company, as their unpredictable demand results in excess inventory levels over time.
Example of My Work
Problem: Excess Inventory, Unfilled Orders
Inventory is spiraling out of control at a large industrial business, but customers are still waiting months for unfilled orders.
My Approach: Audit the Entire Process
I learned how the sales team built the sales pipeline, and at what steps in the sales cycle they declared wins.
I met with the demand planners to see how they created the demand forecast. How did they include the sales pipeline? What tools did they use to spot trends?
The plant controller provided the production (supply) plan, as well as details of existing inventory that was near expiration.
My Findings: Multiple Issues Creating Excess Inventory
I identified a number of items that each added forecast error.
Collectively, these errors created a production plan that was only 25% accurate. This created massive inventory levels for some products, while other products were constantly out of stock.
Why is Demand Planning Important?
I once had a manager who frequently reminded us that inventory was “evil”. It cost to build, store, transport, and dispose. He recognized inventory management is a huge drag on company resources.
In fact, it costs $20 per year to maintain $100 of inventory, as storage and handling costs are super expensive. It is estimated it costs $2 each time an employee touches inventory, and it costs even more when that inventory is transported between locations.
Eliminate Expired and Obsolete Inventory
An average of 4% of all production is scrapped due to expired and obsolete inventory. For a business with $100 million in sales and 50% gross margin, inventory waste would represent an annual expense of $2 million. Effective demand planning can nearly eliminate expired and obsolete inventory, resulting in a dramatic improvement in inventory waste.
Higher Fill Rate
Across industries, the average fill rate is 95%. Said differently, 5% of all orders are delayed due to insufficient on-hand inventory. Many of these orders will get cancelled, as customers will elect to use alternate vendors.
A robust demand planning approach will yield higher fill rate, resulting in fewer cancelled orders. By increasing fill rate even marginally, a business could potentially increase sales by 3-5%.