People-Focused Solutions to Demand Planning
Minor Communication Errors Lead to Excess Inventory
Even a well-defined sales and operations planning (S&OP) process contains knowledge gaps that reduce demand plan accuracy. Over time, these small errors lead to a costly buildup of inventory.
Inconsistent communication between Sales, Business Leaders, and Supply Chain Management
Failure to collect sales forecasts from large, repeat customers
Demand forecasts do not incorporate historical sales trend
Reduce Inventory With Improved Communication
I provide simple process changes that ensure consistent, reliable communication throughout your planning cycle. I’ve been through this before, and can help you quickly adopt best practices in these areas:
- Identify communication gaps between your customers, sales team, demand planning team, and supply chain planning.
- Design a transparent and repeatable planning process that encourages collaboration among your key functions.
- Measure the accuracy of your existing process and identify achievable savings targets through inventory reduction.
My Recent Articles
The Demand Planner: Plan Team Quarterback
S&OP Horror Story: In One Explainer Video
Data Gold Mine: Average Inventory by Industry
Intersection of Relational and Technical Skills
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
• Demand Planning specialty
• Algorithm based
• No support for people / processes
• Technical support only
Solving Communication Gaps
People-Focused Approach to Demand Planning
Step 1: Process Review
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 patterns 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 consistent rules, 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.
How I Add Value
The demand plan is often built in silos, with little coordination between the sales leaders and manufacturing teams.
Because there is no shared ownership of the demand plan, there is little incentive to improve the plan process in future periods.
How I Help:
I partner with you to build an effective plan cycle, referred to as the sales and operations planning (S&OP) process.
Together, we develop a communication framework that enables simple, repeatable flow of information between the sales leaders and supply chain management.
with Business Partners
Demand planning is frequently considered a supply chain activity, and key business leaders are excluded from this critical process.
As example, the marketing function is best equipped to speak to broad industry trends, and their input can materially increase the accuracy of any long term forecast.
How I Help:
I help you design a meeting cadence in which marketing and other business leaders can share their insights at various steps in the plan cycle.
The benefits of improved demand forecasting are felt across the business, resulting in lower inventory waste, reduced storage cost, and higher fill rate.
Because it is hard to measure, many businesses don’t realize the true cost of a poorly-executed demand planning process.
How I Help:
By performing a thorough review of historical data, I measure the savings achievable with only modest increases in forecast accuracy:
- Lower inventory waste
- Reduced warehouse usage
- Higher order fulfillment
- Higher plant utilization
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 customer behavior and 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.
I Will Always:
- RECOGNIZE your uniqueness
- LEARN your sales cycle
- IDENTIFY customer order patterns
- DISCOVER cause of forecast misses
- DESIGN a plan process that works for you
- VALIDATE forecast results
I Will Never:
- FORCE a generic solution
- MANDATE changes to your systems
- ASSUME a statistical tool can completely explain your business
Reduced Waste and Higher Sales
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.
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%.