The Demand Plan: Linking Sales to Production
First and foremost, the demand plan is the primary link between the sales forecast and the production plan. The demand plan is the primary tool the business uses to tell the plant how much of each product to produce.
The Demand plan is a product-level forecast that informs the business how much product to make, and at what time. For instance, if a business has 50 product variants, the demand plan will forecast the expected demand for all 50 products over a period of time, such as 12 to 18 months.
The business then uses the demand plan to prepare for future product demand. For instance, it may make changes to a manufacturing facility such that it is better equipped to produce the right products. Or, if certain products require specific handling (such as cold storage), the business leaders may elect to repurpose existing warehouse space or acquire new facilities to store the product in advance of demand.
Key Inputs of the Demand Planning Process
The demand plan is truly a forecast of future product demand. The sales and marketing teams generally provide expectations of future product sales, while the demand planner overlays this input with historical trends to develop a detailed product demand plan.
Sales Team: Sales Pipeline
Sales leaders generally have the best data on near-term sales wins, and maintains reporting tools to estimate both the size of win and likely probability. Ideally, the sales team will maintain a sales pipeline with the following information:
- Size of likely customer win
- Product(s) impacted by each win
- Stage of pipeline (e.g. prospect, proposed, negotiation, signed agreement)
- Measure of probability of win
The above details provide a good overview of likely new account wins, and this detail can be incorporated as a key input into the demand plan.
Marketing: Long-Term Trends
The marketing team owns market research, and routinely measures the following items:
- Market size
- Market growth and industry trends
- Product trends
Since the marketing function typically has the best visibility into customer demand over a long time horizon, this team should contribute to the demand planning process. Their input may be more theoretical (“we think Product A sales may see a headwind due to competition from Company C”). Or, the marketing function may have more tactical input (“new construction starts are expected to drop 5% due to mortgage rates, and Product B is directly correlated with new starts”)
Regardless, the marketing team should provide input into the demand forecast, and acts as an approver for the demand planning process.
Demand Planner: Putting it all Together
The primary function of the demand planner is to combine historical sales data with input from both sales and marketing teams to assemble a demand plan by product.
It is important to note the demand planner role is more than just consolidating data to build a demand plan. Rather, this role functions as a gatekeeper for the demand plan, and should be leading thoughtful conversations that lead to sound reasoning behind the inputs. For instance, the sales pipeline may yield exceptionally high demand for a product that historically hasn’t sold well. It is the responsibility of the demand planner to lead conversations to understand what is changing to drive new demand for the product.
Approving the Demand Plan
In a perfect world, the demand planner leads periodic cross-functional meetings for purposes of communicating and approving the demand plan. Referred to as the Sales and Operations Plan (“S&OP”) process, these cross-functional discussions should seek consensus from sales, marketing, business leadership, and plant leaders prior to finalizing the plan.
This is frankly where most organizations fall short in implementing an effective demand planning process. Organizations frequently operate in silos, and the demand planner often does not feel like they have the authority to force collaboration among these teams. For this reason, it is especially important the business leaders emphasize the need to obtain a sign-off / consensus from all these functions. Right or wrong, all these functions should feel ownership in the demand planning process, and are jointly responsible to provide input in this critical process.