Deep Dive Into Demand Planning

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Demand Management Demand Management KeysKeys

Strategies to Become More Demand Strategies to Become More Demand Driven Driven

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►Outline:Outline: Identify Three Areas of D. M. Identify Three Areas of D. M.

ConcentrationConcentration Detailed Review of Each AreaDetailed Review of Each Area Pressures, Actions, Capabilities, Enablers Pressures, Actions, Capabilities, Enablers

(PACE) Framework(PACE) Framework Categories of Performance CriteriaCategories of Performance Criteria Demand Management RealitiesDemand Management Realities Steps Toward ImprovementSteps Toward Improvement

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This Presentation is a Deeper Dive Into This Presentation is a Deeper Dive Into The Keys for Successful Demand The Keys for Successful Demand Management in a Global EconomyManagement in a Global Economy

We will Concentrate on Three Areas:We will Concentrate on Three Areas:1.1. Best In Class Performance BenchmarkingBest In Class Performance Benchmarking2.2. A Competitive Maturity AssessmentA Competitive Maturity Assessment3.3. Required Actions to Improve Demand Required Actions to Improve Demand

Management PerformanceManagement Performance

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Part 1: D. M. Performance BenchmarkingPart 1: D. M. Performance Benchmarking

3 Focus Areas in D. M. Performance Improvement:3 Focus Areas in D. M. Performance Improvement:1.1. Strategic AlignmentStrategic Alignment

• Starts With One Set of NumbersStarts With One Set of Numbers• Align Sales’ Goals With Demand Planning in the Area Align Sales’ Goals With Demand Planning in the Area

of Performance Metricsof Performance Metrics

2.2. CollaborationCollaboration• Obtain Accurate Demand Signals From Customer Obtain Accurate Demand Signals From Customer

Base Through a Win-Win Collaborative Business Base Through a Win-Win Collaborative Business ProcessProcess

• Internal Collaboration (S&OP) is Critical to SuccessInternal Collaboration (S&OP) is Critical to Success

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3 Focus Areas in D. M. Performance 3 Focus Areas in D. M. Performance Improvement Improvement (cont.):(cont.):

3.3. Responsiveness to Demand FluctuationsResponsiveness to Demand Fluctuations• Incorporate the Impact of External Events Into the Incorporate the Impact of External Events Into the

Demand Management ProcessDemand Management Process• Distance of the Producer From Their Customer Distance of the Producer From Their Customer

Directly Affects the Ability to be ResponsiveDirectly Affects the Ability to be Responsive• Promotions & Demand Shaping Events Become Promotions & Demand Shaping Events Become

Critical, Especially When Located Close to the Critical, Especially When Located Close to the CustomerCustomer

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Top D. M. Pressures and Strategic Actions Top D. M. Pressures and Strategic Actions

PressuresPressures Strategic ActionsStrategic ActionsMeeting Customer Service Meeting Customer Service ExpectationsExpectations

Improve Internal Collaboration Improve Internal Collaboration (Forecasting, Pricing, (Forecasting, Pricing, Promotions)Promotions)

Rising Costs (Transit, Rising Costs (Transit, Logistics, Inv. Carrying Logistics, Inv. Carrying Costs, etc.Costs, etc.

Customer Level Forecasting Customer Level Forecasting for Key B2B Customersfor Key B2B Customers

High Uncertainty in High Uncertainty in DemandDemand

Create Tighter Feedback From Create Tighter Feedback From POS to Demand PlansPOS to Demand Plans

Maximize Mfg. EfficiencyMaximize Mfg. Efficiency Improve External Improve External Collaboration by Including Collaboration by Including Inventories & CapacitiesInventories & Capacities

Product Lifecycle Product Lifecycle ManagementManagement

Focus on Statistical Focus on Statistical Forecasting (Starting Point)Forecasting (Starting Point)

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Demand Management KeysDemand Management Keys Part 1: D. M. Performance BenchmarkingPart 1: D. M. Performance Benchmarking

MaturityMaturity

ClassClassF/G Inv.F/G Inv.

TurnsTurnsCustomCustom

erer

ServiceService

GrossGross

ProfitProfitForecastForecast

AccuracAccuracyy

TopTop

PerformerPerformerss

1717 96%96% 35%35% 81%81%

AverageAverage


77 85%85% 20%20% 69%69%

PoorPoor


33 65%65% 5%5% 45%45%Source: Aberdeen Group – Process Industries

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Top Performers PACE Framework – Top Performers PACE Framework – PPressures, ressures, AActions, ctions, CCapabilities, apabilities, EEnablersnablers

Supply Chain Supply Chain PressuresPressures::Rising Supply Chain Costs (Transportation Costs, Rising Supply Chain Costs (Transportation Costs, Logistics Operation Costs, Inventory Carrying Costs, Logistics Operation Costs, Inventory Carrying Costs, etc.)etc.)

Top Performers’ Top Performers’ ActionsActions in Response to Pressures: in Response to Pressures:1)1) Improve Internal Collaboration Process for Improve Internal Collaboration Process for

Forecasting, Pricing & Promotion Plans, and Making Forecasting, Pricing & Promotion Plans, and Making Mid-Course CorrectionsMid-Course Corrections

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Demand Management KeysDemand Management Keys Part 1: D. M. Performance BenchmarkingPart 1: D. M. Performance BenchmarkingTop Performers PACE Framework – Top Performers PACE Framework – PPressures, ressures,

AActions, ctions, CCapabilities, apabilities, EEnablersnablers

Top Performers’ Top Performers’ ActionsActions in Response to Pressures in Response to Pressures (cont.):(cont.):

2)2) Do Customer Level Forecasting to Improve Customer Do Customer Level Forecasting to Improve Customer Service to Key CustomersService to Key Customers

3)3) Improve External Collaboration to Incorporate Trading Improve External Collaboration to Incorporate Trading Partners’ Inventory & Capacity into Demand PlanningPartners’ Inventory & Capacity into Demand Planning

4)4) Create Tighter Feedback Loop from Marketing Activity Create Tighter Feedback Loop from Marketing Activity to Demand Assumptions & Plans (Esp. CPG Industries)to Demand Assumptions & Plans (Esp. CPG Industries)

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Top Performers’ Top Performers’ CapabilitiesCapabilities to Perform Required to Perform Required Actions:Actions:

1)1) Ability to Forecast Based on Attributes (Volume, Ability to Forecast Based on Attributes (Volume, Quantity)Quantity)

2)2) Create a Single Demand Forecast with Inputs from Create a Single Demand Forecast with Inputs from Multiple Areas Within the OrganizationMultiple Areas Within the Organization

3)3) Ability to Segment Demand Forecasts Based on Ability to Segment Demand Forecasts Based on Key Product-Customer CharacteristicsKey Product-Customer Characteristics

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Demand Management KeysDemand Management Keys Part 1: D. M. Performance BenchmarkingPart 1: D. M. Performance BenchmarkingTop Performers PACE Framework – Top Performers PACE Framework –

PPressures, ressures, AActions, ctions, CCapabilities, apabilities, EEnablersnablers

Top Performers’ Top Performers’ CapabilitiesCapabilities to Perform to Perform Required Actions Required Actions (cont.):(cont.):

4)4) Ability to Make Rapid Product Introduction DecisionsAbility to Make Rapid Product Introduction Decisions

5)5) Ability to Create a Single Demand Forecast Based on Ability to Create a Single Demand Forecast Based on Data from Multiple Organizations Within the Value Data from Multiple Organizations Within the Value ChainChain

6)6) Ability to Measure Forecast Accuracy at Customer, Ability to Measure Forecast Accuracy at Customer, Family, and SKU LevelsFamily, and SKU Levels

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Top Performers’ Top Performers’ EnablersEnablers to Perform Required to Perform Required Actions:Actions:

1)1) Statistical ForecastingStatistical Forecasting

2)2) Forecasting CollaborationForecasting Collaboration

3)3) Alert ManagementAlert Management

4)4) Demand AnalyticsDemand Analytics

5)5) Demand Shaping (Consumer-Centric Companies)Demand Shaping (Consumer-Centric Companies)

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Demand Management KeysDemand Management KeysPart 2: D. M. Competitive (Maturity) Part 2: D. M. Competitive (Maturity)

AssessmentsAssessments

Five Categories of Performance Characteristics:Five Categories of Performance Characteristics: ProcessProcess (Execution of Daily Operations) (Execution of Daily Operations)

OrganizationOrganization (Corporate Focus & Collaboration) (Corporate Focus & Collaboration)

KnowledgeKnowledge Management Management (Organizing Data for Key (Organizing Data for Key Users)Users)

TechnologyTechnology (Effective Selection & Deployment of Tools) (Effective Selection & Deployment of Tools)

Performance ManagementPerformance Management (Measure & Improve Results) (Measure & Improve Results)

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Demand Management KeysDemand Management Keys Part 2: D. M. Competitive (Maturity) Part 2: D. M. Competitive (Maturity)


PerformanPerformancece

LevelLevel

Single Single Demand Demand Forecast Forecast w/Inputs w/Inputs

from from Multiple Multiple Roles in Roles in

Org.Org.

Segment on Segment on Key Product-Key Product-

Customer LinksCustomer Links

Rapid Rapid Product Product Intro. Intro.

DecisionsDecisions

Convert Convert Forecasts Forecasts

from from Product Product

Family to Family to SKU LevelSKU Level

TopTop 40%40% 36%36% 36%36% 46%46%

AverageAverage 23%23% 22%22% 15%15% 25%25%

PoorPoor 10%10% 21%21% 6%6% 20%20%

Process

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AssessmentsAssessmentsProcess Process (Cont.)(Cont.)

PerformancePerformance

LevelLevel

Forecast Forecast Based on Based on Attributes Attributes (volume, (volume, quantity)quantity)

Collaborate with Collaborate with External Trading External Trading

PartnersPartners

Collaborate Collaborate with Internal with Internal StakeholdersStakeholders

TopTop 50%50% 33%33% 37%37%

AverageAverage 28%28% 13%13% 23%23%

PoorPoor 9%9% 11%11% 10%10%

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AssessmentsAssessmentsOrganizationOrganization


LevelLevel

Sales Sales Organization Organization Involved in Involved in ForecastingForecasting

Clear Owner for Clear Owner for Consensus ForecastConsensus Forecast

TopTop 37%37% 32%32%

AverageAverage 23%23% 29%29%

PoorPoor 20%20% 21%21%

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Knowledge (Data Management)Knowledge (Data Management)

Performance LevelPerformance Level RFID Technology Currently in RFID Technology Currently in UseUse

TopTop 77%77%

AverageAverage 58%58%

PoorPoor 44%44%

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Technology EnablersTechnology Enablers

PerformanPerformancece

LevelLevel

Statistical Statistical Demand Demand ForecastiForecasti

ngng

Forecast Forecast CollaborationCollaboration

Alert Alert ManagemeManageme

ntnt

Demand Demand Analytics Analytics

and and ReportingReporting

TopTop 82%82% 73%73% 50%50% 59%59%

AverageAverage 53%53% 33%33% 24%24% 28%28%

PoorPoor 42%42% 10%10% 8%8% 18%18%

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Performance ManagementPerformance Management


LevelLevel

Ability to Ability to Measure Measure

End to End End to End Planning Planning

Lead TimesLead Times

Ability to Measure Ability to Measure Forecast Accuracy Forecast Accuracy at the SKU Levelat the SKU Level

Ability to Ability to Measure End Measure End to End Order to End Order to Delivery to Delivery Lead TimesLead Times

TopTop 37%37% 50%50% 41%41%

AverageAverage 12%12% 23%23% 22%22%

PoorPoor 10%10% 21%21% 19%19%

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AssessmentsAssessmentsProcess Keys Affecting Consumer-Centric Companies Process Keys Affecting Consumer-Centric Companies

Requirement to Handle Pricing Strategies to Requirement to Handle Pricing Strategies to Maximize Revenue (Moving Target)Maximize Revenue (Moving Target)

Balancing Act Between the Correct Price Point and Balancing Act Between the Correct Price Point and Quality RequirementsQuality Requirements

Ability to Include Demand Lift From Promotions or Ability to Include Demand Lift From Promotions or Causal Events into Demand ForecastingCausal Events into Demand Forecasting

54% Of Consumer-Centric Companies Feel Demand 54% Of Consumer-Centric Companies Feel Demand Shaping is a Must-Have Process RequirementShaping is a Must-Have Process Requirement

Examples of Causal Events Include: Exhibitions, Examples of Causal Events Include: Exhibitions, Festivals, Economic Policy Changes, Back to School, Festivals, Economic Policy Changes, Back to School, Christmas, Halloween, Weekly Flyers, Catalogs, Christmas, Halloween, Weekly Flyers, Catalogs, Anticipated Competitor’s Move, etc. Anticipated Competitor’s Move, etc.

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AssessmentsAssessmentsOrganization Keys Affecting Most Companies Organization Keys Affecting Most Companies

Achieving a Single Demand Forecast for the Achieving a Single Demand Forecast for the Entire Organization is a Major ChallengeEntire Organization is a Major Challenge

Gaining Additional Granularity & Accurate Data Gaining Additional Granularity & Accurate Data is at the Core of the Challengeis at the Core of the Challenge

Single Demand Forecast is More of an Single Demand Forecast is More of an Organizational Change vs. TechnologyOrganizational Change vs. Technology

Senior Management Support is Vital for Success Senior Management Support is Vital for Success (Tied to Performance Measurements)(Tied to Performance Measurements)

Useful to Demonstrate the Negative Effect on Useful to Demonstrate the Negative Effect on Customer Service, Inventory, Profits w/Multiple Customer Service, Inventory, Profits w/Multiple Forecasts Forecasts

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Performance Measurement & Technology Keys Performance Measurement & Technology Keys Top Performing Companies are 3 Times More Top Performing Companies are 3 Times More

Likely to be Able to Measure SKU-Level Forecast Likely to be Able to Measure SKU-Level Forecast AccuracyAccuracy

Reflects Processes in Place to Disaggregate Financial Reflects Processes in Place to Disaggregate Financial Budgets and Product Family Forecasts to SKU LevelBudgets and Product Family Forecasts to SKU Level

Technology Alone is Not A Demand Management Technology Alone is Not A Demand Management Panacea, But the Depth of its Use is A KeyPanacea, But the Depth of its Use is A Key

Refers to Leveraging Tools Beyond “Out-of-the-Box” Refers to Leveraging Tools Beyond “Out-of-the-Box” Statistical Forecasting to Support Collaboration, Statistical Forecasting to Support Collaboration, Disaggregation, and Customer Level Forecasting More Disaggregation, and Customer Level Forecasting More Than Utilizing all Functional Capabilities Than Utilizing all Functional Capabilities

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AssessmentsAssessmentsDemand Management Realities: Demand Management Realities: Spreadsheets are Still Very CommonSpreadsheets are Still Very Common Top Performers Are Twice as Likely to Use Best Top Performers Are Twice as Likely to Use Best

of Breed Solutionsof Breed Solutions Top Performers Are 1.5 Times as Likely to Use Top Performers Are 1.5 Times as Likely to Use

Business Intelligence Tools to Enhance D. M.Business Intelligence Tools to Enhance D. M. Top 5 Barriers to Improved Demand Top 5 Barriers to Improved Demand

Management:Management:1)1) Lack of ConsensusLack of Consensus2)2) Functional SilosFunctional Silos3)3) Customer Data Not TimelyCustomer Data Not Timely4)4) Abnormal Demand Distributions (Modeling is Abnormal Demand Distributions (Modeling is

Difficult)Difficult)5)5) No Customer Collaboration No Customer Collaboration

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Demand Management KeysDemand Management Keys Part 3: Required Actions to Improve Part 3: Required Actions to Improve


Poor Performers’ Steps to Success:Poor Performers’ Steps to Success:• Drive/Push/Move to a Single Operational Demand Drive/Push/Move to a Single Operational Demand

Forecast With Internal CollaborationForecast With Internal Collaboration

• Move from Spreadsheets to Demand Forecasting Move from Spreadsheets to Demand Forecasting Technology, Especially for Key Profit Regions or Technology, Especially for Key Profit Regions or Major CustomersMajor Customers

• Create a Structured End-to-End Planning Workflow Create a Structured End-to-End Planning Workflow (Based on Complexity, Service Levels, (Based on Complexity, Service Levels, Manufacturing Processes, etc.) Manufacturing Processes, etc.)

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PerformancePerformanceAverage Performers’ Steps to Success:Average Performers’ Steps to Success:• Expand Demand Collaboration to Key Customers in Expand Demand Collaboration to Key Customers in

an Effort to Push to a Collaborative Demand an Effort to Push to a Collaborative Demand ForecastForecast

• Forecasts Based on Shipment History May Inflate InventoriesForecasts Based on Shipment History May Inflate Inventories

• Leverage Demand Forecasting Investments By Leverage Demand Forecasting Investments By Pursuing Automated Workflow and Decision- Making Pursuing Automated Workflow and Decision- Making TechnologiesTechnologies

• Statistical Forecast Should be Considered a BaselineStatistical Forecast Should be Considered a Baseline• Consider More Frequent Forecast Cycles (At Least Monthly)Consider More Frequent Forecast Cycles (At Least Monthly)

• Create Customer-Level Forecasts for Key CustomersCreate Customer-Level Forecasts for Key Customers• Perform Paretto Analysis to Find Most Profitable CustomersPerform Paretto Analysis to Find Most Profitable Customers

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PerformancePerformanceTop Performers’ Steps to Success:Top Performers’ Steps to Success:• Implement Attribute-Based Forecasting ProcessesImplement Attribute-Based Forecasting Processes

• Planners May Benefit From Seeing Demand in Terms of Planners May Benefit From Seeing Demand in Terms of Color, Weight, Region, Distribution Channel, etc.Color, Weight, Region, Distribution Channel, etc.

• Evolve Towards Short Term ForecastingEvolve Towards Short Term Forecasting• Dynamic Categories Such as Apparel, Food/Beverage, Dynamic Categories Such as Apparel, Food/Beverage,

CPG May Require More Frequent Forecasts to Recognize CPG May Require More Frequent Forecasts to Recognize EventsEvents

• Clearly Identify the Impact of GlobalizationClearly Identify the Impact of Globalization

• More Customers (and Production) Spread Geographically More Customers (and Production) Spread Geographically Spreads the Sales Profile & Makes it Difficult to Spreads the Sales Profile & Makes it Difficult to Differentiate Products, Pricing, Customer ServiceDifferentiate Products, Pricing, Customer Service

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►Review:Review: Deep Dive Into Demand ManagementDeep Dive Into Demand Management Performance BenchmarkingPerformance Benchmarking Maturity Assessment/ComparisonsMaturity Assessment/Comparisons Consumer-Centric KeysConsumer-Centric Keys Demand Management RealitiesDemand Management Realities Outlined the Path to Successful Outlined the Path to Successful

Demand ManagementDemand Management

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Deep Dive Into Demand Planning