Demand planning

Demand planning is a key enabler when you have to make the right decisions in your supply chain for both the medium and long term. 

Demand planning serves as starting point for many core processes in Integrated Business Planning such as Supply Planning and Inventory Planning, Financial Planning/Budgeting and Capacity Planning.

There are four steps in demand planning

1. How to create a robust baseline statistical forecast? ​
2. How should input on new product introductions be handled?​
3. How can we adjust the baseline forecast with market intelligence input, such as promotions, strategic campaigns, trends and strategic growth markets?​
4. How should we prepare and host the demand review meeting with the different stakeholders to agree on the consensus forecast?​
   
   

Introduction to statistical forecasting​

Statistical forecasting can help you predict the future based on the past. We suggest that you use a simple and transparent approach, where you separate the different forecast elements such as simple statistical baseline, seasonality, trend and step changes.​

​How to build a bottom-up baseline forecast?​
Make it simple​

If you follow a clear and transparent step-by-step process – without complex algorithms ​involved – you get a robust and transparent baseline forecast.

The steps in the process are:​

• Start from your actual historical sales​
• Clean them for campaigns, outliers/spikes and shortages​
• Run a simple statistical forecasting model to get a robust baseline forecast​

You might need more advanced seasonality/step change consideration, but this depends on your maturity level and the needs of your business.

Read more here for a deep-dive discussion about simple forecasting 

Introduction to product review

Changes in the product portfolio and the introduction of new products are significant sources of change and uncertainty – as well as a key demand-shaping technique. ​

How to manage your product portfolio?​

Product families go through these four phases in their lifecycle, and the way to handle them is different in each phase. It’s important to continuously assess what phase your products are in and if they need any strategic changes. ​

1. Introduction and pipeline fill → Maintain forecast on dummy product number until real product number is available​
2. Growth → Monitor sales development closely and adjust basic forecast continuously​
3. Maturity → Assign constant stable forecast model, and monitor basic forecast by exception alerts​
4. Decline/phase-out → Phase out forecast for product​

Changes in your product portfolio typically have a significant financial impact. Therefore Finance need to be involved in the product review step.

In the product review step, typical considerations could be:​

• What is the result of the business case for introducing a new product?​
• What are the main drivers and market outlook for this product?​
• How to price this product (both sales price and cost price), and what is the impact of this?​

Introduction to Sales and Marketing input ​

Sales and Marketing are close to the market and have insights about promotions, campaigns, new products, tenders etc. You need to add this information to your statistical baseline forecast.​

You can follow these guidelines to get the input from Sales and Marketing:​

• Sales and Marketing should always focus sales forecasting at a level in the product hierarchy that is as aggregated as possible in order to minimise their workload.​
• Input should be provided where it matters most – segmentation helps to focus sales forecasting efforts in areas where it creates the largest impact​
• Separate responsibility and accountability between demand planning and sales and marketing​

Trend and step changes must be entered in a very simple way based on planned future sales and marketing activities.​

Introduction to Demand Review Meeting​

When you have enriched the baseline forecast with NPIs and sales and marketing input, the participants on the Demand Review Meeting discuss the forecast on an aggregated level. ​

​Level and horizon

The forecast will often be discussed on an aggregated level such as product family level for the next 12-24 months maybe even on an aggregated level.​

Participants

We recommend that the ownership of the Demand Review Meeting is anchored in the commercial organisation, but with participation from all the involved functions in the S&OP/IBP process.​

Agenda

The agenda for the Demand Review Meeting will, in simple terms, consist of the following steps​:

1. What happened in the past​
   Here the forecast accuracy and bias should be evaluated and understood​
2. What’s the plan for the future​
   Next step is to review the planned growth and understand the changes since last review meeting​
3. Adjustments and reaching consensus​
   Gather and understand initiatives for reaching the desired targets​

​Output and impact

The output you get from the decisions and initiatives from the Demand Review Meeting have an impact on both financial predictability, delivery performance, cost, inventory and obsolete stock. You use the forecast as input to business decisions such as adjustment and re-allocation of market spend or sales resources. In addition, you use the forecast to adjust line, manning and machine capabilities as well as to adjust contracts for sourcing of external capacity and materials. ​