Yogi Berra famously said, “If you don’t know where you are going, you’ll end up someplace else.” In the case of demand planning, an inaccurate forecast probably means your customers will end up someplace else.
The marketplace has changed, and effective demand forecasting has never been more critical to supply chain success. Accurate demand planning helps align supply with market needs and enables organizations to respond quickly to fluctuations in demand, optimizing inventory levels to minimize the risk of stockouts, reduce costs associated with overstocking and, ultimately, improve customer satisfaction. As competition intensifies and consumer expectations rise, mastering the art of demand planning is essential for meeting customer needs without holding unnecessary inventory while ensuring long-term success in the supply chain landscape.
There’s no one-size-fits-all approach for optimizing your demand planning process, but there are some universal truths you can focus on to make sure your plan doesn’t lead you “someplace else.”
Your demand plan is only as good as your data
Businesses today are collecting more data than ever. Point-of-sale data, historical transactions, customer feedback and even weather forecasts – they all play a part in demand planning, and the quality of your output is directly tied to the quality of your input. This is the “garbage in, garbage out” principle. Let’s face it – no business is ever going to have data that’s 100% perfect or complete. But setting and maintaining a threshold for sufficient quality is critical. As the data set grows, quality will drop below that threshold if it’s not carefully maintained. Establish a process for cleansing data — like finding and removing outliers or separating base volume from peaks and valleys caused by seasonal demand or promotions — and your forecasts will improve in accuracy.
It takes a village (or, at least, a whole company)
Siloed demand planning is a recipe for failure. Proper demand forecasting makes an impact on the whole organization, so it only stands to reason that everyone’s input is welcomed. Demand planners and other stakeholders must be working from the same set of numbers to get their own projections done. To build a solid demand plan, you need everyone from the sales reps who are talking and meeting with customers every day to the demand planners who synthesize the data and the demand managers who oversee and review the plans to make sure the demand planners have the skill and experience to get the job done.
Unbiased? Unlikely.
While we’re on the subjects of data quality and the players involved in creating your demand forecast, let’s address an important factor that can introduce inaccuracy: data bias. Sales reps, who often depend on commissions, are optimistic by nature and tend to focus on the positive. On the flip side of the coin are demand managers, who are more conservative and cautious, keying in on more negative forecasts and downplay demand to avoid excess inventory. When generating a demand plan, take these biases into account and find consensus which better reflects the reality of the situation.
Technology can be a game-changer
The days of demand planning based on a bunch of disparate Excel spreadsheets are long gone – at least if you want to get it right. Traditional forecasting models don’t cut it in today’s volatile, rapidly changing marketplace. Instead, consider a centralized software system that includes integrated business planning (IBP) and sales and operations planning (S&OP). Artificial intelligence (AI)-powered forecasting tools can also offer a solution to demand planning complexity, helping you see beyond the day-to-day problems and focus on long-term strategic planning and evaluation. In fact, AI can go beyond demand forecasting. For example, it can help optimize inventory placement, so you not only know how much inventory to have on hand but where to store it to optimize fulfillment. Modern demand planning solutions manage and analyze your data so you can keep your eye on the big picture.
Plan early, plan often
Businesses and supply chains have to move fast to adapt to a marketplace where customer preferences and demands are always evolving. There are times when a demand plan is driven by the nature of the product. As a general rule, monthly plans are pretty standard and tend to align nicely with fiscal policies and procedures.
So…has the plan come together?
There’s no way to know unless you have metrics in place to measure effectiveness. Mean absolute percentage error (MAPE) is a key performance indicator that can help you determine the accuracy of your forecast – lower MAPE means it’s accurate; higher MAPE not so much. Weighted MAPE is even better. Looking at the forecast accuracy for all your products at once might not show you which ones are most important to the business. But, by weighting MAPE based on sales volume, you can see the forecast accuracy for the products that are doing the highest volume, which are likely the ones that matter most to overall success.
Demand better demand planning
Endless streams of data. Rapidly changing customer expectations. Unpredictable supply chain disruptions. Accurate demand planning has become a vital tool for companies of all size across just about every industry. Without it, there’s no way to respond quickly enough to keep pace with fluctuating demand and market uncertainties. But, by working with your team to collect the right data, ensure its accuracy and provide them with the tools and KPIs to make sense of it all, you can bring harmony to supply and demand and make a solid plan that will propel your business to success.
