Elevating the Demand Planning Process for Business Success

  • July 27, 2021
Cropped shot of a group of businesspeople working together on a laptop in a modern office

Demand planning is an under-leveraged business process. Neglecting it results in missed objectives, poor customer service and lost revenue. Traditionally thought of as an analyst activity, demand planning enables cross-functional business integration and delivers competitive advantages.

Demand planning — when deployed with the right talent, objectives, metrics, process steps and enabling technology — can become a competitive enterprise advantage. In many ways, demand planning is today where brand management was before P&G showed the world the power of brands. Or where product management was before Apple and other tech companies became household names. Product management conventionally falls on developers and engineers to comprehend user issues and produce product resolutions. However, today product management is a cross-functional role that reaches across the organization to plan, design and bring offerings to market. Similarly, Demand planning offers an opportunity to enable improved business outcomes, deployment of resources and working capability across an organization.

What can demand planning do for my business?

Demand planning has the power to anchor and mobilize company resources to act on an agreed-upon plan for products and services. The program should filter through the entire organization to determine purchases, production plans, capacity needs, inventory deployment and — crucially — the company’s ability to meet and fulfill customer orders. Getting the demand planning process right is essential to achieving objectives and maximizing shareholder value.

How does the demand planning process work in practice?

In our experience, a demand planning process should have five distinct steps:

  • Generate a baseline system (statistical or machine learning) forecast. Leverage historical data to predict future demand.
  • Understand demand drivers (micro and macro inputs). Delve into any category that provides insight into the customer’s behaviors.
  • Gather collaborative inputs from marketing, sales, finance, and customers. Collect interdisciplinary views on products, pricing, margins and big deals.
  • Generate a demand plan. Incorporate all the inputs.
  • Obtain leadership input, alignment and agreement and publicize the demand plan. Encourage organizational consensus.

What kind of process ownership model fosters effectiveness?

The demand planning leader has the critical job of quarterbacking the demand planning process. Unfortunately, in many organizations the demand planning process has been limited to one or two of the above steps and then is executed by analysts or planners in isolation. This needlessly narrow view is detrimental to successful demand planning. It results in poor outcomes, missed service numbers, missed financials and disappointed customers and investors.

The demand planning team must work across functions. The fact that the role can live in different functions is proof of this. Regardless of where you house demand planning, it’s critical that it’s allowed to work seamlessly across the organization. Ideally, the demand planning manager should be at the right hands of the product line manager, chief merchandisers and general manager.

Which performance metrics will define success?

Demand planning performance metrics are essential for successfully steering the process, assessing its effectiveness and identifying areas for improvement. As with all critical business processes within an organization, having clear and visible performance metrics is vital to measuring outcomes. Core metrics for high-performing demand planning processes are:

  • Demand plan accuracy as a percentage of units shipped based on a 1, 2, 3 month lead time lag
  • Demand plan accuracy as a percentage of revenue forecasted at a 1, 2, 3, month lag
  • Demand plan mean absolute percentage error (MAPE)
  • Demand plan bias

Process steps one (system-generated forecast), three (collaborate inputs), and five (leadership inputs) are designed as value-added steps to the final demand plan. Perform process diagnostics monthly on each of these process steps to identify the value add (or value destruction) created by each of the process steps. You should also review performance metrics monthly.

The outside-in view — an annual health check

Ideally, a company increases its chances of success by engaging an independent outside consultant or audit firm to perform an annual health and performance check. Unfortunately, day-to-day priorities and the human tendency to avoid performance report cards often get in the way of executing an objective demand planning health check. The fact is, it’s way too easy to use the notion of forecasts being wrong as an excuse for poor performance.

Partnership opportunity for business leaders and demand planners

The demand planning process allows a business to improve outcomes through improved customer service, revenue attainment, working capital deployment and resource alignment. The keys to success are deploying performance metrics, assigning a talented demand planning manager and ensuring a robust process through enabling technologies. NTT DATA’s experience is that the shortfalls and challenges faced by business leaders related to revenue and customer service performance can be addressed by a high-performing demand planning process. Partnering with an empowered, leadership-level demand planning manager is essential to achieving the best possible outcomes.

— By Salman Adil

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