By Sujit Singh
A sound demand plan – a forecast and a means of monitoring progress through the month toward that forecast – is the first and most critical step in running a company's supply chain effectively. A good demand plan provides the basis for the company's production, inventory and, ultimately, overall supply chain costs. A poor demand plan forces all the downstream decisions in the wrong direction.
As more demand planning tools become available, it might seem that fewer skills are required for a demand planner's job. Planning tools, however, are decision-support systems; that is, they do not make decisions on their own but instead provide better information on which a human being can base decisions. Tools with lots of bells and whistles can actually make forecasting more complicated unless the demand planner truly understands how to use those tools to the best advantage of the business. More importantly, planners must understand the entire breadth of what demand planning entails.
Successful demand planners need a wide range of skills. They need a thorough understanding of the business for which they plan. Because they must be able to interact with customers, managers, sales reps, marketing and supply chain colleagues, they need the people skills to speak to each group in terms that make sense to them, to negotiate agreements and to reach compromises. In addition, they need a number of very specific skills pertaining to demand planning and monitoring. If the business is international, they need to know about specific events in a country or region that may affect demand. Finally, they must know when the macro-economic conditions require a whole new approach to generating the "default" forecast.
Understanding the Business
Of all the roles in the supply chain, the demand planner probably needs the broadest business knowledge. He must understand how marketing activities such as promotions, loss leaders or price increases will affect demand. He must know what new products are being introduced and when, as well as which products are dying and how fast. Either situation requires special treatment both in forecasting and in monitoring demand versus plan.
As one might expect, a demand planner must have a detailed knowledge of customers, especially which ones need particular attention in forecasting and why. He must also know which products are commodities for which demand can be turned away, if necessary, because customers have alternative sources of supply. Conversely, he must know which customers and/or products are "single sourced," requiring the business to do everything in its power to meet that demand.
If the business is international, he needs to know country-or-region specific events that will affect demand patterns (e.g., Chinese New Year, August vacations in Europe). Finally, he must know enough about production to know which products are hardest to "catch up on" if the forecast is too low, perhaps because they require unique raw materials, and which are produced on long cycles or require lengthy transitions or setups.
A good demand planner recognizes that forecasts are used for multiple purposes and that different levels of aggregation are appropriate for different uses.
For example, it is well known that the higher the level of aggregation, the more nearly accurate a forecast will be. This is why, for example, a forecast for total volume at the sales and operations planning (S&OP) family level is probably closer to being accurate than the sum of individual forecasts for each customer/stock-keeping unit (SKU) within the family.
Unfortunately, a forecast at the total S&OP family level is meaningless for production planning. In order to get from the high level to the detailed, a knowledgeable demand planner using appropriate tools might, for example, use the sales reps' forecasts (at the product/ship-to level) only to disaggregate the S&OP family forecast proportionately.