Demand Management Trends
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Dynamic Business Conditions Require Dynamic Plan Management
Uncertainty in demand forecasting means companies must rely on closed-loop plan management; here are the capabilities and technologies you need to get started
May 7, 2009 — Most global companies today manage a complex network of sales and marketing teams that reflect their segmented business models. A typical organization has enterprise customers, public sector accounts, inside sales, e-commerce sales, regional sales in global geographies, partnerships with distributors in support of regional strategies, partnerships with retailers for consumer sales, and value-added reseller (VAR) networks that help target micro-segmented markets with specific offerings. This means revenue and product forecasts must reflect the micro-segmented focuses and be an exercise of predicting future behavior within each market sub-segment and its associated customers or partners. However, the uncertainty in such behavior often leads to large variances in demand forecasts at a detailed level. As a result, the confidence in product demand beyond the immediate backlog and proximate pipeline is lower than ever before.
In addition, uncertainty in demand forecasting is compounded by the complexity of global outsourced supply networks. Increased cost pressures and specialization have led to the globalization of procurement and outsourcing of manufacturing to low-cost countries. The resultant supply network, which includes original design manufacturers, contract manufacturers and multiple tiers of component suppliers, tends to be cumbersome. Component suppliers and manufacturing facilities are often so geographically removed from the markets and inventory storages that end-to-end product lead times have become longer. This has a direct impact on operations managers, who have to predict the future demand mix beyond backlog and a high-confidence pipeline, which is a daunting task.
The following examples characterize challenges in the demand planning landscape:
Example #1: Large-volume Orders
A large computer manufacturer is organized regionally to support demand planning and order fulfillment for multiple channels, including enterprise accounts, distributors, VARs and small and midsize businesses (SMB). The demand forecast for each market segment and region is developed first at a product family level and then disaggregated to a component level based on historical trends. Each region sends its component-level aggregate demand to a global procurement group that creates a global supply plan for subassemblies and components.
Although the supply plan assumes a somewhat linear flow of demand, the enterprise sales teams may develop opportunities tied to customer initiatives that typically lead to large-volume orders of certain products. These orders become a problem for order fulfillment groups to track and manage as they cause disruptions by consuming a significant percentage of overall available supply. To tackle the problem, the order fulfillment group will develop a separate process-based spreadsheet to continuously reevaluate potential deals that can come to fruition three to 12 weeks out in order to detect issues in a timeframe in which proactive correction of supply is feasible.
In addition, uncertainty in demand forecasting is compounded by the complexity of global outsourced supply networks. Increased cost pressures and specialization have led to the globalization of procurement and outsourcing of manufacturing to low-cost countries. The resultant supply network, which includes original design manufacturers, contract manufacturers and multiple tiers of component suppliers, tends to be cumbersome. Component suppliers and manufacturing facilities are often so geographically removed from the markets and inventory storages that end-to-end product lead times have become longer. This has a direct impact on operations managers, who have to predict the future demand mix beyond backlog and a high-confidence pipeline, which is a daunting task.
The following examples characterize challenges in the demand planning landscape:
Example #1: Large-volume Orders
A large computer manufacturer is organized regionally to support demand planning and order fulfillment for multiple channels, including enterprise accounts, distributors, VARs and small and midsize businesses (SMB). The demand forecast for each market segment and region is developed first at a product family level and then disaggregated to a component level based on historical trends. Each region sends its component-level aggregate demand to a global procurement group that creates a global supply plan for subassemblies and components.
Although the supply plan assumes a somewhat linear flow of demand, the enterprise sales teams may develop opportunities tied to customer initiatives that typically lead to large-volume orders of certain products. These orders become a problem for order fulfillment groups to track and manage as they cause disruptions by consuming a significant percentage of overall available supply. To tackle the problem, the order fulfillment group will develop a separate process-based spreadsheet to continuously reevaluate potential deals that can come to fruition three to 12 weeks out in order to detect issues in a timeframe in which proactive correction of supply is feasible.
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