Driven by an unprecedented spike in marketplace activity — new product introductions, promotions, the explosion of stock-keeping unit (SKU) counts, price-related "gaming," savvier consumers, and the now-global crush of competitive pressure — a sharper view of future demand is a must-have weapon in the quest for nimble supply chains that can rapidly respond to fluctuations in demand patterns.
Across all industries, organizations are struggling to meet the market-driven surge in customer service requirements while simultaneously striving to make the most of working capital. Hypercompetition is driving down prices, leading many to choose offshoring as a way to reduce costs and manage pricing. Yet solutions like offshoring have their own risks, as revealed in cautionary tales about wrong inventories being shipped overseas or costly air freight shipments from distant supply lines to meet urgent customer needs.
The heightened urgency to improve demand planning is also being driven by development of other internal processes like Lean, sales and operations planning (S&OP), and Sarbanes-Oxley compliance. S&OP emphasizes the importance of a one-number plan. Lean, and similar best-practice supply-centered processes, address the importance of a quality, single-number demand signal to propagate though the supply chain. And Sarbanes-Oxley's requires a reality-based portrayal of future business opportunities, which is another reason to improve demand planning process output.
With ever more complex demand planning puzzles to solve and with greater urgency to develop demand planning expertise — within and throughout their own organizations — business leaders are focusing on comprehensive approaches to enable high-performance demand planning. In fact, many view optimized demand planning as the only realistic lever to help manage supply chains in today's ruthless markets.
Gone are the days of narrowly focused "silo" strategies, based on a tool, a process or a training plan. Today's best-practice approach is much more comprehensive, based on a holistic model that incorporates people, process and technology improvements to enable optimal demand planning.
Breaking Down Demand Planning
With decades of hands-on experience and insight into real-world challenges facing global supply-centric organizations, our company's industry-veteran supply chain specialists developed a Demand Excellence process approach based on this all-encompassing model for a number of reasons.
First, we witnessed firsthand the need to define a demand planning standard that breaks down the silo approach and collectively examines the processes and sub-processes that support and enable the tools, the consensus process and the overall business needs of an organization to develop a quality demand plan.
Second, merely acknowledging and articulating the existence of a demand excellence process exposes the numerous disciplines and expertise that demand planners must master to create quality demand plans. While this "exposure" often reveals gaps and deficiencies, candidly acknowledging what you "don't know" is key to developing skills and competencies. And since the demand planning role has evolved over the years, from a chiefly clerical position to a pivotal business planning role, our Demand Excellence model acknowledges and addresses the importance of that shift.
By definition, Demand Excellence has three distinct major processes: Demand Statistics, Demand Planning and Demand Consensus, each of which is supported by numerous sub-processes.
Figure 1: The Plan4Demand Demand Excellence Model
Demand Statistics focuses on best-quality statistical forecast generation, data management and measurement. Demand Planning centers on obtaining the best judgmental input, assembling assumptions and integrating new activities plans (like promotions and new products) into the demand plan. Finally, Demand Consensus is concerned with building a one-number plan and integrating the Demand Planning process into the entire organization.
The Demand Excellence model shows the competencies that collectively make up demand planning best practice. Your challenge is to measure your company's current state of maturity against these criteria to identify gaps — or perhaps entire process areas — in need of improving before you can execute against the model.
Measuring performance is a straightforward exercise: Simply use the maturity assessment in Table 1 to rate your business on a scale from 5 (good) to 0 (poor) for each of the various sub-processes to get a macro-view of your organization's demand excellence readiness.
Table 1: Demand Excellence Maturity Assessment
Certain businesses won't fit the model precisely, of course. A chemical producer that sells plastics resins to second-tier manufacturers may not have promotions per se, but the company may have sales programming that drives activities similar to promotions. Thus it's important to carefully consider the Good/Poor model descriptions for each of the sub-processes as they relate to your specific organization.
As a point of reference, most people usually score their businesses around 35 out of a possible 75 points on their initial review of the 15 sub-process groupings listed here. Once you rate your business against these standards your next challenge is to assess the competency of your human resources to achieve demand excellence. Because just as demand planning has become more complex, so too has the baseline skill set required by demand planners become more sophisticated.
It's Not What You Know…
Supply chain professionals are familiar with the traditional litany of must-have planning skills and abilities: quantitative mindset, collaborative nature, business-savvy sensibility. Yet these desired competencies are useless if not properly applied in the context of demand planning. Moreover, they don't address the capability of individuals to execute against a demand excellence process, nor are they specific enough to gauge the competency of your existing demand planners or demand planning team.
To provide such insight, we often recommend developing a demand planning competency matrix to conduct skills assessments. This matrix helps business leaders align the requirements of the Demand Excellence model with the requirements of the various roles already existing within their own demand planning organization.
Detailed criteria are first defined to gauge the desired knowledge level and competency of demand planners. These criteria are normally customized to fit a company's process needs, systems and roles. Table 2 shows a sample competency matrix developed to assess the skills of demand planners at one company, with "scoring" categories ranging from Aware (lowest) to Expert (highest), with Functional being the minimum target-level in terms of achieving Demand Excellence. Once the matrix has been built, the next step is to actually evaluate the skills of personnel throughout your organization.
Table 2: Demand Planning Contingency Matrix and Skills Assessment
Making the Demand Excellence Transformation
Famed UCLA basketball coach John Wooden is often quoted as saying, "You can't teach height," meaning that a person's innate characteristics are sometimes advantageous. Yet while competency in statistics is an increasingly important skill for demand planning, having a PhD in mathematics does not make you a qualified demand planner.
In our experience across numerous demand planning organizations we have found most of the skills and behaviors necessary to achieve excellence in demand planning are learned, not inborn. These skills can be taught, which reinforces the value of a competency matrix for conducting comprehensive skills assessments.
The results of these assessments can be used to develop well-targeted training plans for individuals and departmental groups. If there is a collective lack of understanding about data management, then highly focused, highly customized systems-based training is recommended. This approach ensures that time is not wasted covering fundamental "basics" when specific task-related training is what's needed, thus driving greater value in less time and much greater return on your training investment.
A Final Take-away
In our experience implementing Demand Excellence processes we have discovered that a multi-step implementation approach is simplest and most pragmatic:
- Step 1: Define the Demand Excellence process model elements appropriate for your company, and then use the model to assess your current state of process maturity.
- Step 2: Develop a roadmap to (re)implement the process and tools for demand planning excellence.
- Step 3: Determine the competencies required to support a version of the Demand Excellence model suitable for your business.
- Step 4: Conduct a skills assessment of demand planners within your organization using a competency matrix as a rubric for scoring.
- Step 5: Identify training required to elevate the competency level of your demand planning organization or individuals.
While the Demand Excellence model serves as a roadmap for best practices in demand planning, it will fail if not supported by focused attention on the capabilities of your demand planners and on strategic training to improve their skills. As you engage in a redesign of your demand planning process or systems always remember: It's people that make the difference.