In this second part of our demand planning series, Nicolas Commare explains the different steps to a simple demand planning process. If you missed it, here is the first part on what is demand planning?
A Demand planning process is strategic for most companies but too often, setting up and sticking to a process can be very difficult and complex.
The main goal of such a process is to give a reliable demand plan (usually monthly but sometimes weekly or daily) to the Supply Chain team in order to source or produce this plan. The impact here is obviously strategic as you will engage cash in buying products & services or paying employees.
I suggest to follow these 5 simple steps to structure your process, to achieve performance:
Analysis & Building the plan
The first step is for the demand planner (I will discuss his profile type in a future article). He will need to analyze the previous period and build the new demand plan based on its targets. The demand planner will need to:
- Get the data of the previous month. This part can be a bit tricky, as it will be more or less easy depending on the tool you are using.
- Correct the historical data where you have suspect values. You may know where you had shortages, exceptional orders, marketing actions… By using the corridor method, you can also visualize data that are statically suspects.
- Launch algorithms calculation of your forecasts. Usually a lot of questions are raised at this moment: Which algorithm to use? At what level of product/market should we launch the calculation?… I will come back to this specific point in another article.
This step is the subjective part of the workflow as some might argue that collaboration is counterproductive. Nevertheless, in some cases I believe that even if powerful mathematics methods are bringing value to the process, collaboration will allow to go further.
A best practice is to involve all the actors of the demand (marketing who defined products for a market, sales who are in touch with the customers, logistics who manage the coordination and the delivery…)
The demand planner will ask every actor of the process for its input. This step can be done using recurring meetings, but it usually has to be supported by a tool who can highlight the concerned products. Without a pre-selection there is a risk to dive into uncertainty and get non-productive meetings. Using a tool to collaborate and centralize the information can avoid long and complex meeting and will also allow to work in real time.
Centralization and validation of a plan
After the collaboration step, the demand planner will finalize a version of the demand. There should be only one decision maker of the final plan to keep a clear view of responsibilities.
Before sending the validated plan, I advise checking the stability of a few last months versions in order to be sure that you are not destabilizing the logistic flow delivering the product.
“Netting and splitting” and export
Once all the steps of the demand planning process have been completed the results can be exported to an ERP.
But before exporting the final demand plan there is usually an in-between “netting and splitting operation”. Forecasts and demand planning are usually done at a family product level per month. But, the logistic plan is usually configured to show quantities to deliver per products and per due dates (weather you are working with MRP or DDMRP systems).
The netting and splitting step is required so that everyone can understand and use the results of this process.
At the end of this demand planning process you will have a non-perfect plan.
Obviously, you may still generate over-stocks or shortages but keep in mind that the goal of the process is to continuously improve your performance over the months. This process will be facilitated because :
- You have a regular, simple and understandable process improving itself every month.
- You can organize your Supply Chain setup to mitigate the risks (using safety stocks or safety delays) where your risks are high and, reduce these actions when you reach the performance level you are aiming for.
- Everyone will be involved in the success of the process, which means that all the actors will be committed and focused on one unique plan. This is a really important point, as an organization is always more efficient when all its members are going in the same direction.