Demand Planning: Part 1
Should My Organization Have a Demand Planning Group?
By Jeff Ziegler
As supply chains get more complex in response to omnichannel pressures, most companies are realizing the ever-increasing importance of having one quality view of demand across functions. The demand plan drives the supply chain in many companies, so your demand planning organization not only needs to be expert at using the latest forecasting tools, they’ll need to be able to collaborate with many parts of your company to bring key business intelligence insights needed into the demand plan. Having a group that is well organized and well positioned will increase the accuracy of the demand plan, as well as build trust that your company can successfully run with that plan.
This four-part series is both for those contemplating creating a demand planning organization, and for those who are questioning whether their current group is positioned to make its greatest contribution. We will first discuss whether a company should even have a standalone demand planning group. From there we’ll examine the processes that your demand planning organization will likely support and how it needs to be structured to ensure efficiency. Then we’ll go on to explore the pros and cons of the various functions across your company where the demand planning group could sit – sales, merchandising, logistics, finance, etc. – so as to maximize collaboration and shared business intelligence.
Should We Have a Demand Planning Group?
I know I risk the angst and angry rebukes of demand planners everywhere when I even hint that a company might not need an independent demand planning organization. After all, the forecast is at the center of it all. It provides the one version of the truth that drives the rest of the organization. Right?
Not necessarily — especially in a world where headcount is tight and the infrastructure to support such an organization might not be the best use of your limited talent. In addition, the business insights driven by the forecast may be more important than the building of the forecast itself, making it advantageous to combine demand planning with other functions.
There are three scenarios where an independent demand planning organization might not make sense:
- The forecast is of low value to the company: The level of resources you spend on creating a demand plan should be relative to the importance of the plan to your company. If you aren’t using the sales forecast to drive replenishment, safety stock, manufacturing or financial planning then why produce one? Where does this apply? If you are using a pure “push” model (fashion, highly seasonal) where you buy once and simply allocate the buy, you don’t need to manage a demand forecast through the year. Also, if you are a make-to-order shop where you buy raw materials after you get the order, again there is little need for a demand forecast.
- The forecast is easily produced by technology: I headed up the supply chain function for a medical products company that distributed radiology supplies to hospitals. High service levels to hospitals are critical when people’s lives are at stake. We found, however, that a reasonably good forecasting tool could use sales history to generate a very good forecast without much intervention. Demand for contrast media and procedure kits isn’t frankly very seasonal, and hospitals rarely have a sale on CT scans that would spike demand. So, there wasn’t much need for a forecasting function, and the procurement group was able to manage the forecast along with their other duties. As advanced forecasting tools get better, this is becoming a viable opportunity for more companies.
- The function of producing the forecast is best combined with other functions: In this option, it’s not that demand planning isn’t getting done or isn’t complex, it’s just combined with other functions and you don’t end up with an organization called “demand planning” or sometimes even people with demand planning or forecasting titles. Normally, this evolves after a company has gotten very good at forecasting (with a standalone organization) and the interrelationship with another function becomes more important than producing the forecast. This is trending both because of the increased importance of demand planning collaborating with other groups as well as improvements in forecasting tools, allowing an organization to be less dependent on deep forecasting expertise.
Overall the answer is simple: if the current quality of the forecast isn’t impacting your bottom line, then don’t spend additional resources on it. On the other hand, if the impact of your forecasting function is being limited by its isolation, consider ways to expand its influence across key stakeholders in the company.
Whether you have an independent demand planning group or combine it with other functions, the quality of the demand plan will depend on what else the team members are asked to do and who is influencing their work.
Jeff Ziegler is the senior director of solutions strategy at JDA Software.