10 Supply Chain use cases for your Demand plan
Your business aims are defined by your strategy. This defines your markets, product or service type and the methods to supply. Not forgetting the need to turn a profit.
But the shape of your business is not defined wholly by your strategy. External factors are just as important. Factors such as timing, competition, economy, disruption.
These define the demand for your products and services. So the shape of your business as a whole is defined by the demand that you are willing and able to supply. Everything else in your business is a response to this demand – your production facilities, warehousing, distribution, staffing and investment levels.
Often the demand plan is just seen as an input into supply planning rather than the reason that planning exists. Sometimes it is not given the status it deserves. So, those who need to know the demand are sometimes given the task of creating the demand plan, but I digress….
Your demand plan shapes your business. The attention you pay to your demand plan will determine whether it is the right shape.
Here are ten use cases that directly impact you:
1. Defines product lifecycles and drives master data accuracy
Your demand plan should include everything, Including opportunities. Not as some dummy coding, but as properly thought through master data. This is as important for a company with 10 product launches per year as it is for one that has 10,000. For a company that has only 10, each one represents 10% of your new business.
Statistical analysis reveals the shapes and trends for products and product families. Do you want to push or re-invigorate a declining product? If you supply parts for assembly, even though you are not in charge of the lifecycle, you can see it and influence your customers on the best way to end and replace the part.
2. Drives your IBP/S&OP process
If you’ve got this far, I guess you know this. But to be clear, demand isn’t just an input. It is the primary input. Nothing else exists without the demand plan. It’s quality determines everything that follows.
The first stage in IBP is to develop the demand plan using statistical and commercial inputs alongside Bias KPIs to create a best statement of demand. The second stage is to compare the demand against the ability to supply (measured against internal and supplier capacity) and come up with a committed demand that can be supplied, with reasonable constraint a, looking out for 2 years plus.
The demand plan is determining additional capacity requirements and potential relaxations in market stimulus. Neither of these are without cost. Over-estimate the demand and the penalty is financial. Under-estimate the demand, and the penalty is potential service level loss which is ultimately a financial loss too.
3. Drives MRP
Demand works through your BoMs to determine your component usage. This is someone else’s demand. Someone else’s shape. If you know your demand, you can tell them theirs. They can work to deliver your requirements
4. Defines crucial purchasing decisions and supplier relationships
You know which materials are specialised and which are commodities. You know which have long lead times and which are in short supply. Until you know your demand, you cannot determine your buying strategies – Open market, or close partnership? Without a basic level of quality in your demand, how can you even make medium term contracts to purchase at locked in prices?
5. Usage of scarce resources and investment strategies
You have bottlenecks in your business you need to balance against reasonably accurate demand. If you don’t, your demand shape was wrong previously and you over-invested somewhere. Let’s leave that one right there.
6. Short term comparison to confirmed demand
You have a demand plan. Then confirmation comes in, usually in the form of confirmed customer orders. You have already planned against a demand plan, now you can confirm the accuracy and adjust for differences. You can adjust a production plan. But without a reasonably shaped demand plan, you would, effectively have no plan at all, just meticulously documented guesswork
7. Market trend analysis
You don’t create statistical analysis and gather numerical and anecdotal data from customers just so you can do No.6, do you?
8. The basis of your financial planning and annual budget
The holy grail of S&OP and IBP. A budget that can be plucked straight from the live forecast and plugged directly into the financials. Of course the Sales director, CFO, CEO and other UFOs want to change what they see, but if this is the case are they fully bought into your S&OP/IBP strategy? A question for them in what should be a healthy and ongoing debate.
9. Compare to sales history to calculate bias
Sales people over-forecast. They are optimists. Nearly always. This is why they are employed. It does not mean they are bad at their jobs. But they need feedback to improve. Comparing the demand plan to actual sales to show the bias can make them become more realistic. Especially if you start to use Bias to allocate scarce stock. High Bias = Smaller share…
10. Predict future promotional volumes
A well managed forecast can be used retrospectively. Manage the promotional element well, and it creates a base and promotional element against which future promotional impacts can be calculated. Customer supplied volumes can be challenged. In this way, the forecast comes full circle and starts to be used to predict and improve it’s own shape.
Now, imagine all this, but with an AI element too…
Want to know more about Demand Planning. Discover our dedicated blog series.