In my experience, demand planning is many times put aside when implementing new systems. In many midmarket sized companies, planning for the purchase of product is often performed in Excel with information pulled together from sales history and tribal knowledge from the buyers themselves. This makes the process easy to continue despite changing systems.
This kind of process typically elicits a variety of challenges including:
- "I just have too many items to effectively plan and I'm focusing on the high velocity items."
- "Shortages happen all the time and inventory has to expedited to meet demand."
- "It takes a great deal of manual effort to maintain large excel spreadsheets to provide planning."
- "The supply chain is getting too complex. I'm sourcing from overseas, hiring contract manufacturers, etc."
Despite all that, what are some of the barriers for change?
- There is a belief that the variability in demand cannot be systemically predicted.
- It takes a lot of effort to set up a new system.
- It feels complex - you have to decide what algorithm to use, what window for planning to use, how much history should you use, how to factor in seasonality, what to plan, etc.
To be honest, much of this is true. The wonderful news is that most demand planning solutions don’t have to happen all at once. And you don’t have to use the recommendations that system provides. You can take your own knowledge of the situation and adjust accordingly. The facts are that you as buyers do know what feels right and what does not. Once you have the demand planning system up and running, you can see how it is generating demand based on the information YOU have provided. Then, as you begin to trust the numbers more, your job becomes easier.
With a strong demand planning system, you can see how much you need to order based on:
- historical sales
- your current forecast
- existing sales orders/ work orders
- open purchase orders
- on hand inventory
- lead time to receive the product
Doing this will improve your excess inventory position, reduce outages, increase sales and increase customer satisfaction.
If and when you are ready to start letting your system help you generate demand, remember that this is simply taking information you already have and applying real time data to provide recommendations. Sure, there will be some work to set up the system. You will have to define the right demand process for different item groups and take what you already know to configure the system to deliver the best results. If done correctly, you will see an increase in productivity as you begin to trust the numbers and the process.
On Wednesday, June 19th @ 11 am Pacific I am hosting a Demand Planning 101 webinar if you are interested in joining and getting a little more context into this topic.