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Efficient Demand Planning

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The main goal of demand planning is to answer the following question:

"What the customer is expected to buy?"

It is critical to establish in the S&OP (Sales & Operations Planning) horizon - 18 months - what would be the company income in Unit and in Value ($) in order to plan accordingly the Supply plan.

Why efficient demand planning is critical

Most of companies spend too few effort on establishing an proactive Demand Plan but rather simply aggregate the customer forecasts into monthly buckets - or worse keep the previous one - as an input for the Supply Plan.

This increase the bullwhip effects and logistics people spend most of their time chasing orders and supplies, changing priorities and increasing significantly inventory with a negative impact on the On-Time-Delivery (OTD) performance.

The result in long fulfillment lead-time resulting in order delays or even loss of Sales.

Companies spend many effort on production planning during M.P.S (Master Production Schedule) and in details in the M.R.P (Manufacturing Requirement Planning) with a poor result when the demand plan is not realistic. As the result operational performance is weak and management is put under pressure.

Logistics people value added is wasted in changing daily the production planning and checking the suppliers deliveries, as well as frequent meetings trying to follow unplanned orders.

The inventory turn is then low, meaning that the return on dollar invested to fulfill orders are too low and company money is wasted on funding the demand plan discrepancy.

And worst of all, unnecessary inventory built or unused raw material purchased become at the end obsolete and the financial impact is a direct write-off in the accounting book.

As a summary, inefficient demand planning results in order delays - so cash collection delay, losses of sales, high inventory and obsolescence which can lead to billion of dollar wasted.

Setup an efficient demand planning process in a company

Usually companies are reticent to setup a corporate demand planning process as they state the forecasts are uncertain and as a conclusion demand planning is a waste of time.

This common sense is a mistake as the opposite should be concluded :

  • Forecasts are by nature uncertain, but this uncertainty shall be measured
  • Demand planning is complex therefore a company will get a competitive advantage by mastering the demand plan
  • The Return On Investment (ROI) should be measured by the company to ensure a non waste of time. (We should notice that the ROI is always positive in whatever company implemented it).


To start the process, the company shall do the following:

  • Get sponsorship from the executive board to create the demand planning function and review the monthly demand plan
  • Get or promote a demand planner - responsible for setting up and executing well the demand planning process
  • Get full involvement of Sales & Marketing organization, Operations and Finance
  • Amend with the Supply organisation the demand horizon buckets: the firm period (e.g. manufacturing lead-time - no variability accepted), negotiable period (+/- 30% variability accepted in demand) and free period (demand is unconstrained)
  • Invest in an appropriate tool (Demand Management tool, ERP module, Business Intelligence (BI)) that will become the single source of truth


Working on the demand planning process

The demand planning is a monthly process where the output is the monthly demand plan.

It means that actions have been taken to plan what the customers are expected to buy from the company in the coming months.


This is done following 4 steps within a monthly in a continuous process:

  1. Aggregate the customer forecasts, planned orders and backlog. Review the gaps, double entries and forecast in the past or in the frozen period (usually within the standard order lead-time).

   2. Review and build a draft demand plan under the demand buckets:

  • Determine the market opportunities : trend, seasonality, new customer expectations, evolving competition, new products introduction,...in order to find the best demand areas
  • Determine the optimum product mix and customer mix to achieve a sustainable growth in the target demand areas
  • Determine the sales & marketing tactics to stimulate the demand in target demand areas : promotion, special events, price revision, distribution channel,...

  3. Communicate the Demand Plan to the organisation:

  • Supply organisation : review demand plan in units to review capacity, efficiency and resources requirements
  • Finance organisation : review the assumption, product mix and turnover
  • Product organisation : review the product mix, new product introduction, product life cycles and demand plan in units

  4. Review the scenarios during executive meeting:

  • Review the assumptions taken
  • Adjust the priorities
  • Adjust the demand plan according to the scenario amended
Last modified on Friday, 11 May 2012 08:15
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