Demand Planning - Why we should not ignore this process

Demand Planning is a process of budgeting future business potential and many businesses are implementing this process to forecast what will be future expectation. It will never be 100% accurate, but it at least give an indication how to plan the sales and production operation for the next quarter or 6 month cycle.

Mistakes were made when companies produced a plan that project a forecast of one year but never review it regularly. In a fast moving business environment and very often volatile, a demand planning cycle should not last more then 3 to 6 months.

Product that are highly competitive and fast evolving, should have a shorter cycle, compare to a stable slow evolving product.

The benefit of having a demand planning process is many and below here are the common benefits of the process;

Demand Planning Cycle

1. Eliminate high storage of inventory - by having a forecast, procurement specialist will review total purchased volume and reduce storage for material forecasted to have lower production
2. Production capacity are aligned to the forecast projection
3. Aligning cost of doing business 
4. Improve collaboration with suppliers by communicating future expectation of material supply
5. Improve collaboration with customers by communicating and sharing the plan with them 
6. Improve supply chain value creation - maximize output and performance of each level of process
7. Focus on profitability and cost - having a demand plan enable empowerment of the team in the business to target the desire performance require to improve cost and profitability

 However, the biggest sin in most businesses, is the total disregard  of this process and many are reluctant to implement.

Most excuses given were;

• customer not giving us the forecast - this is a complete mistake and misconception as demand planning is a effort from the S&OP (sales and operation planning) and with gainful input from the market, i.e. customers

•  it will never be accurate - again, this process is never about been 100% accurate and to be close to perfection, this process need to be a short term goal (ideally for 3 months, maximum 6 months) and need regular review

• we are not in control what the customer will order - it show lack of collaboration on regular basis to improve the forecast

• the market is too volatile to have a accurate demand planning - actually in such a scenario, demand planning is more important then ever and need very short term goal and measured in weeks instead of in months.

End result of not doing this is the opposite of the benefit of having a demand planning. Cost will be high and inventory will be high. Production `cost may goes up due to unable to cope with additional order, or workers will be idle, which also translate into higher cost due to lack of productivity.