4 Pillars of Demand Planning

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L O G I L I T Y V O YA G E R S O L U T I O N S

An Executive White Paper

Four Pillars of Demand Planning Excellence
Achieving higher supply chain performance with more powerful, accurate demand planning

L O G I L I T Y V O YA G E R S O L U T I O N S

An Executive Whitepaper

Table of Contents Pillar #1: Go Beyond Simple Forecasting .....3 Pillar #2: Beat the “Devil in the Details” Using a Demand Aggregation Hierarchy........5 Pillar #3: Take Planner Productivity to the Next Level ............................................7 Pillar #4: Make Collaboration a Core Demand Planning Competency ......................8

Four Pillars of Demand Planning Excellence
Achieving higher supply chain performance with more powerful, accurate demand planning

Executive Overview
Estimating future demand is one of the most valuable, but difficult challenges in supply chain optimization. Any discussion of this subject will invariably note that forecasts are always wrong, but absolutely essential to planning business effectively. Demand forecasting provides the crucial forward-looking picture that shapes how a company will deploy its supply chain to take maximum advantage of customer opportunity. “Demand planning” is the effort to increase forecast accuracy and customer service levels through better perceiving, predicting, and shaping the full range of factors that determine how well your product portfolio satisfies market needs. No other aspect of supply chain optimization has greater impact on business profitability. Providing the best “one number” forecast requires capturing demand close to its source and accurately predicting actual demand with enough lead time and confidence to ensure maximum sales and operations performance at minimum cost. This paper outlines four key elements that support effective demand planning and establish fundamental parameters for higher service levels and lower inventory cost. These are the “pillars” on which competitive advantage and profitability are built: • Forecast modeling • Demand aggregation (and disaggregation) • Management by exception • Collaboration between internal and external supply chain stakeholders

Summary ........................................................10

Table of Figures Figure 1: Example of a life cycle demand curve .................................................3 Figure 2: Demand hierarchy, showing multiple aggregation stacks ...........................5 Figure 3: Inputs to S&OP process .................9

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Pillar #1: Go Beyond Simple Forecasting
Demand planning software applies science to deliver a better forecast (a prediction that turns out to be closer to actual demand). While forecasts have long been executed using not much more than a “spreadsheet and a hunch”, leading planning organizations strive for a multi-layered approach that employs a variety of statistical models in an unbiased way to comprehend the many factors that influence demand for products in the marketplace over time. According to a recent Gartner survey on improving demand planning, respondents indicated that “lack of accountability for the accuracy of the forecast” was the biggest challenge. Companies can benefit from clearly defining the balance between statistical modeling and collaborative forecasting methods. New Product Introduction The process of developing and bringing a new product or service to market can be a grueling journey that spans idea generation through concept development, business analysis, market test, implementation, and finally commercialization. Quantitative forecasting algorithms, based on existing hard data, can only be used for products with an existing demand history in place. For new products, more qualitative models that include subjective inputs like product attributes, market knowledge and experience may provide the best available guidance.

The first pillar of better demand...
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