Sales and operations planning (S&OP) is a vital process to business success, and most companies have settled into a monthly/4-week cycle to effectively address the key steps. S&OP is part of a business’s master planning strategy (ideally with an integrated business planning approach) and helps align finance, sales, marketing, production, warehousing, shipping, management, and operations teams with the overall business strategy. We’ve written previously on why the innovation review needs to be the first step in the process, and if we’re starting from scratch, it could conceptually be termed week zero. The innovation review and data analysis needs to occur before week 1 of the monthly S&OP process. Week 1 is when the demand review and forecasting takes place, or demand planning in general terms.
To review briefly, the key steps of the monthly S&OP process include:
Effective demand review and forecasting attempts to accurately project demand over the next 30 days primarily, and out as far as 6 months, 18 months, or even 2 years, depending on what management deems useful. Obviously the next month to 6 months are easier to forecast, based on the data gathered over the previous months and the results of the innovation review discussed above.
The monthly demand planning process may differ somewhat depending on how a particular organization’s management team prioritizes and organizes the steps. Also, one company might either include extra steps or combine/eliminate certain steps based on needs and nuances influenced by the Executive team and/or the overall business strategy. However, most demand planning teams will include the following steps in the process, in some form:
This may include consumer/sales trends, new product/service launches, marketing efforts, production delays or supply chain issues, new/unexpected moves by competitors, labor force issues, weather or social/global events that may impact demand, and internal and/or external part/component shortages. Year-over-year and seasonal trends will need to be accounted for, as well as product life cycles, inventory levels, historical demand patterns for each product or service offered by the company, and market volatility or variability.
In concert with the supply, manufacturing, marketing, and sales teams/leads, the collected data is analyzed and vetted, in order to identify factors or events that might impact demand over the selected forecast period. The team should also examine the previously produced demand forecasts, compare that data to actual sales over the last relevant time period, and attempt to identify all potential reasons for any gaps.
Some companies include this step in the demand forecast process, but ideally a data model must first be created using the information gathered and analyzed in the previous steps. Intelligent demand planning/data modeling software can be a huge help here (more on this below).
Strictly speaking, a demand forecast and a demand plan are not the same thing. A demand forecast is an intelligent prediction of future demand based on the data gathered, analyzed, and modeled in previous steps. The forecast is limited specifically to projected demand, without attempting (at this point) to resolve internal supply chain issues or other factors that may impact the company’s ability to meet this demand. Some business experts view demand forecasting as looking at the projected, pure consumer demand for your product/services in the absence of any supply issues or operational constraints.
Utilizing the demand forecast and incorporating all internal and external factors that may impact its fulfillment, the team, demand manager/planner, or supply chain manager (depending on the size and organization of the business) creates a plan detailing the type, amount, and location of any and all inventory necessary to meet the demand forecast. This plan will need to be balanced against the company’s short- and long-term business goals, as well as any supply chain, production, inventory management, delivery, or financial constraints faced by the company. After the demand plan is fully vetted, it is then presented for review, modification, and approval by the Executive team, typically during the monthly S&OP meeting.
Demand planning provides accurate and timely demand projections that are used and trusted by all functions of the organization in order to make decisions. The following are some criteria to help maintain a high standard of excellence in demand planning.
Demand managers need to be effective communicators, possess technical and statistical skills, and be experienced and respected in their field. This is a vital position in the organization and should only be trusted to a proven performer. An effective demand manager:
As the old computer programming axiom goes, GIGO: garbage in, garbage out. The demand forecast can only be as accurate as the data used to create it. Every effort must be made to ensure the maximum quality, quantity, and accuracy of all data used by the demand team. This brings us to the next point.
Intelligent technology and AI tools aren’t just time-savers in today’s business environments… They’re absolutely vital for effective demand analysis and forecasting. The ORI Excellence Platform combines dynamic demand planning, S&OP, data analytics, and more – all tailored to your business and industry.
All team members involved in the demand planning process must be clearly aware of their roles, KPIs, and timeline. Throughout the monthly planning cycle, the demand manager will either delegate or perform the following tasks, according to daily, weekly, and monthly requirements:
This goes along with what we said above about the vital need for demand management acquiring and using timely, efficient, and accurate data. A large part of that data comes from the marketing and sales teams. If sales or marketing can’t provide accurate or timely demand assumptions or sales data, then the demand team obviously will be hampered in their attempts to develop an accurate forecast.
Just as the demand team relies on sales and marketing for accurate forecast data, the sales and marketing teams need to trust the demand manager’s forecast, assumptions, and recommendations when developing marketing efforts and/or sales strategies. This could be termed a sort of self-fulfilling prophecy, since the sales and marketing teams will be aligning their efforts in order to (hopefully) make the demand forecast come to fruition, but all teams benefit from this hierarchy. This is further evidence of the above-stated need for the demand manager to be well-respected and experienced.
When the demand manager/planner develops a data-supported, well-vetted forecast, the other teams in the business take it as gospel and use that data as the basis for developing their own strategies and action items. They do not generate their own set of numbers or second-guess the demand planner’s numbers in any way. Any concerns or discrepancies should be addressed during the analytics and data-gathering phases, or in pre-forecast meetings, and of course the demand manager should take all into account when preparing the final forecast. However, once those concerns have been addressed sufficiently, the numbers presented by the demand team should be considered the marching orders, until further data becomes available and any modifications need to be made during the normal monthly cadence.
All team leads should prioritize the monthly demand review meeting and do their utmost to make it effective. The demand review process is critical in all following steps toward the Executive S&OP meeting.
By following these best practices for demand planning, organizations can produce better demand forecasts, save time and money, and meet their overall business goals.
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