So you set up an S&OP process and started doing demand planning. But your forecast accuracy isn’t improving and your service levels are still low. You invested in a planning system and hired talented and experienced planners. You have a good monthly rhythm for meeting and reviewing the plans. And you’re trying to be patient, since you know that programs like this take time to show results. But it’s been several years now and you’re wondering if you made a mistake.
Before you give up, reassess your program.
Demand planning programs fail for many reasons. Talent can be hard to find, systems often do less than promised, and getting usable information about your customers can be a challenge. In my career I’ve noticed five key areas that companies need to get right to make these programs effective. If your company is weak in any one of these areas it can undermine your entire program.
The Five Elements
- Commitment to the process
- Understanding the program’s value and limitations
- Proper structure, practices & accountability
- Effective tools & systems
- The right people in the right positions
Let’s look at some ideas on how to assess these areas and make adjustments if they are failing.
Commitment To The Process
Let’s begin by asking, “Why you are doing demand planning?”
Here are some wrong answers:
- My competitors are doing it.
- Someone in the leadership team thinks we should, and wants to claim credit for it.
- The shareholders or owners expect us to do it.
- It sounds cool.
- You hired someone who sold the company on doing it, since he is an expert on it and this is his chance to shine.
Successful planning programs often take years to develop and become effective. And your competitors are likely also trying to improve their planning. Today’s business environment requires effective planning. And it is cool. But these are not enough.
Your program will be as successful as you are willing to make it by showing commitment in these ways:
- Leadership consistently talks about the program and actively supports it, both financially and through personal involvement in its ongoing development.
- Sales, Finance, Supply and Operations all understand the value of planning and share common metrics with the planning programs.
- Planners are given opportunities to acquire additional training and advance to management levels of the organization.
- You are willing to take the time and commit the resources in terms of people and systems to develop a great planning program.
Understanding The Program’s Value And Limitations
What are your expectations for the program?
Wrong answers include:
- Improved service levels & customer satisfaction
- Reduced inventory
- increased sales
By itself planning won’t help you in these areas, since success in these areas depends on the effectiveness of your entire supply chain.
So what will planning achieve?
The key contribution of effective planning is driving clear communication among all the S&OP partners about risks, constraints and opportunities.
The improved performance in sales and inventory management are proportional to the quality and timeliness of this communication and the team’s ability to act on the information to resolve issues. This doesn’t mean you can’t have metrics for your planners. But it does mean that your planner’s ability to communicate and build consensus around plans should carry as much weight as their bias and WMAPE performance.
Proper Structure, Practices And Accountability
What structure should you use?
Wrong answers here:
- We’ll just copy what our competitors do
- Read several books and put together your own structure
- Experiment with different arrangements
- Rely on someone’s past experience
My answer: What do your customers need? What structure best allows us to serve them?
Perhaps the usual Demand Manager, Demand Planner, Forecast Analyst would work for you. In some cases it might make sense to align the Demand Planning role with Customer Service, so that the planners see the demand in real time. In other cases perhaps it would be better to have the planner report to someone outside the S&OP area so that their independence is protected. Your structure should support your goals in meeting your customers’ expectations.
Customers want their orders complete and on time. What practices would allow your company to consistently meet these expectations? Consider these:
- Regular customer collaboration meetings where your supply chain teams meet with their counterparts on the customer side; I would also include members of your customer service teams in these meetings.
- Quarterly demand planning meetings where future plans are discussed and confirmed, and any risks, constraints and opportunities are documented.
- Annual meetings of your top leadership with your customer’s leadership teams.
- Integrating customer data into your reporting so you view your performance from your customer’s perspective.
- Collaborative planning and forecasting (CPFR).
Effective Systems and Tools
What systems and tools do you need?
- Latest name-brand ERP system
- Top of the line reporting system
- Large IT department
- Retained consultants
You probably already guessed my answer: what do your customers need? In many cases you won’t need the Cadillac version of any system. You will need:
- People who know how to use your systems and manage information effectively, and who can communicate well and train others.
- Structure that aligns information flow and accountability, so people know that gathering and sharing information in a timely manner is expected.
- Systems that are easy to maintain and upgrade, are stable and easy to learn, simple to use and support communication, planning and feedback.
- Managers that can interpret customer needs and align or develop the systems and their teams to support these.
The Right People In The Right Positions
How do I get the right people?
- Look for the most qualified people and pay them top dollar
- Promote people internally who look like good candidates
- Take any candidate you can find, since the job market is tight
My suggestions here may surprise you: Hire the people who:
- Believe in and understand the value of the S&OP process.
- Can best drive the process of collaborating with the other S&OP members while effectively managing the data that drives good planning.
- Have the basic skills you need and who can also live with being wrong often, who aren’t intimidated by pushy salespeople or difficult customers, and who have potential to move into management or other areas of the company.
- Can enforce accountability at all levels, including the leadership level.
- Can rationally challenge broken and outdated processes.
- Seek ongoing training and development.
- Can grow and change as business requirements change.
- Can be trained for the positions you want to fill.
Before You Give Up, Reassess
While implementing a demand planning process can be done in a relatively short period of time, it can take years for the process to become a routine part of the overall S&OP process. Patience is required. And regular reassessment of these elements can help companies avoid the trap of setting up a demand planning process that is doomed by lack of support, unrealistic expectations, poor structure, ineffective tools and processes, and the wrong people in the wrong positions.
So where will you start?