Interpreting market demand data is one of the most vital concepts in Demand Planning. Effective management of demand greatly improves responsiveness and positively impacts consumers, inventory levels, go to market strategies, and ultimately, revenue. But this is a lot easier said than done because the consumer of today wants the same experience, availability and assortment across online, in-store, and via third party distributors.
In addition to understanding consumer behavior and being one step ahead, we need to understand consumer sentiment and create an experience around how individual customers want to buy. We mustn’t assume we can meet consumers’ needs by only reacting and to sales orders alone – we need to understand true demand. This true demand may not even be what the end consumer actually bought, but what the customer intended to buy.
To serve the right consumers with the right products at the right time, a good estimate of demand is crucial and it cannot be done in a functional or company silo. It requires the involvement of many parties: Finance, Marketing and Sales, and Operations, but also external parties such as key customers and channel partners. The best way to mitigate lower customer tolerance is for it to be replaced by joint value customer collaboration.
Realize You Are Part Of An Integrated Value Chain
Organizations who thrive have learned that they are part of an integrated value chain, or partners in a grand synergy that comes from collaboration in data, process, technology, and innovation. For some, it is a formalized process that enables companies to work together with their trading partners like Collaborative Planning and Forecast Replenishment (CPFR) in the structured manner defined by Voluntary Inter-industry Commerce Standards (VICS). Companies like P&G revolutionized Joint Value Creation (JVC) with their partners and set the standard for what we should achieve.
Other companies call it Demand-Driven Value Networks (DDVN) or, more up to date, Joint Value Collaborative Planning. Whatever the acronym, they all work together to better meet their customers’ needs by efficiently utilizing customer and supplier competencies and insights.
The 6 Steps To Synergistic Collaboration
Over time, and through innovation, we have seen the alignment between the core processes of forecasting, ordering, and fulfilment between partners continue to improve. To accomplish these synergies in common areas such as Logistics, Operations, Supply Chain, and Demand Planning, there are six key areas of collaboration we need to focus on:
1 – Develop a Front-End Agreement and Purpose: This step is where trading partners establish the guidelines and joint vision to define the value proposition for all sides. For some, this is more detailed and includes confidentially agreements and the empowerment of resources to be employed throughout the process. Others are more informal rules of engagement but usually still cover key points such as scope, roles and responsibilities, and objectives.
2 – Collaborative Forecasting: Customers are developing consumer or store level forecasts and doing in-house promotional planning. At the same time, suppliers are developing their own customer forecasts and trying to interpret POS or syndicated data and incorporate market analysis. In this step, retailer Point Of Sale data, casual information, store opening and closings, and information on planned events are used to create a joint sales forecast that supports the joint business plan.
3 – Collaborative Order Plan: The retailer from their store level forecast has generated an aggregated order plan. The supplier, from their customer forecast, creates an estimated demand plan. From a collaborative sales forecast, neither side is guessing and we have a collaborative proposed order plan between partners. In this step, inventory and delivery strategies are combined to generate a specific order forecast that supports the shared sales forecast and the joint business plan.
4 – Generating Orders and an Inventory Plan: This step marks the transformation of the order plan into a committed order. Order generation can be handled by either the retailer, supplier, manufacturer or distributor, depending on competencies, systems, and resources. Regardless of who completes the task, the created order is expected to consume the order plan which is aligned to the collaborative sales forecast and the result is a time-phased inventory plan at the retailer and supplier/distributor.
5 – Fulfilling the Order: Good collaborative planning does not stop at the order. In this step, the focus is on the efficient transfer of goods and inventory pooling for the retailer and the supplier, including third party distributors. For customers it is about receiving and optimizing inbound logistics and freight – for suppliers it is shipping and optimizing the outbound and deployment. This collaboration enables effective fulfilment strategies and optimization of total logistics between partners.
6 – Collaborative Performance Assessment: The age-old adage, what gets measured gets managed. Suppliers can measure on-time and in full (OTIF), inventory or other execution monitoring. Customers drive performance with supplier scorecards. In this step, aligning on a structured, disciplined, feedback performance assessment helps both sides meet the front-end agreement and objectives of the joint business plan.
Bottom Line: Win Together Or Die Alone
Even if trading partners do not implement a formal CPFR process, any environment of trust and a collaborative interaction can greatly benefit each one of them. Those who struggling to survive in the volatile and demanding business of today can attribute their difficulty to acting as an autonomous element in their supply chain. Those who are thriving today, and those who will be able to keep pace with the consumer of tomorrow, do so by working together towards a joint vision, collaborating on demand and supply plans, and driving collective innovation. In boils down to optimal customer response, and you cannot serve your customer without collaborating with your partners.
I will be discussing the topic of CPFR and external collaboration in IBF’s Online Education Series, held on May 10th 2018. There are multiple dates throughout May dealing with a range of topics to help you plan and forecast better – you can see further details and register here. It’s a great series of seminars and I encourage you to join me.