A while back I had the chance to switch from a demand planning role reporting to Sales, to a demand planning role reporting to Operations. I didn’t know it at the time, but that question has been debated for a long time in our field: where should a company’s demand planning and forecasts be done? Should it be a commercial function or an Operations function? Since I have worked on both sides of the equation, I’ll delve into the pros and cons of each and add my two cents to this discussion.
Option 1: Demand Planning Being a Part of Sales
I have to say that when I worked in Sales and reported to them, it was much easier to find out what buyers did and when they were doing it. When demand planning and forecasting are done by the commercial side, customer wants and preferences can be better understood. Sales teams have first-hand knowledge of market trends, how customers act, and other details that can have a big impact on making accurate predictions. I found this easier to predict what demand will be, which will in turn make customers happier in the long run.
Also, when I worked more closely with Sales, I was able to get information faster and talk to customers in their own language. Because I was close to the market, I could get a better idea of what customers really wanted at that moment, respond quickly to changes in the market, and change my forecasts to match.
On the other hand, a lot of what I did was aggregate up demand that was often unchecked and not without bias. Also, my forecasts were only good for a few weeks, and salespeople usually focused on short-term goals and targets, which can sometimes overshadow the need for long-term planning. Pressure to meet short term sales goals would cause sales people to overestimate demand, which would lead to too much inventory or not enough.
One last thing I’d like to say is that when I was in Sales, my company moved me to Operations partially because there were silos and no link to the supply side. I found that the commercial side may not fully understand how the supply chain works and what its limits are. Demand Planners may miss important information about production capacity, lead times, and inventory management if they don’t have a strong link to the operational side. This gap can lead to extra inventory, stock-outs, and higher expediting costs, as we saw for ourselves.
Option 2: Being a Part of Operations and the Supply Side
While I could better communicate with customers when I worked in Sales, I could better communicate with the business when I worked in Operations. By combining demand planning with operations and supply, Demand Planners get a full picture of the whole supply chain. They can make sure that the right number of resources are used by matching forecasts with output capabilities, inventory levels, and logistical constraints. By having me work in operations, we were able to reduce inventory, cut down on stockouts, and improve the general efficiency of operations.
Full disclosure: We didn’t make inventory and cost improvements simply by giving me a new boss under Supply Chain. We also made a collaborative workplace. A bigger benefit of moving from Sales to Operations was that, with company backing and my independent mindset, we were able to break down silos and work together across departments. Putting demand planning in Operations helped different teams work together like Sales, Procurement, Production, and Logistics. By breaking down silos and dealing with people from different departments, I was able to make sure that my forecasts matched what was going on in the business. This gave me a more synchronized way to meet customer needs.
I now also have an organized monthly demand review with Sales, which didn’t exist before. However, I’ve lost some of the customer insights I had because I was so close to customer in my old job. There may be a delay in getting information, and I have lost some of the insights I used to get. This lack of information about customers can make it harder to make correct predictions. This is something we did notice at first (at the beginning my move actually made my forecast error a little worse) but this was made up for by better inventory management and a more efficient supply side.
The key learnings here for me were to make more of an effort for close collaboration with the commercial side and a structured process such as S&OP becomes essential.
Option 3: It Doesn’t Really Matter
Working on both sides and moving around taught me that it really doesn’t matter. There are good reasons for both choices, but the best place for demand planning and forecasting in a company relies on many things, such as the industry, the structure of the organization, and the strategic goals. I think the key is how the person doing it thinks about it and how all the functions work together.
In the end, the priority is to encourage collaboration between different parts of the business and make sure that Demand Planners have access to useful data and insights from both sides. This can help make planning and predicting for demand more synchronized and flexible, which is good for the business as a whole.