Demand planning needs to be right the first time. Don't mess it up!

Sales & Operations Planning is a top priority in every boardroom. Senior managers view it as the key instrument for aligning supply chain operations with financial and commercial business objectives. Unfortunately, it often fails to get off the ground, observe Marleen Veth and Kurt Klomp of UC Group. The reason is that the foundation isn't properly established, specifically: the demand planning process. Why is this the case? And what can be done about it? The two S&OP experts offer their most important advice.

Let's first explain why demand planning is so crucial for S&OP. Demand planning is the process by which companies determine how much they expect to sell in the future. Forecasting is an important component, but not the only one. There are market developments a company wants to capitalize on, new products to launch, marketing campaigns, and various other strategic plans that influence demand. All of these must be incorporated into a process where all departments reach a consensus, ultimately leading to the achievement of financial objectives. The company-wide agreed-upon demand plan then serves as the foundation upon which all subsequent plans (inventory, production, purchasing) are based.

Squabbling over figures

Unfortunately, we often see companies struggling significantly when they embark on demand planning. This happens on many fronts. For instance, it's frustrating that during meetings involving sales, finance, purchasing, and operations, there's almost always bickering over figures. Who made that forecast? Our figures show something different?! Before you know it, the discussion shifts from content to merely the reliability of the figures. Another common pitfall is having the wrong people at the table. Why do I even need to be in this meeting? I'm not responsible for any of this! People stop attending and lose faith in the process. The result: every department happily goes back to creating its own forecasts, and as a company, you're back to square one.

Half-hearted implementation

Why is establishing a robust demand planning process so complex and problematic? At UC Group, we've conducted extensive research into this and observe a combination of causes. The first is that companies take it too lightly and either fail to implement or only partially implement the necessary building blocks of a demand planning process. Our conviction is: S&OP should be done properly or not at all; you can't just pick out a few elements and skip the rest. For example, a component like 'data cleansing' is often overlooked, we've noticed. It's somewhat understandable, perhaps, as data cleansing is tough and time-consuming, but you simply need that clean data for the process to run smoothly further down the planning chain.

‘Hey, my boss is disengaging'

Another reason for disappointing results is that the demand planning process is implemented too sparsely organizationally. There's been no thought given to the tasks and responsibilities of key players or people don't understand the objective. They miss the bigger picture and don't see what's in it for them personally. Communication channels are also not properly established, causing information that is important to everyone – for example, a large upcoming sales order – to get stuck in the sales department or in one person's inbox. Perhaps the most fundamental reason why S&OP fails is that top management loses focus. When people see that their boss no longer prioritizes it, they quickly think It probably isn't that important and they disengage as well.

Very boring advice

Fortunately, demand planning *can* go well, but as a supply chain team, you'll need to put in a significant effort. Unfortunately, we can't pull a simple trick or a magic bullet out of a hat. Our advice is quite straightforward: work systematically, don't skip any steps, and ensure that each building block of the process is carefully implemented with the right tools. During projects, we also always pay a lot of attention to 'getting people on board.' For us, this always starts with commitment from management, but also involves showing the rest of the organization why you're doing it and what everyone's personal stake is. This ‘What’s in it for me’ is crucial:

• If the demand planning process runs smoothly, you, as a sales representative, will have to say 'no' to your customers less often.
• If the demand planning process runs smoothly, you, as a production employee, will have fewer urgent tasks.
• If the demand planning process runs smoothly, you, as a buyer, will be a better partner to suppliers and can negotiate better prices and purchasing conditions.

A practical tip is to directly reflect employees' responsibilities within the demand planning process in their personal KPIs. A common example: Don't give a sales representative a bonus (only) for meeting their revenue targets, but also for delivering a reliable demand plan.

First time right

The most important advice we want to give here: ensure that the implementation of demand planning is done right the first time! Dedicate time to it, read up on it, delve into models, invest in tools, consult experts; because demand planning, in particular, carries a very high risk of failure. If it goes wrong and employees become disappointed with the process, it's incredibly difficult to recover from that, in our experience. No, not again!, employees will sigh. A failed S&OP implementation due to a weak demand plan is already not very conducive to your supply chain performance; it is also killing for morale.

You really only get one chance to do demand planning right, so don't mess it up.

The above article was written by Kurt Klomp and Marleen Veth. Kurt is a change manager and has successfully implemented S&OP processes and Vendor Managed Inventory. His aim is to put the customer first and foster effective collaboration between people, processes, and systems. Marleen also has extensive experience in the sector, particularly in planning issues, supply chain management, and process optimization. She also leads many projects in change management.

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