Let’s face it, if you don’t have a reasonable idea of your future demand, how can the planners and factory make a credible job of satisfying the true demand?

The ultimate object of the Consensus Demand Planning process is to provide the business with the input to drive the three levels of planning; Strategic Planning, Executive Sales and Operations Planning and Master Production Scheduling. These three demand plans need to be developed from the same data, support each other and be a consensus of those with insight into the company’s demand. They must not be developed separately with different groups of people or be one person or one group’s thoughts on what the future holds.

You may be moving from a traditional MRP planning and control system in your business to the new Demand Driven Materials Requirements Planning (DDMRP) methodology, which we believe will, over the next 5 to 10 years, replace all materials management techniques which have been in use for the last 50 years, or more.

In the DDMRP case we drive the day-to-day planning and supply order generation based on actual accurate customer orders, as opposed to inaccurate SKU forecasts. You might then think that the above forecasting and demand management process is redundant. Far from it. In fact it is probably more important to develop a good Consensus Demand Plan which will be used at the Demand Driven S&OP (DDS&OP) process, generally in aggregate, to project the future capabilities of the organisation and possibly be used in a blended Average Daily Usage (ADU) calculation. In addition, seasonality indices from the statistical forecasts for individual SKUs would be used as Planned Adjustment Factors (PAF) in the DDMRP SKU buffer calculations.

In this DDMRP methodology, forecasts and demand management are not relevant in the Tactical Relevant range but are highly relevant in the Strategic Relevant range. So, moving to DDMRP is not an excuse to abandon a forecasting / demand management process, but it is a requirement to probably improve the process you currently have in use.

Demand Management

Looking at the chart below, demand management can be broken down into 3 parts, namely, the known, the unknown and the really unknown. Let’s look at each of these separately.

The Known

The known is the easiest part as this is basically your customer order book. You know exactly what is required and when. Unfortunately, in most businesses these orders only extend to the next few days or weeks, if you are lucky. We just need to make sure that these orders are entered into your system as soon as possible such that they can consume the forecast, if normal demand, or get added to the forecast if they are abnormal demand.

The Unknown

Things start getting a bit more difficult in this area. Here we have to forecast current customers and current products. This is where we use quantitative statistical forecasting software to assist us in looking for trends, patterns and seasonality and projecting them in the future to give us some indication of what the future might hold. It is at this point that most salesman get a spreadsheet of numbers and are asked to project the future, and generally, the best that is achieved is a simple moving average out into the future. Simple moving averages are fine for stable, non-trended, non-seasonal products, and I would suggest that you probably don’t have too many of those types of product. Hopefully, your product sales are growing and, more often than not, demand is not constant on a monthly basis and exhibits some form of seasonality. So, use simple inexpensive Statistical Forecasting software that will find the best forecasting methodology based on the least errors and will improve your forecast accuracy tremendously.

Now all we have done so far is to look for patterns, trends and seasonality and project them into the future. But, we know the future is not a direct representation of the past, so we need to collaborate these forecasts. This means talking to your customers and getting the salesman to adjust the forecasts at the detail level. These adjusted forecasts will then be used by the demand management team, to generate the consensus demand plan.

The Really Unknown

Now for the difficult bit, the really unknown demand. This is where we try to determine the demand for new products and new customers as well as to take into account business environmental factors that affect demand, over which you have no control.

If you have a new product/market development function, they will be required to supply information on new products and customers along with launch dates and expected sales. If you are preparing quotes for you current and prospective customers, get sales and marketing to estimate the probabilities of obtaining that business and develop a way of including this in your demand plans.

All businesses work in an economic and business environment over which they have no control. Things like interest rates, car sales, the weather, Forex rates, the oil price, commodity prices, cost of energy, recession and boom periods, major sporting events, etc, etc, etc, have effect on your demand and you really need to understand which of these will affect your business and in what way. These effects should then be applied to our demand plans at the product family aggregate level to come up with a more realistic bigger picture of the demand plan.

The Demand Team

The consensus demand management process can’t be carried out by a single person or function─the reason we call it a consensus demand plan is that several people and functions are involved─this team will then arrive at a consensus as to what the company can reasonably expect as far as demand is concerned.

So, who should be included on this demand team? Certainly there needs to be representation from sales and marketing. New product development should also be there if the business is growing significantly in both products and markets. The master production scheduler should also be in attendance, because the more they understand about the demand the better they will be able to plan the supply. Plus anybody else in the business that has insight into what drives or affects the demand on the business. Ultimately, this whole process should be pulled together and managed by a Demand Manger that reports to the sales and marketing department as they should ultimately own the consensus demand plan and be happy that it can be achieved.

The Demand Management Process

So let’s put all the above together and suggest a demand management process that you can build in your business.

If you look at the flow chart above, the process starts with the Demand Manager. Their first job is to download the latest sales history and append the data to the demand history file

The demand manager would then input the latest demand data in to your statistical forecasting system and literally seconds later can save the output so the sales and marketing team can move into the next phase of the process, collaboration with the customer.

Most statistical forecasting software has the ability to adjust the forecasts in the system in collaboration with the customer. So, armed with their laptops, your salesmen need to visit customers, talk demand and adjust the forecasts in real-time based on their customers’ comments.

These collaborated forecasts are then fed back to the demand manager and it is time to call the consensus demand team together.

It is unlikely that the demand team will look at the demand for your products in detail, as they will be more likely to look at the aggregate demand and maybe make some top down adjustments based on macro-economic factors that could be affecting the overall business, or sections of the business. Probably, a good deal of the discussion at this meeting will revolve around new products, new customers and any other factor having a global effect on the demand of the company’s products.

There are a number of qualitative techniques that can be employed in this area of consensus demand management and we will not go into them in any detail now, but we could use the Delphi method, historical analogies, market research and just plain old intuitive judgement.

Once the consensus demand plan has been agreed, the separate forecasts for the three planning levels can be generated and forwarded to the persons concerned. In addition, the accuracy of the forecasts will need be measured and suggestions to improve the process discussed and implemented. The process then repeats for the next month, and so on.

Summary

So, in summary, forecasting or what should really be known as consensus demand management is far too important for any business to leave purely in the hands of a salesman and should ultimately be a consensus of those with insight into what drives the company’s product demand. Every company needs to have a reasonable idea of the demand on their business prior to trying to organise the supply.

The time for procrastination is over, just get out there and start developing a process today that will assist your company’s future growth by focusing on your product demand.