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Demand Management Best Practices - Process Principles and Collaboration - Class PDF
Demand Management Best Practices - Process Principles and Collaboration - Class PDF
Slow
Stock within FG
DPA & BIAS OOS Moving/
Norms Freshness
Non Moving
DPA & BIAS
Demand Plan Accuracy (DPA) measures the RELIABILITY of Monthly Demand Plan (CDP) that is agreed
and committed by the BUSINESS. It is the percentage accuracy of the Demand Plan against the actual
demand (Orders) for the month.
Demand Bias measures the under or over forecasting of the Demand Plan…
• It means not in stock or not immediately available for sale. Generally, it is measured through ERP.
Out-of-Stock Identification
Active Notification of Out-of-Stocks (Raise flag when critical)
– OOS (%) = (No of days stock available/ Total Working Days) * Contribution (%)
Freshness
2. Communicating Demand:
To the supply & finance organizations & supply chain
partners.
1. Planning Demand 3. Influencing Demand
3. Influencing Demand:
S&M tactics, product positioning, pricing,
promotions etc.
Demand plan is a process of planning all demands for products & services to support the marketplace over a
horizon of time. It is a multi-step cross-functionally integrated business planning process used to create reliable
forecasts. It stretches out from Sales & Marketing to Manufacturing and back to Sales through Distribution.
Forecasting:
It is part of planning demand. It means to predict a future condition or occurrence. Forecasting connotes a
lack of control – something that cannot be predicted with a high degree of accuracy.
Plan:
It means a scheme or method of acting, doing, proceeding, making etc., developed in advance. It denotes
action arranged in advance, which means that someone is determining & controlling the actions taken.
Demand Planning Process
Best Practices of Demand Planning
?
What was
What is
overlooked
new?
then?
What was
overlooked
now?
Forward Input Required for Demand Plan
Inputs Information Planning Horizon
Sales Customer Plans 1-12+ months
Individual salesperson plan
Territory/ region sales plan
Sales strategy & tactics
Incentive plan
Marketing Market plan 1-18+ months
Channel plans
Promotion plans
Pricing plans
Monitoring of key economic indicators
Business driver analysis & monitoring
Competitive analysis
Product/ Brand Management New product development 1-18+ months
Product launch plans
Product exit plans
Product life cycles
Product pricing plans
Brand & category plans
Competitors’ product tactics
Role of Demand Manager
Marketing
Product/ Input Customer
Brand Input
Input
Statistical
Sales
Analysis
Input
Input
• Forecasting is the art & science of making projections about what future demand & conditions will be.
• --- Sunil Chopra & Peter Meindle
• An estimate of the future demand. It can be determined by mathematical means using historical data, can be
created subjectively by using estimates from informal sources, or it can represent a combination of both
techniques.
• --- APICS Dictionary, 8th Edition
1. Forecasts are always wrong. The perceived pattern is not continued into
2. Long-term forecasts are usually less accurate than the future.
short-term forecasts The past pattern has not been adequately
3. Aggregate forecasts are usually more accurate understood.
than disaggregate forecasts. Random fluctuations have prevented the
4. The farther up the supply chain a company is (or pattern from being recognised.
the farther it is from the consumer), the greater is
the distortion of information it receives.
B. Causal:
Assumes that demand is correlated with certain environmental factors.
Uses estimates of what environmental factors will be to forecast future demand.
C. Simulation:
Imitate the consumer choices that give rise to demand to arrive at a forecast.
Using simulation, a firm can combine time-series & causal methods to answer such questions as:
What will be the impact of a price promotion?
Basic Approach to Forecasting
1. Understand the objective of forecasting:
Identify the decisions to be made based on forecasts.
2. Integrate demand planning & forecasting throughout the SC:
Link its forecast to all planning activities throughout the SC.
These include capacity planning, production planning, promotion planning, and purchasing etc.
Exponential smoothing:
A type of weighted moving average forecasting technique in which past observations are geometrically
discounted according to their age. The heaviest weight is assigned to the most recent data. It is used
when demand has no observable trend or seasonality.
Time-Series Forecasting
Regression Models:
A statistical technique for determining the best mathematical expression describing the functional
relationship between one response and one or more independent variables.
The method that is used to calculate the constant & the slope is the least squares estimate. This method
minimizes the sum of the square errors between the actual value and the predicted value. The slope
coefficient (b) and the intercept (a) are calculated using the formulas below.
This method is still predicting the future based on the past. There is danger in using this forecast equation
for anything besides a short range forecast.
Forecasting Error
Mean absolute deviation (MAD):
The average of the absolute values of the deviations of observed values from some expected value. A graph
of the number of times (frequency) actual demand is of a particular value produces a bell-shaped curve.
This distribution is called a normal distribution. Two important characteristics to normal curves: the central
tendency, or average, and the dispersion, or spread, of the distribution. The greater the dispersion, the
larger the standard deviation. The MAD is an approximation of the standard deviation.
1. +/- 1 MAD of the average about 60% of the time
2. +/- 2 MAD of the average about 90% of the time
3. +/- 3 MAD of the average about 98% of the time
Forecasting Error
Mean squared error (MSE):
It is the average of the square of total forecast errors for a sample. This approximates the variance.
The TS is recalculated each period & compared with a preset value which is usually somewhere between
±3 standard deviations & ±8 standard deviations. A large negative TS will result is when demand has a
growth trend and the manager is using a forecasting method such as moving average.
What is it?
It means communicating the demand plan to the supply & finance organizations, and increasingly to supply
chain partners. It makes or breaks the demand management process.
Influence Reconcile & synchronize with financial & supply plans (Sales & Operations
Demand Planning)
Master
Prioritize Feedback &
Scheduling
& manage Performance
Monitoring & Supply
demand
Planning
Feedback & Performance Monitoring
Feedback to the sales force of decisions made in reaching consensus on the demand plan & in
reconciling and synchronizing demand & supply.
Feedback to the product, brand & marketing organizations of decisions made in reaching consensus on
the demand plan and in reconciling & synchronizing demand & supply.
Feedback from the sales force to the demand manager (& vice versa) when demand does not
materialize as planned.
Feedback from the product, brand & marketing organizations to the demand manager when demand
creation efforts are not executed as planned or do not stimulate demand the way it was anticipated
(either positively or negatively).
Feedback by the demand manager to the master scheduler and supply planning organization when
demand does not materialize as planned.
Principles of Communicating Demand
It means to convince customers to buy products & services in such a way that supports your company’s
objectives and to influence own company to meet.
Influencing Demand Process
Elements of PDCA
What is it?
Managing for optimum demand performance – from demand volume, sales revenue, profit, and customer service
points of view.
Baseline
The part of expected sales if no action (Activity / Promotion..) happens.
Uplifts are the expected sales volumes achieved over and above what normally would have been sold if the
Generating Demand activity did not take place.
Impactors
Impactors are events or conditions that will affect baseline volumes.
An Example
Actual
Uplift
Baseline
Impactor
Process of Baseline Estimation
Primary Data:
Sales History
Create the best estimate of future demand, the number upon which all
operational activities will be based
The Baseline Forecast uses cleaned historical data (excluding events and effects
of stock-outs etc.)
Objective: Frequency:
Agree on Monthly (3rd Week)
one
number
Consensus
Demand Plan
Consensus
Demand Plan Meeting
MOR / STDSR
Participants:
MANCOM
Group Product Managers
Others as needed
Objective:
Firm-up Outlook
and DF for next 6 Frequency:
qtrs (RIG, EBITA,
PFME) Monthly (4th week)
Solve structural
problems (if any)
Example issue:
Build new production line
OpDSR
Participants:
Demand Planner
Supply Planner
Factory Planner
others as needed
Example issue:
Raw material not available