Demand management is increasingly seen as a critical issue for supply chain executives. But, the process starts with sales and marketing and it demands effective collaboration.
It’s one of the oddities of modern business: the people tasked with satisfying the demand for a company’s products might have little or no say in the management of that demand – and in some cases might have only limited visibility of that demand.
Not surprising then, that demand management is such a critical issue in any supply chain operation. But an effective strategy means involving all the stakeholders – and that in turn means talking to sales and marketing.
In fact, Oliver Wight’s demand specialist Debbie Heaton argues that demand planning is essentially a sales and marketing process.
She points out that it is surprisingly common for confusion to exist over where responsibility resides.
Heaton is the author of a recent Oliver Wight white paper on the issue. She says: “Often demand is seen as a supply chain process, or in some cases is led by finance. If demand management is based on guesswork from the supply team, or what executives have promised the company shareholders for the coming year, inevitably there will be a disconnect between company plans and actual customer demand.
“If the forecast is inflated, there will be the need for promotions, discounts and additional spend to boost sales, all of which eats in to company profits; conversely, if demand is understated there will be an adverse impact on customer service, company image and of course the business will not take action when it should – now! Instances where supply chain departments mistrust sales and marketing and try to predict the market themselves are also common, but when each functional area has its own version of the demand plan, naturally there is a negative impact on customer service, inventory levels, sales and profit.”
Heaton points out that there are challenges involved. Sales and marketing teams are very good at looking at the competitive environment and pulling together a response. However, she points out that they are less good at understanding the impact of these decisions and so it
is important to have demand planning as part of the sales and marketing team.
Demand management is just one step, and companies can benefit from moving on to demand analytics, says Heaton. Bringing a demand analyst into the sales and marketing team can strengthen the capability to interpret data coming in and highlight the activities required and over what timescale.
Heaton also believes demand analytics have a key role to play. “The quality of the demand plan is only ever as good as the input it receives. With so much information coming at the business, a specialist demand analyst within the marketing team can allow the calibration of assumptions, and continuous review of activity, which will ultimately optimise the customer experience.”
Mike Tatara of Epicor Software points out that demand forecasting tools keep getting better and better. “To some extent these can level the playing field, but statistical acumen is what helps a company do meaningful things with increasing amounts of data, ie, Big Data.”
A study by the Economist Intelligence Unit, sponsored by Oracle, in 2009 suggested that companies must apply new technologies and sophisticated analytics not only to make their supply chains more responsive to customer demand, but also actively to shape demand towards more profitable business, says Tatara.
“In 2014, being responsive to change is table stakes for being able to manage risk and deal with circumstances outside of the organisation’s control. Soon, however, this responsiveness alone won’t make a business best-in- class, or even ensure long-term survival.
“Predictive analytics has evolved to the point where companies are able to be moving in front of customer demand, ready and waiting.
“Companies that treat demand planning as a core competency and learn how to collaborate and use both structured and unstructured data to predict with greater accuracy will swiftly outpace those mired in inventory and the attendant costs of simply striving to be responsive.
“One common issue that stands out among organisations that use software to manage their supply chain is that they already have a demand forecasting tool and never learnt how to use it. In the case where the software was purchased years ago by former employees, it may not even be known that a demand forecasting tool exists. A simple step is to look for the capability in the system or contact the service provider. Another rather common issue is that demand forecasting capability is available but was never purchased. An organisation not currently using a demand forecasting tool may find that capability was there all along but lay undiscovered,” he says.
Heaton points out that collaboration is an important element in the process, however, it takes a significant amount of time to develop real collaboration. “You need to understand where both you and your partners are in the journey, recognise the remaining journey you need to take together, and the value of reaching your goal.”
Campbell’s goes for demand sensing
Campbell Soup Company is upgrading to the newest version of Terra Technology’s Demand Sensing solution, which provides an automated way for manufacturers to extract value from big data, using pattern recognition algorithms to create the best possible prediction of future sales for every item in every location.
“Sensing product demand is particularly important in today’s increasingly complex marketplace,” says Patrick Folan, Campbell’s vice president of supply chain.
“Following our recent implementation of SAP’s Advanced Planner and Optimiser tools for supply chain management, upgrading to Demand Sensing 5.0 was the next logical step.
“Demand Sensing allows us to make supply decisions using forecasts reflecting current market realities rather than historical estimates. Better forecast accuracy will further our efforts to improve customer service, without the burden of carrying unnecessary inventory.”
Originally appeared in Supply Chain Standard, April 2014