From the Diary of a Supply Chain Consultant
by Ian Pilkington
Being demand driven as an organisation is a key ingredient in having a stable, cost-effective supply chain that will deliver high service levels to your customers and revenue and growth to your business.
The Demand Review is one of the most important steps in the sales and operations planning (S&OP) process and the goal of this phase is to have and unconstrained forecast or consensus demand planning that will serve as a critical input to the next steps in the process.
As you embark in the S&OP journey, there may be some challenges on kicking off your process, below are 4 ways to help improve and for a more effective Demand review process:
1. Take the time to understand your demand signals- believe the data is there!
For the majority of businesses demand data is made up by historic information with a predictable and a not so predictable element. Some business will have the luxury of having firm orders in the future that will allow them to have a clear picture of what’s to come. However in my experience the vast majority of teams will have little to no information about the future and a lot of limiting beliefs about the information they possess “our customer demand is so volatile that it is not worth getting more information as it will change” or “we have all of the information we can get from our customers… there is no more information available”, “I have nothing to show at demand review”. Truth is there is always ways to find additional information that can support the process: short, medium, long-term data, market intelligence, similar supply chains and industry networks, just take the time to understand what is available. What I always tell my clients is to believe that the data is there, waiting to be discovered! As an S&OP leader your role is to ask as many questions, create relationships and even inspire teams creating a Can Do attitude. It will amaze how much usable information there is available, and never used because it’s not understood.
2. Don’t forget- it’s an unconstrained demand plan
The goal of the demand review is to agree to commit to an unconstrained demand plan. Keep this in mind, as you do not want the demand review to become a supply discussion. An unconstrained demand plan focuses on demand potential. What products could we sell without thinking of any of the business limitations? Because the S&OP process is a new process and requires a new way of thinking and the objective is to commit to this plan the conversations will turn to reasons why we can’t commit- constraining the plan. Hold your nerve, explore the possibilities of your true demand potential and commit to it.
3. Don’t let Demand Volatility stop you
The issue of demand volatility is often raised by clients. As mentioned before, teams often believe that their own customers demand signals fluctuations are so significant that is almost impossible to use that information as part of your demand review. That may be true and what your business may be experiencing, thinking that if you follow up that volatility you will pass it down to your supply chain. So what to do about it?
First thing to remember is that at this stage of the process, this is an unconstrained demand plan. When you have such volatility, however ask yourself this question? Does your customer actually build in that way? More than likely they don’t. So use your knowledge of the market, customer and product to produce a better forecast without constraining your demand while maintaining the balance. Aerospace supply chains historically have huge volatility passed down their supply chains, commonly called the “forester effect”. So why does the Aerospace market produce so much volatility? I will come back to this in a later blog.
4. Collaboration and preparation are a key to success
S&OP is a collaborative process, and is people centred. The demand review should not only be a Sales & Commercial responsibility. It should include other key stakeholders with customer and market knowledge, people who can add value to the “demand” conversation. In the early stages of the S&OP implementation, get people in the room who have knowledge, however small you may think it is. Encourage everyone to listen to others and hear what they say.
Often S&OP leaders make the common mistake of setting up the meetings for each review, invite people, send agendas and hope everyone will show up with information the day of the review. This doesn’t happen, at least not in the infancy of your S&OP process, but it will when the cycles become more refined. The S&OP process drives cross-functional alignment and collaboration, so working alongside stakeholders ensuring they understand their role in the process and are prepared at each stage, will make your process smoother and more stable.
Demand review success depends on participation by key stakeholders—such as, sales, marketing, supply operations, and finance— having a collaborative focus allows you to explore new avenues that the stakeholders may not have seen before.
Contact me if you want to learn more this process.
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