The Foundation of the Supply Chain
Within most organizations demand planning (forecasting) falls within the inventory planning group or sales. It would be rare to for it to be part of a Logistics department yet we are starting the career spotlight series with demand planning because I feel free strongly that it is the foundation of the supply chain and has a significant impact on the Logistics Organization. In addition, it is where I started my career and I have had first hand experience seeing the lack of experience and qualified demand planning associates.
Demand Planning is both a mathematical exercise and collaborative process. The goal is to arrive at a prediction of future customer behavior that is reliable and actionable. Using a spectrum of sources (both structured and unstructured) the demand planner is continuously revising their expectation for the future. This “forecast” is the core input in the planning process for all downstream supply chain and logistics functions like purchasing, transportation, & warehouse management. It is critical that even sales & finance both participate and utilize the demand planning “forecast” to ensure all functions within an organization are driving towards one vision for the future.
A Day in the Life
Typically, the demand planner adheres to a monthly schedule that governs the type of activities they are involved in each month. For example, the first week of the month is typically utilized to review the demand results of the previews month in order to make adjustments to future periods. All of the monthly actives associated with the demand planning role are structured around the monthly republication of the forecast. This is a critical deliverable that impacts the production or purchasing plan.
Any aspiring professional considering demand planning has to have a think skin. A forecast is never 100% correct and as a result almost all the feedback that one receives is negative. To be successful in a demand planning role one has to see negative feedback as a motivator and not a burden.
Key Demand Planning Metrics
In order to evaluate ones performance in managing the forecast the demand planning profession has narrowed in on a few key metrics. The most common KPI is to evaluate the Mean Absolute Percent Error (MAPE or forecast error) of the forecast. This is a mathematical measure of the forecasts fit to the actual demand trend. Typically MAPE is reviewed in detail the first week of the month to evaluate where the forecast can be improved. Another key KPI is Forecast Attainment which measures the amount of the forecast that has been actually attained. This metric should be reviewed weekly against benchmarks to evaluate intra-month if demand is trending in the right direction. The final key KPI is Forecast Bias which measures the direction of the forecast error (either over or under forecasting). This metric allows the demand planner to compensate systematically when establishing future period forecasts.
Demand Planning is a challenging and rewarding role and an excellent way to get a broad understanding of an organizations supply chain. In future posts we will look downstream at roles within the logistics organization that are impacted by the demand planning role.