Supply chain managers should improve demand-planning process

by CXOtoday News Desk    Aug 30, 2012

supply chainEnterprises dealing with supply chain should develop the right demand-planning process in order to improve effectiveness, according to analyst firm Gartner.

Elucidating on the state of demand planning, Gartner analysts noted that the primary influences on demand variation include increased customer requirements followed by new product launch and the state of the economy.

The Gartner survey that considered supply chain managers in industry verticals such as aerospace and defense, healthcare, consumer electronics, chemical, apparel and footwear, found out that over half of the supply chain managers report that erosion in profitability had the greatest effect on their organisations.

“Without a functioning process, obtaining a consensus-driven demand plan in supply chain management will prove extremely challenging,” said Steven Steutermann, Research VP at Gartner.
He added that organisations are struggling to find the process that fully utilises the alignment of organisation resources. “The balance between bottom-up collaborative approaches versus top-down statistical modeling is challenging, and the ability to understand baseline volumes from promotional volumes (as well as mix and shift within portfolios) is an equally daunting task,” said Steutermann.

Gartner has identified a number of best practices to help supply chain leaders improve their overall demand-planning processes.

Firstly, organisations need to strike the balance between statistical modeling and collaborative forecasting to improve the accountability for the forecast. They should also put in place continuous improvement plans to improve the forecast.

Secondly, Gartner research found that those companies that utilize demand sensing and shaping as part of their demand-planning processes significantly improve their forecast accuracy. Steutermann believes that in order to fully realise the benefits of demand sensing and shaping, organizations must first mature their demand-planning processes that must be supported by organisational balance, metrics, sponsorship, ownership and accountability.

Finally, Gartner recommends organizations to measure forecast accuracy at the item, location and customer level for forecast error understanding. “Customer or sales forecast accuracy should be measured for continuous improvement and accountability. The appropriate place to measure for continuous improvement is in the sales and operations planning review process,” summed up Steutermann.