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Industrial Management Briefs

 Dr. İlker Güçlü. Release Date: 12 Jun 2018; Edited: 17 Feb 2021

What is Demand Planning?

The total of all systematic planning activities carried out by an organization in order to forecast the amount and timing of the demand for its products (or services) with accuracy can be called as Demand Planning.

Many factors affecting demand should be tracked and recorded as part of the demand planning process, to be used to generate forecasts.

 

What are the factors affecting demand (and sales)?

There are many factors that affect customer demand and therefore sales.

Factors (data, knowledge, events, etc.) that can be considered in order to prepare a successful demand plan are summarized below.
 

Internal Factors

● Past demand and sales

● Price policy

● Delivery performance

● Quality and perceived quality

● Logistics and manufacturing costs

● New product launches, delists

● Product life cycle stage

Sales and marketing activities

● Promotions, campaigns

● Ads, ATL, BTL advertising, etc.

● Social media activities

● Management quotas and targets

External Factors

● Existing, new and potential customers

● Seasonalities, important days/weeks

● Weather, global warming, natural events

● Changes and trends in prices

● Market growth

● Economic growth

● Competitors' products, prices

● Competitors' new products

● Delivery performances of competitors

● Competitors' sales & marketing activities

● Customers' satisfaction, preferences

● Customers' investments, plans, actions

● Activities of customers' competitors

● Activities of customers' customers

● Large projects

● Tenders, wholesales

● Raw material, commodity prices

● General logistics & manufacturing costs

● Political, cultural factors

● Exchange rates

● Standards

● Legal regulations

● VAT, SCT, PPI, CPI, etc. rates

● Epidemics, pandemics, natural disasters

 

Every organization may choose to add its own and unique factors to the above list. The multitude of factors makes forecasting difficult, unless the demand planning process is designed effectively.

The factors affecting demand should be identified, prioritized and grouped based on their similarities or correlations (if necessary) and tracked systematically, within the scope of demand planning processes.
 


 

What is a demand forecast?

Forecasts created within the scope of demand planning activities are called Demand Forecasts.

Demand forecasts include demand quantities and price projections for various levels or groupings of customers and/or products for future time periods.

Forecasts are an organization's predictions about how the future will be shaped.

Organizations that do not forecast, will not able to effectively plan for their future. All short-, medium- and long-term planning activities, should be based on corresponding forecasts and demand plans. For this reason, the creation of demand forecasts with accurate and reliable systematics is critical for a successful business.

Price changes or promotional activities influencing or shaping the demand may alter the organization's forecasts. An organization that includes such activities to its demand planning activites, may call the whole process as Demand Management.

 

"Demand management is influencing

the level, timing, and composition of demand

to accomplish a company’s business objectives and goals."

Philip Kotler

 

 


 

What are the competitive advantages of planning demand?

Organization that plans its demand better than competition will be able to more effectively organize its supply chain operations (especially manufacturing and purchasing), offer their customers sooner and more reliable due dates, meet or exceed committed service levels, expand market share, product and customer portfolio due to their pricing and cost advantages, and increase overall competitiveness.

In this context, the demand planning process can be considered among critical prerequisites of an organization's sustainable profitability goals.

 

Majority of companies facing problems

in production or material planning,

actually have problems in planning their demand.

 

 

How to forecast demand, how to generate forecasts?

A systematic approach should be followed when designing demand planning processes within an organization. The process may require customizations specific to the organization's needs.

In general, the following roadmap may be implemented.

 

1. Defining the process and its objectives

The importance of the demand planning and sales forecasting process for the organization, its place in supply chain planning, inputs, outputs, objectives and performance indicators are determined.

2. Determining forecasting levels and units

Organizations may choose to forecast at different product levels such as SKUs, product groups, families, categories, brands, etc. Groupings may also be formed based on locations, regions, customers, customer segments, etc.

3. Deciding temporal process parameters

Temporal decisions, such as how to choose forecasts horizons and periods within this horizon, how often to update forecasts, play an important role in structuring the demand planning process.

 

It is important to decide when NOT to forecast

and what NOT to forecast

 

4. Collecting and preparing data

Collecting demand or sales data of past periods, cleansing these data, determining the influential factors in the past, and enriching the data with historical events are done. Therefore, data and information inputs for generating demand forecasts become ready to use.

5. Analyzing data and choosing forecasting method

Visualization of data as graphs aids the forecast analysis and selecting the appropriate methods. Statistical or judgmental methods are used to generate forecasts. These methods should be appropriately integrated into the process, and the performance of chosen methods should be monitored.

6. Incorporating forecasts into organizational planning processes

Demand Planning (DP) is subject to planning activities designed within the scope of processes such as Budgeting, Sales and Operations Planning (S&OP/IBP), Supply Chain Collaboration (CPFR), Strategic Business and Investment Planning, etc. Adjustments on demand forecasts are also likely at these stages.

7. Improving demand planning and forecasting process

The overall performance of the process is evaluated, suggestions and feedback are collected and process improvements are done, when necessary.

 

What are demand forecasting methods?

Demand forecasting methods are grouped into two main groups:

1. Judgmental methods are formed based on the knowledge and experience of managers, employees and experts.

2. Statistical methods create forecasts based on statistical methods and numerical calculations.

Some examples to statistical methods are listed below.

 

Statistical Forecasting Methods

Averaging Methods

Simple Averages

Simple Moving Averages

Weighted Moving Averages

 

Smoothing Methods

● Exponential Smoothing (ES)

● Holt's Method (double ES)

● Adaptive Exponential Smoothing
    (adaptive ES)

● Winter's Additive Method
    (additive triple ES)

● Winter's Multiplicative Method
    (multiplicative triple ES)
 

Regression Methods

● Simple Regression

● Multiple Regression

 

Others

Moving Medians

Seasonal Indices

Decomposition Analysis

ARIMA, ARIMAX

Bass Method

Croston Method

 

Company X does that, let's do the same...

 

Is demand planning same for every organization?

There are some basic methods in demand planning that are applicble to every organization. Particularly, standard spreadsheet software can be used to generate basic statistical forecasts.

However, issues and concerns like sales and marketing strategies, management of products or brands, manufacturing strategies, supply chain operations and relations, nature and patterns of customer demand, interpretation of past data, modeling of future actions and assumptions are not the same for every organization. Therefore such issues and concerns need to be considered from an organization-based, specific perspective.

In order to to plan for long-, medium- and short-term demands, organizations generate long-, medium- and short-term forecasts. These forecasts and plans are later used in capacity, manufacturing, purchasing, etc. planning processes.

Due to aforementioned concerns and reasons and may be many more, demand planning process systematics should be custom- or tailor-made for the organization.

 

Optimum Planlama provides consultancy services on designing and reengineering organizational Demand Planning processes, as well as supporting tools.

 

 

Red Bull Türkiye
S&OP/DP Project, 2022

Makbul
S&OP Project, 2021

NIVEA Beiersdorf
S&OP/DP Project, 2019

SİKA Türkiye
S&OP Project, 2018

ÇİLEK
S&OP Project, 2017

 

Contact us for more information on our consulting services regarding design and implementation of Demand Planning processes and related tools.

 

What are the long-, medium- and short-term forecasts?

Organizations should have the capacilities to generate forecasts at different periods, horizons and details within their demand planning processes.

 

 

Long-term forecasts are strategic with a 2 to 10 year horizon, usually generated in terms of total sales quantities, and are used in strategic business and investment planning decisions.

Medium-term forecasts are generated for groups of products (or services) over 12 to 24 months planning horizons. These forecasts are used in determining aggregate sales quantities and revenue projections and, in turn possible bottlenecks in operations (purchasing, manufacturing, warehousing, logistics, etc.) and financials cash flows. Demand plans and forecasts at this tactical level are generated within the context of Budgeting and/or Sales and Operations Planning (S&OP/IBP) processes.

Short-term forecasts are detailed forecasts produced generated in terms of end- or semi-finished products to be sold in a 3 to 6 months horizon. They are used to determine operational plans related to purchasing, production, warehousing, allocation or transportation.

In addition to values added by the Sales and Operations Planning process inside the organization, processes such as Collaborative Forecasting, Planning and Replenishment (CPFR) lead the way to supply chain excellence, through sharing forecasts and information among supply chain members.

In-House

Trainings

2023

Sales and Operations Planning, S&OP/IBP

Demand Planning and Sales Forecasting

Production Planning and Detailed Scheduling

2023

Sales and Operations Planning, S&OP/IBP

2023

Demand Planning and Sales Forecasting

2022

Sales and Operations Planning, S&OP/IBP

2020

Sales and Operations Planning, S&OP/IBP

2019

Demand Planning and Sales Forecasting

2017

Demand Planning and Sales Forecasting

2017

Production Planning and Detailed Scheduling

2017

Production Planning and Detailed Scheduling

2017

Sales and Operations Planning, S&OP/IBP

Demand Planning and Sales Forecasting

Production Planning and Detailed Scheduling

2011-2016

Sales and Operations Planning, S&OP/IBP

Demand Planning and Sales Forecasting

Production Planning and Detailed Scheduling

2015

Demand Planning and Sales Forecasting

2014

Production Planning and Detailed Scheduling

2016-2021

Sales and Operations Planning, S&OP/IBP

2010-2012

Demand Planning and Sales Forecasting


 

Where is demand planning within enterprise resource planning?

Enterprise resource planning (ERP) can be defined as the management of main business processes in an integrated and coordinated manner within an organization. Main business processes, in this respect, can be listed as sales, manufacturing, supply chain, purchasing, finance, HR, etc.

Demand planning holds a critical position within the scope of supply chain management. Demand planning is directly related to planning of logistics, manufacturing and purchasing, as well as finance.

Organizations striving for excellence in their supply chains, and therefore in demand planning, need certain functional planning processes in place. These processes are outlined below.

In this context, Demand Planning lies within Demand Management.

 

Organizations need to identify the deficiencies and requirements of their current demand forecasting and planning processes, and then improve or re-engineer them.

 

Optimum Planlama offers professional training and consultancy services for organizations to excel their supply chain performance.

 

Dr. İlker Güçlü   |   Founder, Optimum Planlama   Click for resume

This article is to provide a general information. The aforementioned may not apply to all organizations.

 

 


 

Optimum Planlama training programs focused on

'Demand Planning' business processes are,

 

Demand Planning and Sales Forecasting

training program (V4.0EN)

Training Goals


Forecasting customer demand for products (or services) has profound effects on effectiveness of critical business processes, customer satisfaction and revenue. Generating reliable sales forecasts requires effective demand planning and forecasting procedures.

The main goals of this program are providing necessary knowledge on advanced concepts of demand planning processes and basic practical skills on implementing numerical forecasting techniques.

Verbal presentation, all visuals and printed material are in English.

Click for details.

Target Audience


Demand Professionals

Sales Professionals

Demand/Sales Managers

Demand/Sales Planners

Sales Operations

Account Managers

Marketing Executives

Planning Professionals

Budgeting Responsibles

Logistics Professionals

Supply Chain Planners

Product Managers

Customer Relations
 

Training Modules


Day 1:

Forecasting Mechanics,

Basic Methods and Accuracy

Day 2:

Advanced Methods

and Process Improvement

 

What are the Factors Affecting Sales and/or Demand?

Who Generates and Uses Forecasts?

Process Mechanics: Horizons, Periods and Frequency

Forecast Pyramid, Group and Detail Forecasts -DFUs

How to Formalize the Forecasting Process?

Long, Medium, Close-Term Planning Processes

In-Class Exercises

 

Forecasting Stationary, Trending and Seasonal Demands

Sales and Operations Planning, S&OP/IBP Process

Product, Demand and Supply Planning in S&OP

Budget Gap Analysis, Demand Prioritization

Supply Chain Collaboration, CPFR

Forecast Accuracy, Basic Indicators
In-Class Exercises

 

 

Quality of Data, Data Cleansing

Moving Averages, Medians, Weighting

Modeling Nonlinear Trends

Decomposition of Trends with Seasonality

Multiple Regression, ARIMA Models

Exponential Smoothing, Holt-Winters, Pegel Classification

In-Class Exercises

 

Lost Sales, Events History, Enriching Data

Assumption Management, Top-Down, Bottom-Up, Middle-Out

Product Entries/Exits, New Products, Life Cycles

Intermittent Leads, Promotions

Determining Safety Stock Levels

Forecast Accuracy, Advanced Indicators

In-Class Exercises 

 


 

Excellence in your supply chain performance,

 

 

 

 

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