In our recent post on overstating sales forecasts in SIOP, we touched upon the process of demand planning. In this post, we thought we’d delve a little deeper and touch on a few of the reasons why this activity is so important whether you work in manufacturing or the service sector.

For many, the function of demand planning is, perhaps, the most crucial aspect of any company. At it’s basic it is a business process and encompasses managing and collating future requirements (some real and some forecast) for the products/services of the business. This strategic function then usually co-ordinates (or helps too) the alignment of production functions to meet the demand.

As a consequence, this function has the significant bearing on the success (or not) of the company and its financial status.

If you’ve worked in manufacturing companies, chances are you have come across the demand planning function. They will typically be responsible for managing the demand for goods made and therefore have a hand in predicting what raw materials and bought in goods are required.

Demand Planning inputs and key functions

For the function to flourish it requires various inputs such as:

* Timely and relevant data,
* High levels of data integrity
* Excellent lines of communication with supporting functions
* Suitable management systems (often MRP)
* Knowledge of supporting functions (i.e. to help in capacity planning)

When it comes to one of the more demanding functions, that of generating consensus forecasts, demand planning is usually both the gatekeeper (data doesn’t enter MRP without sign off) and arbitrator (they usually help in the fine tuning of forecasts). Once the data has been entered into the system, through processes such as SIOP, if the forecast is not being met then the demand planning function reacts accordingly (under appropriate controls) to tune the demand signal. The advantage of the function is that it provides a constant monitoring and view that can be provided to management to help determine trends and issues.

Demand Planning Systems

When it comes to systems many firms utilize a form of MRP. When it comes to these there are laterally 100’s of software packages that support effective demand planning such as Oracle, SAP etc. These software tools often support associated processes such as capacity management and in today’s connected company infrastructure more and more are looking to use the same process at all outposts of the business using standard processes across the enterprise independent of location. This is especially important where the requirement is to simply and rapidly review demand data and inventory levels across the company.

While there are some criteria in determining where demand planning sits within the organization it will normally be housed in either Operations or Finance but regardless of how you organize it, having an accurate and timely view of demand across the whole of your company is indispensable and helps you meet the needs of your ever demanding customers.

Have some thoughts on the role of demand planning? Be sure to use our feedback section below.

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