Jun
19
How important is demand planning in Supply Chain
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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.
Jun
15
These days in the context of supplier management you see a lot written on soft skills such as relationship management and its importance in effective supply chains.
In short, relationships build partnerships, and good partnerships provide a route to performance. Gone are the days of a stuffy formal relationship, effective procurement teams these days rely on building trust and personal relationships or do they?
My guess is that we’ve all experienced both good and bad supplier relationships first hand. Adversarial relationships can be of course be a challenge but does it reduce performance? In my experience it almost certainly does. Effective supply chains need attributes such as great communications, understanding and a no blame culture to produce the required performance results. Adversarial relationships typically belong to high cost and low performance.
When you think about it this isn’t much different from personal relationships, and indeed many of the tools that deliver effective personal relationships also deliver killer business relationships so it shouldn’t come as a surprise.
The actual process of managing a supplier relationship can utilize many tools often these are dependent on the type of supplier you’re dealing with and the stage that the relationship is at however there are some fundamentals that you can look to use.
Great Communication
While its somewhat stating the obvious, communications is THE key principle in any relationship. Effective communication helps establish trust and can prevent minor issues becoming bigger ones. Communication doesn’t have to be verbal but can be supported by a flow of information that is usable to both parties. The trick is to have methods that allow information to be shared quickly which support both parties and their processes.
Partnering culture
Part of the trick to relationships is avoiding blame. Both parties must realize that problems happen and the trick is to work together to solve them, without retribution on the other party. Seeing the relationship as a partnership where working together to resolve issues is seen to deliver real performance gains can add significant weight to the relationship.
Appropriate use of Supply Chain Technology
Technology can be a wonderful thing and it can also act as a millstone around your neck if it’s either not fit for purpose (doesn’t work) or not appropriate (wrong tool). I’ve seen plenty of suppliers provided e-trading tools by customers only for the tools to fall significantly short of being something usable – this can build huge levels of frustration within the supplier and hamper effectivity. Technology can be great but time needs to be spent up-front to ensure that it’s adding the expected value.
Celebrate feedback
Relationships shouldn’t shy away from providing feedback where things can be improved. The relationship should work within a continuous improvement cycle and both parties should look to discuss issues openly (in an appropriate forum). Also look to celebrate the good. Focusing on what works and the victories along the way can help bind both parties and strengthen the relationship.
You are not the suppliers only customer
Don’t pretend you’re the only customer. My final comment is to remember you are not the suppliers only customer. We can all get swept up with the day job and there is often a tendency to over demand but do provide sufficient space for the supplier to service other customers. It’s in your interest for the supplier to succeed and to do that it needs a strong customer base, it won’t get that if you take up all their time and disable them from serving others.
Have some thoughts on supplier management – we’d love to hear from you in our comments section below.