How Mature Is Your Demand Planning Process?
Published: March 13, 2023
Building a world-class demand planning process requires organizations to first assess their maturity level by asking five key questions.
As businesses seek to streamline and optimize their supply chain operations, demand planning is a key area of focus. But how can companies assess the maturity of their demand planning processes and identify opportunities for improvement? Chakri Gottemukkala, CEO and Co-Founder of o9 Solutions, sat down with Simon Joiner, Director of Product Management at o9 Solutions, Inc., to discuss the five key areas to consider when evaluating the maturity of demand planning processes.
1. Do you know what drives your demand?
According to Chakri, the first area to consider when assessing your demand planning maturity is the quality of your demand driver data. This involves understanding the factors that impact demand, both internal and external, and ensuring that this data is being collected and analyzed effectively. “The drivers of the demand could be external drivers related to customers competition [or] the market,” he explained. “They could be internal drivers, which are commercial actions that your organization is taking that impact the demand [or] could be your supply chain capability to support the demand.” Understanding these drivers can help companies better explain differences between actual and forecasted demand, and identify opportunities for improvement.
Typically, he explained, organizations either don’t have the data—a “big problem” according to Chakri—or have it but are not connecting the dots between it to explain why the forecast is deviating from the actuals and what drivers are causing it. Said Chakri, “One of the levels of maturity is: ‘how good is your driver data, how well is it being collected and connected in order to explain the differences between forecast and actuals?’”
2. How far, how often, and how detailed do you plan?
The second area of maturity is process structure, which encompasses the horizon, cycle frequency, and granularity of demand forecasting.
At a high-level, the horizon refers to how far out companies are planning for demand. According to Charki, it’s important to have this set up correctly because your supply chain has lead times which dictate how far out you’re forecasting demand.
Cycle frequency refers to how frequently demand is forecasted for the short, mid, and long term. Ensuring that these factors are aligned with the specific goals and decisions of the supply chain can help improve the efficiency and effectiveness of the demand planning process. “How frequently do you forecast for the mid- to long-term demand?” asked Chakri. “Getting that right is very, very important. A lot of companies don’t get the balance of those three things correct. Or it creates a lot of fake details and extra work that doesn’t add value or you’re getting surprised because you’re not really forecasting fast enough.”
Granularity refers to the level of detail in the forecast. “A lot of times companies get [granularity] wrong and they’re forecasting at too low a level of granularity,” explained Chakri. “Too far out in the horizon is fake details [which provides] no value. So getting the granularity right is extremely important in the shorter term.”
“A lot of companies don’t get the balance of [horizon, cycle frequency, and granularity] correct. Or it creates a lot of fake details and extra work that doesn’t add value or you’re getting surprised because you’re not really forecasting fast enough.”
3. How collaborative is your demand planning process?
The third area of consideration is the collaborative nature of demand planning, which involves bringing together a diverse group of stakeholders to ensure that all relevant data and perspectives are accounted for. This includes not only internal teams, but also customers, suppliers, and other partners.
“Most importantly is the rigour with which the collaboration process is looking at the forecast,” explained Chakri. “What’s changed from last cycle? What are the reasons for—and the assumptions built into—the changes? Are they being challenged? Are multiple perspectives coming in? Is there a rich dialogue around wider forecasts?” When various stakeholders work together to raise and address these questions, it can lead to a more accurate demand forecast.
4. How technologically mature is it?
The fourth area to evaluate is the use of technology and automation in the demand planning process. Charki went on to explain that, at organizations with lower demand planning maturity, the process is largely manual and ripe for automation. Said Charki, “[At lower-maturity organizations], because of the inflexibility of the systems or the demand planning system, most of the work is still being done in spreadsheets…So demand planners have become more spreadsheet aggregators than really analyzing the demand plan.” At more mature organizations, he explained, they have “a full-fledged demand planning system where the demand planning process, the data, the analysis is all being done on a system.”
5. Is your process continuously improving?
Finally, Chakri emphasized the importance of continuous improvement and learning in the demand planning process. This involves regularly reviewing and analyzing results, seeking out new data and insights, and iterating on the process to drive ongoing progress. By taking a proactive and forward-looking approach, companies can stay ahead of changing market conditions and customer needs.
Building a world-class demand planning process
Assessing the maturity of demand planning processes is a crucial step for companies looking to optimize their supply chain operations. By focusing on driver data quality, process structure, collaboration, technology, and continuous improvement, businesses can identify opportunities for improvement and lay out a roadmap for driving incremental change. By doing so, they can ensure that their demand planning processes are effective and efficient, enabling them to better meet the needs of customers and stay competitive in an increasingly complex business environment.
“In these five categories, we need to look at what the level of maturity is in the demand planning process. And then we can make a surgical design of how to improve the capability along each of these dimensions to get to a world class demand planning process.”
In order to assess demand planning maturity, organizations must ask themselves:
- Are we collecting demand driver data? If we do, is it high quality? If it is, are we connecting the dots between it to understand and better forecast demand?
- Are we achieving the right balance of process structure—horizon, cycle frequency, and granularity—in our demand planning. Are these three pillars properly aligned with the goals and decisions of the supply chain?
- What is the the quality of collaboration between our stakeholders, both internal and external, across the demand planning process? Are the right people involved? Are they asking the right questions?
- What is our current level of planning technology maturity? Is demand planning still largely a manual process performed in spreadsheets, or do we have a single planning system for forecasting, data, and data analysis?
- Do we have regular reviews and evaluations of our demand planning processes, which can lead to continuous improvement?