I am showing my age, but I started my career with a large multinational consumer goods company almost 30 years ago when I was given the role of Demand Planner—a role that didn’t exist until then. I was a team of one, working on the periphery of the supply planning process. These days, that same business has a department dedicated to demand planning, led by a Demand Planning Director, and they are core to the S&OP process. Times have changed.
One thing that hasn’t changed, even to this day, is the great disconnect. Let me explain.
In the business world, the sales and marketing team is responsible for sales. Basic economics tells us that demand and sales are inextricably linked. A modern retailer won't buy more than what the consumer demands, and the sales manager will know this. Understanding and predicting consumer demand is critical if the sales manager wants to achieve their sales target. In many ways, it's more appropriate to call a Sales Manager a Demand Manager.
In the same business world, the demand planning team is responsible for developing a forecast of demand, which will be used to establish a supply plan to meet that demand. Their ultimate objective is to improve forecast accuracy, which has significant benefits for the business: reduced stock, improved customer service, and reduced sourcing costs. Improved accuracy also benefits the sales manager, providing greater certainty about hitting targets and allowing for timely corrections to their sales plans.
With so much reliance on demand planning, you might think it would be safe to say that Sales & Marketing and the Demand Planning team would work in close cooperation. But very often, they don’t—even to this day.
A common sentiment of an Account Manager is that they are reluctant to get involved in the demand planning process because it means more work for them. They believe it doesn’t help them achieve their sales targets, and besides, their forecasts are often overlooked. On the other hand, a common sentiment from a Demand Planning Manager is they prefer to keep the sales manager at arm's length, selectively gathering information and effectively telling them what they are going to sell. In the middle, you have a finance team trying to understand what the sales revenue will be and the associated cost of sale.
Companies talk about a “one number approach” but often in the same breath talk about a “consensus approach” where various forecasts from different owners and sources are compared. The mention of a consensus approach is often an indicator of a disconnect between departments.
Things have improved over the last 30 years. Business processes have evolved and become more regimented, and most companies have a strong S&OP or IBP process. But even in these instances, I contend that there are still conflicting sentiments and agendas between members of the same team, making the business outcome suboptimal.
The natural question is, why does this occur? Why do these departments, all focusing on the most critical element in running a business, have such contrary approaches and objectives?
I argue that the root of this can be linked back to the tool in place.
When I say tool, it’s not about whether you are using Brand A or Brand B of demand planning tool. It’s that the underlying design and methodology that underpins pretty much all demand planning tools often dates back 30 or 40 years. They are all fundamentally the same and flawed for a variety of reasons:
Demand forecasting tools typically use ex-factory (or ex-DC) sales to develop a forecast, but sales managers are often thinking about scan sales and the costs of deals.
Demand forecasting tools don’t recognize the bull-whip effect and are poor at converting a scan forecast into an ex-factory forecast, which can then be used for supply planning.
Demand forecasting tools often use simple algorithms that recognize seasonality and trend, but they don’t recognize the critical sales drivers such as price or promotional type.
Demand forecasting tools are based on monthly cycles and don’t recognize that sales plans are fluid. Promotions move, and promotional mechanics change, and getting them into the demand planning solution can be onerous.
Demand forecasting tools are often very supply chain-biased—they focus on DCs and factories and less so on customers.
Demand forecasting tools are disconnected from financial and commercial outcomes, which are key to sales managers' involvement in the demand planning process.
It's for these reasons that sales & marketing are disconnected from demand planning, and it's for these reasons companies have a propagation of Excel spreadsheets that fill the capability gaps
and process challenges.
So, what’s the answer?
Most companies have invested significant financial capital and effort into the implementation of a demand planning solution, and it’s unrealistic to suggest that companies should delete their existing tool and start again. However, if a company were to look outside of the demand planning solution and at the Excel-dependent or manual sub-processes, then you can see where the gaps exist. These are the prime areas that, if focused on, can quickly and easily deliver significant improvements to your business process and ultimately improve accuracy and performance. These are the low-hanging fruits.
This is the area that Cauself focuses on.
Want to learn more? Visit www.cauself.com.
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