Accurate demand forecasting is vital to an agile and efficient supply chain capable of responding to today’s rapidly changing markets. To improve forecasting, most global manufacturing companies have implemented first-generation Demand Planning systems from vendors such as SAP, Oracle, JDA, and others. However, many still find that forecasting accuracy remains poor and that alignment challenges between sales, finance, and supply chain operations persist.
This raises three urgent questions:
- Why have legacy demand planning systems not delivered?
- What are the capabilities needed to drive effective demand planning processes?
- How can we leverage planning infrastructure investments that were already made?
The answers to these questions and the solutions they reveal illustrate how the next-generation of AI-powered platform can drive significant bottom-line value by improving forecasts and visibility and by moving manufacturers from cumbersome and incomplete Demand Forecasting to agile and efficient Integrated Demand Management.
Why haven’t legacy demand planning systems delivered?
DP Systems are often only used for Forecast Entry
Demand planning systems certainly improved forecasting capabilities tremendously. Yet the value this improvement was capable of delivering suffers fatally from the difficulty of updating and revising forecasts. In fact, in most companies much of the heavy lifting of demand planning processes is still done in spreadsheets. The legacy demand planning systems have primarily become systems of record for entering the final forecasts after the work has been done elsewhere, as an input to downstream processes like supply chain planning, MRP and Executive S&OP.
Demand planning and S&OP systems have proven to be cumbersome, inflexible and difficult to use. When end users do not know how to change the forecasting and planning models in the underlying system when business changes and must rely on IT vendors or consulting partners to change a model, they invariably move back to spreadsheets they can control and understand to get their work done. The system has been relegated to the least common denominator use case, which is entry of the final forecast into a system of record database.
Sales adoption of DP systems has been poor
Most demand planning solutions have been deployed with weekly or monthly forecast entry as the primary use case for the Sales organization. However, weekly or monthly forecasts are a significant time commitment that often drive further time-consuming management scrutiny. From the perspective of sales, this only detracts from a sales person’s primary responsibility: to sell.
Even if better supply availability helps Sales sell more, this strikes sales organizations as a Supply Chain problem, not a Sales problem. If the DP system doesn’t help them in their primary concern of selling more and selling faster, the reality is that Sales won’t adopt a DP system, however good it is at improving supply availability. And the result is that a crucial link in the Demand Planning process breaks.
Ownership challenges: why sales adoption is key
In response to poor sales adoption of the demand planning process, several manufacturing organizations have made supply chain organizations responsible for creating the demand forecasts that drive the supply chain. But this has created another challenge: low accountability in the sales organization to the demand forecast. Demand planners in the supply chain organization are finding it hard to collect the inputs on sales activity (pipeline, pricing, promotion) that they need to create better forecasts.
However, Sales adoption and ownership of the forecast are necessary because Sales organizations are on the front end of the supply chain. Sales sees risks and opportunities emerging in the market place earlier than the rest of the organization. Therefore, it is critical for an agile supply chain and S&OP process to get these inputs to be able respond rapidly.
For example, if an account manager for a large retail account finds out that a retailer is planning to reduce shelf support and store coverage for the company’s brand because a competitor is coming out with a superior product with better pricing, this is a “RISK EVENT” that many people across the organization need to know:
- Product R&D (“What is the competitor’s product?”)
- Product Marketing (“What is the competitor’s pricing?”)
- Sales Management (“Can we create incentive programs to counter the risk, and is this likely to happen in other accounts?”)
- The Supply Chain organization (“How does this impact demand forecasts?)”
Yet in current processes this information flows very slowly and sequentially across the organization, if at all. It is often trapped in the sales person’s head—maybe in an email or as an update in a CRM system—and is only discussed in the weekly sales meeting with sales management. Sales forecasts may or may not be updated based on this “RISK EVENT,” and even if forecasts are updated, the context for why the forecast was updated is not propagated across the organization. When supply chain functions see the reduction in forecast without being aware of the “RISK EVENT” that drove this change, they often second guess that forecast update.
In order to truly drive sales adoption and accountability of sales to the demand plan, the solution needs to really help Sales achieve their primary goal – Selling.
What Capabilities are Needed for the Next-Generation Demand Planning system?
o9’s AI-Powered Platform – Enabling Next-Generation Demand Management
To help Sales sell, forecasting needs to reflect up-to-date market intelligence and sales activity. The next-generation demand management platform must therefore provide the flexibility, real-time visibility, and ease of use made possible by the following capabilities.
- Modeling flexibility to handle different channel, customer, & product variations — A global manufacturing company sells a large product portfolio (sensitive to many different demand drivers like lifecycle dates, seasonality, pricing, and promotions) through many different channels (retail, distributors, direct sales, and online). If demand management processes have to be driven on an integrated system instead of offline spreadsheet, then the system has to be flexible enough to model these variations in the business model and should give that power to the end user.
- Real-time visibility to risks & opportunities — In order to sell better, sales people need better visibility to new product initiatives, marketing and promotion initiatives, supply status, and intelligence about customers and competitors. They must know what has changed. Today, they have to chase people across the organization and collect multiple spreadsheets to get this visibility before meeting customers. And this is exactly the same visibility that is required to create a better forecast as well. If a new product launch date slips or a marketing initiative is cancelled, the forecast has to be updated. Next-generation systems must make such visibility available at the fingertips of sales teams to help them sell and forecast better.
- Fingertip sales insights — The system needs to provide insights to sales so they are better prepared for collaboration and negotiation with customers, helping them secure better deals. The 21st century sales team needs insightful information on products, pricing, marketing, and promotion initiatives at their fingertip to make their case, and they need to be able to then capture all customer feedback in real time. That customer feedback is critical input into the sales forecast.
- Forecasting made easy with Alerts, Analytics, & Assumptions — The system must notify the sales person and their planning support group with automatic, smart alerts on everything that has changed from last cycle, enabling them to work through those alerts to make appropriate adjustments to the forecasts. Further, where feasible, the system must use AI-powered analytics to create a baseline forecast as a starting point for the sales team to review. AI-powered solutions can also provide strong “forecast assumptions” capture capabilities that help the sales team provide their knowledge of why the forecasts have changed. Visibility into assumptions helps reduce—even eliminate— second guessing of forecasts by other functions.
- Initiatives collaboration, planning & execution — In order to boost sales and close gaps between forecast and plan, sales organizations drive a variety of sales and promotions initiatives with customers. If the specific risk or opportunity requires support from other parts of the organization (product, marketing, supply chain), sales needs to be able to rapidly collaborate across functional boundaries and bring forth ideas and create initiatives. The planning system must empower sales to float ideas, collaborate, create, plan and execute the right initiatives with the appropriate budgets and resources in a fast manner.
- Rapid Demand/Supply scenario planning — When demand upsides come in, or demand goes down, demand planners and sales teams need fingertip visibility into available supply to evaluate the impact. Furthermore, if committed supply is not sufficient, they should be able to collaborate with supply chain planners to rapidly evaluate constraints and costs to handle the demand upsides and to give guidance to sales on how to treat the demand.
- Performance Post-Game Analytics — The system should make it easy for sales management to evaluate actual performance vs. forecast vs. original plan and to assess if the individuals and teams responded to risks and opportunities fast enough. This will help drive accountability and continuous improvement in the sales organization and help create a culture of healthy competition based on relative leaderboards and benchmarks.
- Ease of Use — The demand management platform must be used by planners, managers and front line people. Usability needs are different for different roles. Planners love the familiarity and ease of use of Excel for number crunching. So the system should empower them with Excel front ends but also ensure the Excel user interfaces are connected to the backend system that drives data integrity and collaboration. Managers need to be able to review reports on performance vs. plan, conduct meetings, and collaborate with organizations on gaps and initiatives to close the gaps. The system should empower salespeople and front line roles to get insights and provide inputs on their mobile devices. Such usability will drive up adoption of the process and unlock the value.
Elevating the Demand Management/S&OP process while leveraging existing planning infrastructure
With the above AI-powered Integrated Demand Management capabilities that drive sales adoption and strengthen the alignment of sales, product, supply chain, and finance organizations, companies can drive significant bottom line value. In our experience a typical manufacturing organization can achieve anywhere from $10-30 Million of incremental operating profit for every Billion in revenue from top line and margin enhancements.
Think 10x — Take Action
If you think your organization would be interested in seeing how other leading companies are driving this change by using our cloud-based platform to augment existing legacy planning system infrastructure, please contact us today to schedule a demonstration and a workshop.