December 1, 2023
Demand planning cycles
Defining demand planning cycles depends largely on how frequently your drivers of demand are changing.
In this interview, Chakri Gottemukkala, Co-Founder and CEO of o9 Solutions, Inc., discussed the importance of designing demand planning cycles for organizations. Here are some best practices for defining demand planning cycles for supply chain leaders.
Determine the Horizon and Frequency of Demand Forecasting
To design effective demand planning cycles, it is important to determine the horizon and frequency of demand forecasting. The horizon refers to how far out the organization needs to forecast cycles, while the frequency is how frequently the organization needs to re-forecast. If nothing changes in the business, then the organization only needs to forecast once and that forecast is stable for the entire horizon. However, if the drivers of demand are more dynamic in the short term, then the organization needs to re-forecast more frequently.
"The frequency of demand planning, i.e., the cycle of demand planning is dictated by how frequently the drivers that are driving the demand plan are changing."
Design Operational and Tactical Planning Horizons
Organizations need to determine their operational and tactical planning horizons. The operational planning horizon focuses on what changes on a weekly basis, while the tactical planning horizon is where the organization forecasts on a monthly basis. The weekly cycle focuses on the operational planning horizon, while the monthly cycle focuses on the tactical planning horizon.
"It's important to get the operational horizon and the tactical horizon and the weekly cycle focus on the operational horizon and tactical. The tactical monthly planning cycle focused on the tactical horizon getting those horizons and the cycles aligned is very, very important."
Add a Strategic Planning Horizon
Some organizations need to make strategic decisions using the demand planning process that have a three to five year lead time. In these cases, the organization can add a strategic planning horizon, which is much longer and can be done less frequently, such as once a quarter or even once a year.
Incorporate Daily Demand Sensing Horizon
In some industries, organizations may need to respond to changes that are happening on a very dynamic basis, such as daily changes. For these cases, organizations can incorporate a daily demand sensing horizon, which is very short term and focused on the next few days.
"In those cases where you have demand drivers that are changing on a weekly basis, and causing a lot of impact on your supply chain, you are better off putting in a weekly demand planning cycle as well to re-forecast the business."
Effective demand planning cycles can help organizations respond to changes in the market and manage supply chain operations more efficiently. By considering the horizon and frequency of demand forecasting, designing operational and tactical planning horizons, adding a strategic planning horizon, and incorporating a daily demand sensing horizon, organizations can design demand planning cycles that meet their specific needs.
The Takeaways
- Determine the horizon and frequency of demand forecasting to ensure that the organization stays ahead of changes in demand.
- Design operational and tactical planning horizons to forecast on a weekly and monthly basis, respectively.
- Add a strategic planning horizon to make strategic decisions that have a three to five year lead time.
- Incorporate a daily demand sensing horizon in industries where changes are happening on a very dynamic basis, such as daily changes.
