How Often Should You Do Demand Planning?
In this video, we discuss the factors that determine how often demand planning should be done. We look at the need to assess and incorporate change, as well as the ability to react to change. We also provide examples of how different businesses balance these factors to determine their demand planning frequency.
The frequency of demand planning is a critical decision for businesses. Too often, demand planning is done too infrequently, leading to inaccurate forecasts and poor decision-making. On the other hand, demand planning that is done too frequently can be time-consuming and expensive.
The ideal frequency of demand planning depends on a number of factors, including the volatility of demand, the lead times of the supply chain, and the availability of data.
When do you do Demand Planning? How do Demand Planners know when to plan? Should forecasts be done every day or every month? Why not once a year?
Many companies have a monthly Demand Planning cycle, but the frequencies can vary. When you do, Demand Planning is governed by balancing: a) the need to assess and incorporate change and b) the ability to react to these changes. Examples of "a" needing to incorporate change in demand might be a dramatic change in sales, a competitive promotion, stock outs or the impact from customer reviews. Examples of "b" the ability to react to change might be restrictions of planning system people constraints, long process steps or perhaps approval change, starting with the left side of the balance beam.
What are the factors that drive the changes? Well, we can break them down into two buckets. Firstly, something did not happen as expected or predicted in the past, such as sales declined unexpectedly or secondly, something in the future is now to be planned differently, such as a new product launch is delayed. These changes either in the past performance or in the future events drive the need to incorporate changes in demand.
Counterbalancing these changes is the ability to react to them by the business. The two main factors in counterbalancing are firstly, how fast can the supply chain respond? This is defined by the Buy, Make and Deliver steps of the supply chain activity lead time. And secondly, how long does it take to complete the Demand Planning Cycle?
This is defined by the time it takes to complete all the Demand Planning steps, starting from data collection to agreeing to a consensus and finally publishing a number. Let's see this balance in action in a few business examples. Imagine a large coffee chain where stores are deciding what to order in the next few days, including coffee and fresh food items. This demand is governed by the store traffic, which is dependent on weather how hot or wet it is outside and local events, graduations, movie releases, concerts and so on.
These input factors are highly variable, changing from one day to the next. They also tend to be less precisely known. Further out in time. The processing factors are quick replenishment, with short shelf life ingredients and limited space availability.
This case lends to daily planning over a short horizon. Now, let's look at a craft brewery planning their demand. Price reduction, marketing promotions of theirs and their competitors, and the number of stores selling their product influence demand. They're processing factors all the time it takes to create, collect and assess promotional activity, along with their brewing lead times.
They know that promotional activity drives demand since these events change only on a weekly basis. They plan to a weekly schedule for a six to eight month horizon. Now let's look at a large toy manufacturing conglomerate planning their demand. Seasons, fashion, technology, media marketing and holidays heavily influenced this company's demand.
They're processing factors all the time it takes to make and ship their products from overseas. They know that new product introductions have a big impact on their demand. And this information only changes once a month. Their planning cycle, therefore, is monthly, with a longer horizon of 12 to 18 months to account for holiday spikes.
In summary then, when you do Demand Planning is governed by balancing a) the need to assess and incorporate change and b) the ability to react to this change.
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