Explaining Demand Planning to Non-Planners

By: Jeff Marthins - Senior Business Consultant, John Galt Solutions

I remember as my children were growing up, they asked what I did for a living. I told them forecasting and demand planning. Since they did not know what demand planning was and they were familiar with weather forecasting, they immediately concluding that I was predicting weather temperatures, rain, and other meteorological phenomena. But why was I working at a snack food producer and predicting weather? This question they kept to themselves, but this very common misunderstanding is not limited to children. I have had to explain to many people unfamiliar with business forecasting what I do. After 30+ years of doing so, I have found that explaining demand planning in an everyday context is the way to go. Here is my guide to making sense of a job in demand planning

Forecasting throughout your day

Think about your day starting. You set an alarm to wake you at a specific time. How did you come up with that time? Was it random or calculated or simply it is the time that you get up every day? Chances are that it was calculated based on the time you want to leave minus the forecasted time it takes to get ready (arrival time = wake time + prep time + travel + extra time just in case). If you are wise, you built in a little buffer or “safety stock” for those unexpected issues (supply chain disruptions) that may arise in you prep time. How much coffee should you make? In the days before Keurig and single cup coffee makers, it seemed like there was always that little bit of coffee left in the pot at the end of the morning. That inventory waste happened because you forecasted consumption incorrectly. With the Keurig, you can’t make ½ cups of coffee so you are constrained by order multiples.

Now you are on your way to work. If you have GPS, it may estimate your arrival time. Using satellites and data, the GPS is getting massive amounts of big data to predict your arrival time based on traffic, your route, your speed, etc. You may apply some scenario planning as you look at disruptions on your route. Should you take the current path or change directions? Do you have enough gas? Where is the next gas station and do you have enough fuel based on lead time to get there? Did you calculate replenishment for your fuel? Do you have a reorder point when it gets to ¼ tank? Your inventory planning skills are hard at work. You may be influenced by the price point of gas at one gas station versus another. Taking into account the price point, financial planning begins to have its influence as well.

Now you are on your way home and you need to stop at the grocery store to pick up some thing for dinner, and once again you are applying more supply chain practices. If you know what you are making for dinner, you have the recipe in mind (Bill of Materials). You might think about what you have at home already and begin the MRP process. By mentally calculating the formula (requirement – inventory = what to purchase), you begin shopping. You again need to apply inventory management practices when purchasing. You don’t want to purchase too much if you won’t consume it all or have no warehouse space (pantry or refrigerator) to store the remaining. You will then begin to apply some more forecasting techniques to estimate the rest of the week’s meal plans to consume the remaining ingredients (unless you want to repeat this each day).

Now, let us apply some collaboration techniques to the trip to grocery store. Chances are you might be influenced by input from other members of the family during the grocery shopping experience. Does everyone like the same thing? Are you only going to purchase what you need or is there some bias from other members of the family? Think about the mini Integrated Business meeting going on in your head. You are considering requirements versus cost perhaps. Will there be any impulse purchases (unexpected demand signals) that you “just have to get”?

Adapting Personal Experiences into the Business World

For those in the industry, these examples may seem too elementary. However, have you ever had to convince upper management the value of demand planning, supply planning, inventory management, and forecasting? Some executives look at you like you have two heads. Why is it so easy to apply these practices in our everyday lives but so difficult to apply to business? Why are some executives so reluctant to invest in these areas of the business? I have felt the pains and difficulties of trying to convince executives to “buy-in” to what predictive analytics can do. I have felt the pains of having Demand Planning’s budget cut to free up capital for other projects.

The next time that you are trying to get executive support for demand planning, supply chain, S&OP, or forecasting, remind them of this: They already practice these techniques in their personal lives, otherwise they would have had the success they currently enjoy. Why not apply these same techniques to the business world?

Yet, these critical decisions that we make each day are based on simple forecasting, demand planning, and supply chain processes. Think of where you would be without these tools. You would either be extremely early or late every time - or lucky. You would be wasting many resources because you just did not know what to purchase or where to keep it. These fundamentals are not foreign to anyone when we talk about personal lives but can be met with much resistance in the business world.

Think of the technology in our personal lives that we use to help us with these decisions. You might use a GPS for traveling. You might use an app for the grocery shopping. Again, if we are willing to use these technological tools for personal lives, why not use technology in our business lives? Many companies still don’t have forecasting software, inventory planning software, or other technology to assist them in their daily business lives,s but many have them for their personal lives. Some executives want the latest cell phone with all the features, yet don’t want to invest in business technology or invest the time in other planning tools.

If your boss is reluctant to consider technology for your supply chain/demand planning departments, tell them to Google “supply chain” from their smart phone.

Additional Resources

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About John Galt Solutions

More than ever, companies must be able to sense and respond to the dynamics of complex global supply chain performance, seize new opportunities, reduce costs and drive profitability. John Galt’s Atlas Planning Platform provides a comprehensive end-to-end supply chain planning solution with advanced analytics and machine learning to automate planning, break down business silos and deliver greater visibility. Atlas Planning, a SaaS-based platform, transforms S&OP process; demand, inventory and replenishment, supply and inventory optimization, manufacturing planning and scheduling, financial budget and sales forecasting. We partner closely with companies such as MARS, Continental Tire, Hasbro, Milwaukee Tools, Deschutes Brewery, Organic Valley, Netgear, and Civica to empower planners to make better and faster decisions with greater confidence. To learn how John Galt Solutions can help you improve supply chain performance, visit johngalt.com.