Top 10 Tips to Effective Demand Planning in S&OP
By Dave Jordan
In successful FMCG companies, Sales & Operational Planning (S&OP) is the flexible glue that holds numerous processes together ensuring demand and supply are balanced along the chain and most importantly, sees everyone operate to the same set of unambiguous sales, volume and financial numbers.
In the previous article we looked at the Top 10 elements necessary for a fully functioning S&OP process. Continuing the planning theme, this article discusses the detailed activities, processes and decisions required for an effective Demand Review meeting as part of that S&OP process.
Top 10 Tips – Demand Review
- Demand Review Policy. Is there a written Forecasting & Demand Management Policy including a monthly Demand Review meeting covering the process, purpose, activities, responsibilities and expected results? Are participants willing and able to contribute and “silence indicates approval” is accepted? Is ownership of the policy clear and are routine reviews carried out?
- Demand Review Process & Procedures. Do tested and effective procedures exist to ensure that the Demand Review produces an unconstrained forecast? Does the statistical analysis consider past sales, events (e.g. spikes, campaigns or promotions), and routine seasonality? Is there a process for review and documentation of demand assumptions to help understand the business? Does this represent the basis for future demand projections?
- Forecast Control & Inputs. Are ALL forecasts managed and controlled centrally? Are inputs from Marketing, New Product Development (NPD), Commercial, Sales, Field Sales, Customer Service and Logistics included as per the key principle of “one set of numbers”? Are you sure there is no informal or “underground Excel” system in place?
- Trade Data Inputs. Does the demand planning process include consideration of point of sales data (POS) and/or sales out from distributors, wholesalers or retailers, as appropriate? Does a mechanism exist to ensure aggregate sales and demand plans agree with detailed sales plans?
- Forecast Hierarchy & Units of Measure. Is a Forecasting Hierarchy and Policy used to create and communicate plans to various levels within the business? Is the forecast level agreed within this hierarchy and aggregation/ disaggregation techniques used at other levels? Are units of measure consistent and appropriate for communicating the demand plans? Can volumetric and value-metric units be easily reconciled back to one another?
- Forecast Horizon. Has the forecast horizon has been agreed by all parties and considered within the forecast hierarchy? Are days, weeks, months, years used at different levels within the organisation according to needs?
- SKU Classification & Forecast Accuracy KPI. Is there a clear and widely agreed ABC process and classification of SKUs to provide priority for stock keeping and shortage management? Is the Forecast Accuracy KPI defined and tolerances clear in line with forecasting hierarchy, forecasting time fence and ABC classification? Is the KPI “honest” and meaningful?
- Demand Review Meeting. Do Sales and Marketing proactively participate in a meeting as the key input into the Demand Review Process? Is there a system in place to communicate NPD and competitive market intelligence as an input to the forecast?
- Sales Plan. Is there is a formal sales planning process in place covering all channels including exports? Are sales management and the sales force fully responsible and accept accountability, for executing the sales plan? Are the forecast and sales plan aligned and any differences fully understood and reconciled?
- Sales Incentive Schemes. Is the sales incentives scheme effective and avoids bias of the sales forecast or delivery of the sales plan? Do the incentives avert or at least minimise, a month-end sales peak or push?
Demand Planning is arguably the most important process within any FMCG company. Get this wrong and the problems and penalties start adding up and it is difficult to reverse. Get this right and you provide the foundation for market success.
About the Author
Dave Jordan’s international experience has included over 30 years working in FMCG markets primarily in Europe, the Middle East and CEE. Dave has deep supply chain operational skills and knowledge and has operated in each of the Source, Plan, Make and Deliver areas. Dave delivers compelling supply chain learnings through the use of humour, music, poetry and analogies with daily life experiences. An extensive list of Dave’s articles can be found at the Enchange.Com website.
The Logistics & Supply Chain Management Society supports the Supply Chain Brief MVP Awards and features the Top Winning Articles in issues of CargoNOW magazine.This article by Dave Jordan of Enchange was a winner of the Supply Chain Brief MVP Awards 2021.