demand planning

How Do I Know If I Am Ready?

by Lora Cecere on March 27, 2014 · 2 comments

“How can I move the ball down the field, if I don’t have the ball?”

A Question from my Training Class this Week

“How do I know if I am ready for cool technologies? Especially demand sensing and shaping?”

A Demand Planner for a Large Multinational Pharmaceutical Company

Last week was a blur. It was a series of days on planes, trains and automobiles. Unfortunately, it was one of those weeks with pressing deadlines when nothing goes right. I rescheduled my Monday to meet with a client on a pressing deadline and worked through the night to edit and refine the reports/journals for last week’s newsletter. I also continued to work on the manuscript for the book Metrics That Matter to publish in the fall of 2014. The book is now a very worn manuscript.

At the end of the week, we hosted a networking call of the Shaman’s Circle. This is a networking group that meets by phone once a month. No technologists are invited. It is designed to be business leaders talking to business leaders. Each session has a topic. This week’s topic was cool technologies. In preparation for the call, I had given the group a list of emerging technologies that I am watching and I asked each person to come to the call ready to talk about technologies that they are working with. I wanted it to be a discussion about cool technologies, but we quickly got into the subject of adoption.

During the call I got asked a question that made me stop and think. The question was, “Lora, we are a late adopter. We are not comfortable being on the bleeding edge. How do I know if I am ready for these new technologies? Especially demand sensing?”  I thought that this was an excellent question. It is frequently asked. So, I am going to focus here and share my answer:

Demand sensing is the application of analytic technologies to detect short-term patterns in channel data and translate it into distribution requirements. It replaces rules-based consumption in demand planning, and will improve short-term forecasting by 30-35%. The data can be structured or unstructured.

It makes a difference. The average client that has implemented demand sensing technologies has reduced inventory by 11%. So, you might ask, why is this not a no-brainer? The answer might surprise you. Here goes:

-Sales Wants to Manipulate the Data. When sales is incented to move product into the channel, they want to touch the forecast and expedite shipments to make bonus incentives. They are uncomfortable trusting their fate to a black box.

What do you do about it? Find an advocate within sales to help sponsor the project. Help to educate the sales force and consider modifying sales incentives for the first three quarters to let the shipments even out to a pull-based signal. The short-term impact for one to two quarters can be a reduction in shipments even though case fill and end-level consumption will rise. Make sure that this is not a surprise.

-Break Paradigms. Traditional Processes Encourage Bias and Managerial Overrides. The implementation of demand sensing puts the fate of the company in the hands of an optimization tool. It will drive a better answer than managerial overrides; but, for companies that have encouraged managerial overrides and consensus forecasting without the discipline of forecast value-add, expect for it to be a battle.

The answer? Take it slow. Prove that it works and educate the team on how the “touching of demand data” actually reduces demand accuracy. Be deliberate. Communicate often.Understand that people will be uncomfortable.

-It Is All About Influence Management. Be very clear on the goal and work to increase advocacy in finance and sales. Make the project a win-win. Yes, it may decrease short-term sales, but in the longer-term it will increase customer service, reduce inventory and improve the execution of new product launch and trade promotions. Who doesn’t want this?

The answer might surprise you. When I was asked the question this week of  “How can I move the ball down the field if I don’t have the ball?” My answer was for the team to help the other teams understand the rules of the game and work to move the ball down the field together.  Not everyone understands supply chain; and for many, a discussion of demand sensing will sound like gobbledygook.

The success rate is highly influenced by this pre-work. Sell the project internally and find an advocate. And, yes, many companies fail before they succeed. Does this mean the technology is bad? No. It just means that the company didn’t take the right steps to get ready. Remember, many organizations do not understand the basics of demand management. Don’t take it for granted.

Would love to hear your thoughts. I will be landing soon in Philadelphia. Spending the weekend writing and then off to New York to work with a client and then speaking later in the week at a conference. I hope to see you in my travels!

 

It was a sultry day in Philadelphia. Last week, it felt like August not May. I found myself counting the street signs to be sure that I was on track for my 8:00 a.m. client meeting.  Not being a morning person, my feet mechanically moved my body forward. I was not sure what the discussion was going to be, but I was hoping to be wide-awake by the time that I got to the corner of 18th Street to meet my client.

I have worked with this client since 2004. At that time, they planned on spreadsheets. Their goals were lofty, but their understanding of supply chain planning was hazy. In the last six years, their business has grown three-fold and become very global. In 2006, they made a decision to implement a supply chain planning solution. It was badly implemented by a system integrator. The cost was 60% more in than average; but even more unfortunate, they never got a good understanding of how to use the planning system.

The client’s question was a simple one. She asked, “What makes a mature planning organization?”  I pulled out a blank sheet paper and drew the maturity grid outlined in table 1. I would love your insights.  Is this how you would have answered the question? Did I miss anything?

Table 1: Characteristics of a Mature Planning Organization

Low Level of Maturity High Level of Maturity Characteristics:
Demand Focus on “the number.” Bias and error are selectively measured and the organization is unclear on how to improve demand processes. Clear understanding that the focus needs to be on the probability of the forecast, and that the focus needs to be outside-in based on channel data. Use of Forecast-value Add techniques to improve the accuracy of the forecast. Mapping of demand streams by demand characteristics and frequent adjustment of the demand engines to improve optimization.
Tactical Supply Manufacturing is designed and planned in isolation. Focus is on a feasible plan. Recognition of constraints and the management of floating bottlenecks. Management and planning of the entire network against a value network strategy. Integration of corporate social responsibility metrics in planning. Comprehensive view of source, make and deliver. Recognition of asset strategies in go-to-market plans.
Supply Chain Design Ad hoc design planning often focused on a function of the supply chain. Most often the focus is on transportation or logistics, but does not take into consideration the trade-offs between make, source and deliver. Frequent and systemic supply chain design. Focus is on make, source and deliver together. Design is orchestrated as part of new product launch. Clear understanding of the number of supply chains and what drives value in each. Development of a supply chain design organization with a clear   understanding of what drives value in each supply chain.
Supply Chain Planning Data Planning data is determined at the time of implementation and is seldom validated and refined.  There is no one in the organization responsible for planning master data. Organization has a clear understanding of the importance of planning   data. A database is built to track planning master data by period and adjust as parameters change. Use of third-party data for transportation lane and drayage times by day/time of week. Integration with manufacturing systems to understand actual run   times and Operating Efficiency (OEE).
Local/Global Governance Little clarity.  Local and   global teams interact on an ad hoc basis. Clear governance of global planning and local decisions. Local and global teams understand and work together to give input   into plans.
Sales & Operations   Planning (S&OP) Focus is on matching demand and supply. There is a lack of clarity on what drives value and metrics are functional. Planning data is often debated and participation in S&OP decisions is often ad hoc. The process is not balanced between the “S” and the “OP.” Focus on maximizing opportunity and mitigating risk through well-defined playbooks. Clarity on the quarterback in the organization that calls the plays in the playbooks during the month. Organization is balanced between operations (OP) and sales/marketing   (S) in decision making. Monthly design of the supply chain including form and function of   inventory and inventory placement. Visualization of supply chain options in S&OP meetings to ensure alignment. Clear understanding of the supply chain as a complex system with   executive capability to manage the trade-offs versus using a common   understanding.
Inventory Focus on the level of inventory. Inventory is often focused on as a singular metric, not as part of a complex supply chain system. Focus on the form and function of inventory based on demand and supply variability and business plans. Definition of push/pull decoupling points and the role of   postponement to improve inventory as a supply chain buffer to improve agility. Concerted plans that focus on inventory management as one part of the supply chain as a complex system. Design of cash-to-cash cycles strategically through complexity analysis, sales and procurement policies.
Manufacturing Manufacturing programs are implemented as standalone programs. Factory scheduling is either nonexistent or not tied to supply chain processes. Manufacturing trade-offs are closely aligned to network design, tactical planning, and supplier development programs.
There is balance in S&OP between sales and manufacturing.
The most mature clients are moving to digital manufacturing based on the Internet of Things (i.e. direct motor sensing, programmable logic controller inputs).
Procurement Procurement programs are implemented as standalone processes. Clear understanding of supplier development goals and close integration into the corporate social development programs. Risk management strategies integrated in network design programs. Advancements in supplier sensing are enabling early detection of failure risk.
Metrics Functional metric orientation. Little insight on cross-functional   metrics alignment. Cross-functional metrics alignment. Clarity on which metrics matter by type of supply chain. Clear understanding of how metrics tie to value-based outcomes.

 

Charting the Journey

I am currently busy writing a second book. It is named Metrics That Matter.  In preparation for the book, I have worked with Abby Mayer (Twitter ID: @indexgirl) to chart the progress of the Fortune 500 by industry segment on the Effective Frontier (the Company’s ability to balance growth, profitability, cycles and complexity) to drive year-over-year improvements.

<Writing a book is tough work.  As I roll up my sleeves to develop this manuscript, I remember just how much work Bricks Matter was….>

As I progress through the research, industry-by-industry, I think back to my work with these many companies over the last ten years as an analyst.  I remember the many discussions. The selection of planning systems and the implementations. As I work through the data, I can clearly see that excellence in supply chain planning makes a difference.  I can also see that over the course of the last decade a gap has grown between leaders and laggards. My surprise is that the gap in performance is bigger than I expected. A large element is the role of the executive team. This is the topic of my next blog post, “How do you Define a Mature Supply Chain Planning Organization? Part 2.”

So, help me out here. What did I miss?  How would you have answered the question?

Tomorrow, I board my long flight from South Africa. I had a great time at SAPICS. You can follow my tweets at the hashtag #SAPICS2013. In flight, I will be busy writing four reports for our newsletter next week. We would love your feedback on the reports and the research.

We also have a webinar next week. You can sign up for our webinar on June 13th at 1:00 p.m. to hear the results of our S&OP research from over 90 respondents.  I hope to see you there!