5 Steps to Consensus Demand Planning
The whole point of demand forecasting is to establish the best possible view of future demand. This requires that we draw upon the best data and inputs we can get, leverage statistics to capture underlying patterns, put our heads together to apply overrides based on business knowledge, and agree on a consensus demand plan that serves as cornerstone to the company’s overall demand plan.
Step 1: Develop an accurate demand signal. What constitutes demand? Consider how your organization defines demand – say, confirmed sales orders net of cancellations or shipment data adjusted to remove the impact of historical stockouts – and use this consistently. This is your measure of what the market is requesting you to deliver. Don’t confuse this with your ability to deliver – that should be reflected in the revenue plan.
Step 2: Generate a statistical forecast. Plan for thousands of items, using a proven forecasting application that automatically pulls in your data and reliably produces accurate forecasts for all of your items. Review the first pass of your forecast, then make adjustments. A strike or train wreck may have interrupted shipping last month – don’t let that wag your forecast. Adjust for these and reforecast. Do the best you can, then invite others to weigh in.
Step 3: Bring on the experts. Product line managers, sales leaders, key distribution partners know their markets. Share your forecast with them. Smart uses the concept of a “Snapshot” to share a facsimile of your forecast – at any level, for any product line – with people who may know better. There could be an enormous order that hasn’t hit the pipeline, or a channel partner is about to run their annual promotion. Give them an easy way to take their portion of the forecast and change it. Drag this month up, that one down …
Step 4: Measure Accuracy and Forecast Value Add. Some of your contributors may be right on the money, other tend to be biased high or low. Use forecast vs. actuals reporting and measure forecast value add analysis to measure forecast errors and whether changes to the forecast are hurting or helping. By informing the process with this information, your company will improve it’s ability to forecast more accurately.
Step 5: Agree on the Consensus Forecast. You can do this one product line or geography at a time, or business by business. Convene the team, graphically stack up their inputs, review past accuracy performance, discuss their reasons for increasing or reducing the forecast, and agree on whose inputs to use. This becomes your consensus plan. Finalize the plan and send it off – upload forecasts to MRP, send to finance and manufacturing. You have just kicked off your Sales, Inventory and Operational Planning process.
You can do this. And we can help. If you have any questions about collaborative demand planning please reply to this blog, we will follow up.