“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.” – John Kenneth Galbraith
Demand Planning is one of the pivotal steps in the Supply Chain process, it drives raw material procurement, capacity planning, production planning, manufacturing, distribution planning, logistics, and replenishment. Demand Planning directly affects the business financial plan, pricing, capex decisions, customer segmentation and resource allocation. Considering the criticality and implication of this process, Demand Planners and Managers need to continually evaluate their current Demand Planning process and ensure that the Demand Plan generated is holistic, relevant and timely.
Excel based Demand Planning process
Excel can be deployed primarily for De-centralized Demand Planning of limited SKUs with fairly steady demand and limited regional distribution. Extraction and validation of historical sales data of limited SKUs can be handled in Excel as well.
Based on the relevant historical time period, statistical forecasting needs to be carried out using a top-down approach or a bottom-up approach as per the business requirement. The finalized statistical forecast thus becomes the baseline forecast on which demand effect of new product launches, old product discontinuation, marketing promotions, pricing discounts, rebates, etc. are taken into consideration. Once the consensus meeting with various stakeholders is completed, a final Demand Plan is released.
Excel, however, has its limitations in the Demand Planning process due to its non-collaborative single user access, difficult and time-consuming consolidation of multiple files, inconsistency, human data entry errors and chances of fraudulent manipulations. Due to these inherent challenges, the use of Excel is primarily limited to De-centralized Demand Planning.
De-centralized vs. Centralized Demand Planning
As explained earlier, De-centralized Demand Planning usually works best for limited SKUs with fairly steady demand and limited regional distribution. This process is also popular in small-scale businesses and in businesses that operate on a strategic business unit (SBU) level. De-centralized Demand Planning is a fairly simple and quick process which requires limited traditional resources.
Centralized Demand Planning is preferred for multiple SKUs with varying demand and a wide distribution network. Many of these SKUs can also have seasonal demand, new product launches, and old product discontinuation. This process is popular for medium to large scale businesses. Because centralized Demand Planning is complex in nature, it requires trained professionals and software.
Advantages of Centralized Demand Planning
Outlined below are the key advantages of Centralized Demand Planning:
- Reduction in forecast errors: Due to aggregation of demand and consensus building, the forecast error is reduced. Lower forecast errors result in a more stable supply chain with lesser variations.
- Increase in customer service levels: Customer service metrics like on-time delivery (OTD), on-time in-full (OTIF), case-fill/fill-rate, etc. are improved due to right sizing and right positioning of inventory.
- Reduction in Bull Whip effect in Supply Chain: Due to a reduction in demand variation, the accuracy of procurement, manufacturing, and distribution plan increases resulting in reduction of Bullwhip effect across the Supply Chain.
- Cost savings and increased productivity: Centralized demand planning requires lesser resources and also results in lower inventory levels across the supply chain leading to cost savings and increased productivity.
- Increases collaboration across functions: Various functions like Marketing, Sales, Finance, Manufacturing, Logistics, etc. interact and share data during meetings, which improves transparency and teamwork.
Upgrade from Excel to DBMS for Centralized Demand Planning
Having understood the difference between De-centralized and Centralized Demand Planning and the key benefits of Centralized Demand Planning, it’s also important to understand the limitations of Excel in Demand Planning process. Excel is limited in its design for collaborative work and Excel-based Demand Planning is usually not scalable or repeatable.
Centralized Demand Planning deals with huge volumes of data, with simultaneous inputs from multiple Demand Planners. It also requires capabilities like running what-if scenarios and incorporating future business expansion plans, new product launches, old product discontinuation, impact of pricing and competitor moves.
For successful implementation of Centralized Demand Planning, higher functionality options like database management system (DBMS) need to be explored. Some of the DBMS examples are Microsoft SQL server, Oracle, and DB2. DBMS facilitates an online collaborative working environment with higher speed and accuracy, data consistency, data sharing and reporting. Checks and balances on user inputs and controls and alerts to prohibit fraudulent manipulations can be customized in DBMS. Centralized Demand Planning process can be easily implemented on DBMS with data input standardization, report customization, what-if scenarios capability, scalability, repeatability, accuracy, and security. Essentially, the move to a centralized demand planning process for any growing business could be the stepping stone for achieving set supply chain improvement goals.