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Top 5 Demand Planning Mistakes and How Supply Chain Leaders Can Avoid Them

At the most fundamental level, demand planning is predicting the future within the supply chain, and, in doing so, takes into consideration a variety of elements, such as past performance, various internal and external factors, statistical analysis, as well as stakeholder input. With the complexity of markets and supply chains, the speed of new product development cycles, and unknown factors like climate and geopolitical events, it’s critical for companies to avoid the negative effects of demand planning mistakes. Stock outs, lost sales, increased costs of expediting, loss of customer loyalty, excess inventory, and revenue loss are all symptoms of demand planning mistakes. In this piece, we outline what we consider to be the top five demand planning mistakes and how supply chain leaders can avoid them. 

The Top 5 Demand Planning Mistakes 

Mistakes in demand planning are the result of a variety of factors, including: 

1. Missing Demand sources, both external and internal. 

External sources include: 

    • Current & new customers and consumers. The most mature supply chains are distinguished by end-to-end visibility and effective communication with customers and customer’s customers extending to the consumer. Responsiveness to customers and consumers is essential for accurate demand planning and builds competitive advantage. 
    • Point of Sale (POS) real-time data. Bringing in real-time consumer data allows for improved demand sensing in the short term. This also enables agility in the demand planning process and bolsters customer responsiveness. 
    • Competitor activity. Having visibility into – and considering – competitor promotions and new product introductions plays a significant role in developing demand plans. Staying abreast of competitor activity is a key element in planning promotions and being first to market with new product releases. 
    • The economy. Inflation and economic uncertainty in 2021 and 2022 have challenged companies to respond to unprecedented pressures by focusing on restructuring, cost-cutting, and increasing efficiencies. 
    • Other. Causal factors such as geopolitical and climate events can be captured in technology solutions, which also provide what-if scenario capabilities to simulate potential impact to demand plans. 

Internal sources include: 

    • History. Demand history – including historical demand and forecast errors – is a valuable indicator of future performance, especially when placed in the context of the other internal and external sources identified. While demand history can be a valuable indicator of future performance, taken solely, this can lead to inaccuracies if not taken into perspective with extrinsic factors such as economic indicators, market conditions, and qualitative elements. 
    • Assortment changes. Incorporating both new product planning as well as cannibalization of existing products, where applicable, reduces forecast bias. When cannibalization is overlooked, there is a risk of overstated demand plans for products in decline, leading to excess inventory and costs. 
    • Pricing. Pricing considerations can be associated with increases brought on by rising costs, inflation, and promotions and management directives – all of which can affect demand planning. 

2. Lack of synchronization between high-level strategy and product levels.

This lack of synchronization leads to missed opportunities and ineffective operations. An ongoing review of demand plans to ensure alignment with company and product strategy is essential. Implementing or strengthening one’s Sales and Operations Planning (S&OP) or Integrated Business Planning (IBP) process ensures alignment between strategy and execution. 

3. Siloed demand planning.

A lack of communication and consensus among cross-functional stakeholders can lead to siloed demand planning. Consensus demand planning is the cornerstone of a robust demand planning process and must include cross-functional stakeholders, like demand management, forecasting customer service, accounting, sales, and product management. Including demand planning as an essential element in the S&OP process improves accuracy and business profitability. 

4. Incomplete Product and Customer Segmentation.

Missing elements such as inventory strategy and target service levels can lead to incomplete product and customer segmentation. Service levels may vary depending on the product as well as the customers for whom the product is supplied. Different types of customer segment profiles – wholesales, distributors, or direct-to-consumer – may exist across product lines which need to be considered to ensure alignment with an organization’s segmentation strategies for products and customers. Segmentation allows for precision in demand forecasting and can optimize the supply chain to meet customers’ needs. 

5. Failure to leverage technology.

The most evolved and mature supply chains leverage end-to-end technology for visibility throughout the supply chain – from a supplier’s suppliers to customers and end consumers. AI-enabled demand planning provides an opportunity to gain insight into market changes and conditions that may not otherwise be detected or detectable. Using AI-based platforms for demand planning improves forecast accuracy and equips planners with insights for speedy decision-making. 

Improving Your Processes 

In order to avoid these demand planning mistakes, organizations should consider partnering with a supply chain expert who can help them: 

Clarkston Consulting can help clients improve demand planning processes by leveraging broad and deep planning expertise across the consumer products, retail, and life sciences industries. Reach out to our supply chain experts today.  

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Contributions from Cathi Henriquez & Corrina Lynch

Tags: Demand Planning