Now that we’ve established that forecasting is important, you know what your demand planning organization is going to do and how you plan to structure it, here we’ll address where to put it.
Demand planning can work well within a number of organizations as long as they can be incented, connected appropriately and can manage the group well. And although your company’s structure and the influence/incentives of various organizations may differ, as a general rule there are three key criteria in determining the best place to put a demand planning organization:
- Objective: The degree to which a demand planner is free to produce an objective sales forecast.
- Connected: The degree to which the demand planner is close to the data and people who have business intelligence important to the forecast, and is able to come to consensus on the impact events will have on sales.
- Analytical: The degree to which the organization is able to attract and manage a group of analytical people, and grow its capability.
It’s worth noting that you may not find a perfect fit within any organization, so when selecting the right home for your demand planning group, go where the pros most greatly outweigh the cons. Here are several organizations you may consider:
- Sales has the business intelligence needed to produce a good forecast. They know what current customers are looking to do, what new customers are on the horizon, and normally what new products are being pushed and marketed.
- Sales organizations are generally incented to drive sales and are full of optimistic people. If they are directing the demand planning team, forecasts could be biased high.
- Sales individuals tend to be very field focused. They may have a difficult time managing a group of headquarters-based analysts, and the analysts will not see a career path through the sales organization.
Recommendation: Despite being the frontline connection with your company’s customers, the sales organization is generally NOT a good place to put the demand planning group. However, since the sales organization has information important for the demand plan, some incentive is needed for the two groups to collaborate.
- Merchandising organizations have the business intelligence needed to produce a good forecast. From new product forecasts, to promotion plans, to alignment with business plans, they understand how the products are intended to be sold.
- Merchants that are incented purely on sales may be more likely to inflate forecasts that would drive more inventory than needed into the supply chain. This con can be largely mitigated, however, if the merchants are incented on inventory in addition to sales.
- If merchandising is very good at the science of running their business, a demand planning group can be respected and managed well. On the other hand, if merchants make their money being outstanding at the art of understanding consumer buying behavior, they might actually prefer their “support organizations” to manage the analytics.
Recommendation: Overall, merchandising can work well as a place for the demand planning group if the mitigating factors can be met. Because merchants have such important information that demand planners need, it is recommended that the demand planning group be integrated with Merchandising, allowing them to be close by when important information is discussed.
- The supply chain organization is usually both incented on in-stock performance and inventory productivity. When correctly balanced, this provides the right perspective to get the forecast as accurate as possible.
- Logistics organizations are normally staffed with like-minded analytical people with a good mind towards the business, overall creating a good career path for demand planners. One caution here is that organizations that are purely day-to-day execution focused may not be able to focus on the longer term.
- Because the sales forecast drives replenishment and inventory activity, supply chain organizations are dependent on demand planning and inherently connected. Further, they often need to know the same information from other sources (merchandising, marketing, etc.) about events, promotions and new items.
Recommendation: Supply chain is normally a good fit for a demand planning organization, with “pros” based on all three criteria. In fact, the results of a recent survey published in the JDA Demand Management 2015 Report showed that 85% of demand management groups were reporting up through the supply chain organization. To mitigate the potential downsides, the demand planning group should create and maintain their own relationships and connections with the organizations they need information from to do their jobs, rather than relying on others to gather that information and forward it on.
- Finance, by definition needs to be able to produce an objective business plan and report out when a part of the company is not hitting that plan. Therefore, a demand planner in a finance group would be able to produce an objective operational sales forecast.
- Finance is normally filled with excellent analysts with a good business sense, so the organization would be able to manage that talent well. One watch point here is whether the finance group values only people with finance degrees and MBAs; a demand planner may not see a career path in that culture.
- Connected: Finance is often forced by their objectivity to be disconnected with parts of the organization critical to the success of a demand planner, like marketing, sales and supply chain.
- A finance organization that is well connected to the business can be an excellent place for the demand planning organization. Not only are they objective and analytical, but they have the added benefit of managing the revenue forecast (sales forecast in dollars).
A few other organizations often get brought up as candidates for placing a demand planning group, such as marketing, S&OP (sales & operational planning), production, or customer experience. These, and others unique to your organization can be evaluated based on the criteria set above and the needs of your customers.
Regardless of how you structure it, where it lives, and what precisely your demand planning group supports, having one accurate view of demand across all functions of your business will be an incredible asset to your company as it works to navigate omni-channel pressures and effectively meet evolving demands from the connected customer.
Learn how JDA can help you simplify your demand planning process and create an integrated planning framework that supports multiple forecasting methods. Contact JDA today.
This resource provides insight and recommendations from Jeff Ziegler, Senior Director, Solutions Strategy, at JDA. Jeff has over 20 years’ experience leading supply chain transformations for large companies. He leverages a wide range of industry knowledge from executive positions at Lowe’s Companies and Philips Medical Systems; as well as experience in the consumer goods, high tech and chemicals industries. Jeff served as Director of Demand Planning for 12 years at Lowe’s which included demand planning, vendor collaboration, assortment planning and financial sales forecasting. If you’d like to learn more, you can reach out to Jeff directly at firstname.lastname@example.org.
This blog was first published in Supply Chain World. View the original post here.