The need for sound demand planning and forecasting has never been more prevalent than in today's climate. The last three years have thrown up numerous obstacles—not only on a local scale, but globally as well.
With good demand planning and forecasting, businesses can:
- Reduce free cash flow tied up in excess inventories
- Resource plan effectively, leading to reduced labour costs
- Budget accurately, knowing where sales will be generated and costs spent
The benefits span all departments and can serve a business greatly. This article will discuss the key problems affecting demand planning and forecasting, ways of achieving improvements, and how Libra can facilitate these changes.
The Typical Issues
The last three years have been bumpy no matter what the supply chain sector. COVID trading resulted in deteriorated sales history, false sales trends, and increased import costs for both finished goods and raw materials.
Companies have become more reactive than proactive—adjusting processes to fit the current scenario, leading to disjointed communication between siloed departments.
During the pandemic, companies faced issues keeping stock as the well-documented haulage crisis affected warehouse deliveries, while raw material shortages compounded the problem. Consumer demand varied erratically. Finished goods stock shortages became the norm.
To counter this, many organisations reacted by increasing safety stocks and ordering more robustly. The result? They're now dealing with excess inventory due to what's called the bullwhip effect.
In turn, excess stocks drive marketing and sales departments to push offers on products—leading to artificial sales trends being established where none existed before.
Now, with all these issues compounding, companies face uncertainty in their demand planning and forecasting processes. What process is correct? Are all departments following the same point of truth? Is the information received accurate? And how do we create the new norm?
The Benefits of Effective Planning
There are several ways to improve forecasting and demand planning, but it's equally important to understand what benefits effective planning delivers.
Cross-departmental transparency is the foundation. A business needs to understand where sales will be generated, what budgets are in place, where promotions are planned, and when sales will spike based on historic trends.
This transparency enables targeted decision-making: identifying key suppliers, understanding where new business is coming from, and aligning resources accordingly.
Key Performance Indicators are a catalyst for continuous improvement. With the correct measures in place, forecasting decisions can facilitate effective planning—and vice versa.
Reliable data driven by effective planning is essential. Poor planning increases KPI variation, which fogs decision-making further.
Material and Enterprise Resource Planning (MRP & ERP) benefits enormously from solid KPIs. They allow visibility into:
- Where inventory levels are high
- Which stock is slow-moving versus fast-moving
- Where stock is held and its value
- What labour levels are needed and where
Supplier transparency may be the most important factor of all. Understanding supply chain constraints and lead times goes hand-in-hand with successful demand planning. Communication between both parties must be clear and open, with system integration where possible.
When issues across the supply chain are visible, forecasting decisions can be made that benefit everyone involved.
How Libra Can Help
In current times, businesses are having to look inwards to find productivity and profit savings as supply chains continue to be significantly disrupted.
A Libra Value Review allows clients to quickly identify opportunities and focus effort for the greatest reward.
We have over 20 years' experience delivering business improvement projects and are experts in supporting impactful, sustained change.
We adopt a structured approach using our PIPS philosophy—putting people at the heart of the methodology. With clearly defined processes, driven through management information and integrated systems, we ensure all possible opportunities are captured and maximised.
