Unlocking the power of collaborative demand planning
Collaborative demand planning is a powerful tool to help businesses achieve their goals while improving profitability, resilience, and sustainability. By leveraging data-driven insights and fostering collaboration, organizations can unlock the potential of more accurate forecasting, increased visibility into risk factors and enhanced efficiency through reduced waste and optimized operations.
This blog post will take a closer look at how companies can unlock the benefits of collaborative demand planning to drive efficiency and business success.
I. Benefits & Importance
What is collaborative demand planning?
Demand planning is a multi-step supply chain planning process. Although demand forecasting is a pivotal piece of this puzzle, it cannot be considered the same thing as demand planning.
The Institute of Business Forecasting & Planning describes demand planning as follows: "Demand planning is the process of identifying and managing customer/consumer demand for a company’s goods or services and formulating responses to meet that demand. The idea is to balance demand and supply, i.e. serving the customer with the products they want while optimizing the operational elements that go into it."
Collaborative demand planning emphasizes the collaboration aspect in demand planning. It can be done with different stakeholders from one company (cross-functional) or across companies (cross-organizational) with supply chain partners. For example, a manufacturer can collaborate with distributors and suppliers to optimize results.
What are the key benefits of collaborative demand planning?
A collaborative demand planning process has many advantages, such as:
Reduced forecast errors
By involving multiple stakeholders in the demand planning process, businesses can access a broader range of data and insights, which can lead to more accurate demand forecasts. For example, sales representative can add latest inputs from customer meetings.
Increased agility and resilience
Including different stakeholders in the demand planning process enables businesses to spot and respond quickly to changes in demand, helping them to remain agile in the face of market shifts.
Improved efficiency and sustainability
Collaborative demand planning can help businesses streamline their operations and reduce waste in the supply chain, leading to improved efficiency and lower costs.
Reduction in bullwhip effect
The bullwhip effect leads to immense inefficiencies down the supply chain, due to a lack of coordination and confined information about demand, orders, and logistics. However, through a cross-organizational demand planning process that involves partners within the supply chain network these problems can be alleviated - enabling businesses to control the damaging effects of this phenomenon.
Boosted customer satisfaction
Collaborative demand planning can help businesses better meet the needs of their customers, leading to increased customer satisfaction. For example, by reducing stock-outs or reducing order lead times.
Enhanced communication and alignment
Collaborative demand planning encourages communication among different stakeholders, which can lead to better decision-making and more effective resource allocation.
Reduced planning time and costs
A well-structured collaborative demand planning process supported by adequate demand planning software enables faster alignment across multiple participants. Especially, with regard to rolling forecasts, for example on a monthly basis, an efficient planning process is vital to reduce costs.
You can clearly see that your business stands to gain significantly from incorporating a collaborative demand planning process. It goes without saying that the actual benefits you reap depend on your very own situation. Let's take Herlitz AG, a German office supplies manufacturer as an example; this company shared information with its retailer Metro via a collaborative planning, forecasting and replenishment approach - the outcome was remarkable: their inventory decreased by 15%, stock-outs were cut down 50%, and sales improved 3% annually. (Source: Andraski, J.C. (2000), “Logistics Strategies for the New Millennium, CPFR, the Here and Now)
How can collaborative demand planning help in today's ever-changing, unpredictable market?
The Covid-19 pandemic, Ukrainian conflict, inflationary pressures, interest rate fluctuations and shifting consumer behavior all make it difficult to create an accurate demand plan. Technological advances and increasingly connected consumers and markets only amplify this speed of change. Consequently, traditional planning methods have become obsolete under these conditions.
By establishing collaborative demand planning, companies can have a comprehensive view of inputs from various departments and supply chain partners which allows them to identify relevant changes and shocks more quickly. Furthermore, this close collaboration enables teams to create better coordinated responses faster. To ensure a successful collaborative demand planning process, companies need an efficient forecasting and planning tool that considers internal and external factors impacting demand. It should also allow for swift data sharing, plan updates, and provide accurate baseline forecasts.
Will collaborative demand planning become even more important in the future?
Currently, we are undergoing a major shift from the traditional linear economy to a more sustainable circular economy. This transformation will bring about profound changes in supply chain planning needs. For instance, in a circular economy a manufacturer needs to predict and plan the reverse logistics operations - something that was not necessary with the old system of linear production. To handle this increased complexity and better coordinate among stakeholders and partners, it is likely that collaborative planning will play an even larger role going forward than before.
II. Stakeholder, Process & Challenges
Who are the key stakeholders of collaborative demand planning?
As we learned before collaborative demand planning is all about bringing together different stakeholders and collectively creating value. Now, besides demand planners who are the key stakeholders involved and what can they contribute?
Specifically, if you focus on business clients, it can be greatly beneficial to involve your company's sales representatives in the process. They are familiar with your customers and best understand their circumstance. For example, they might recognize when a customer will stop buying an item soon. Moreover, they possess additional knowledge of the potential customers in your sales pipeline. Sales representatives typically possess in-depth knowledge on a detailed level. Therefore, they can enable you to maximize forecast accuracy on very granular levels, like for instance on the level "Region - Plant - Product - Sold-to - Ship-to". Any information, which cannot be predicted from the historic data can be a great asset to reduce demand forecast errors.
If you want to stay up to date on product launches or termination of certain goods, it is essential to communicate with your product team.
Trade promotions and other demand influencing factors are important to consider in demand planning. With an advanced forecasting solution that is aware of the outcomes from past efforts, you can anticipate how upcoming campaigns will affect sales results. What is more, you can leverage demand impacting factors to shape demand.
Supply Chain & Production
Your past and future sales are not just a reflection of demand but also about your company's capability to satisfy this demand. For instance, your production team might postpone delivery dates on incoming customer orders due to lack of resources. Or you might not be able to satisfy a customer request due to stock-outs. By involving your production and supply chain team you will be better able to understand past sales patterns and be better equipped to accurately predict future sales with high accuracy.
Alignment with finance is important to consider capabilities, budgets and constraints.
Please note, you might want to include additional stakeholders if it provides value for your company. Make sure to carefully weigh of the value added and the additional efforts and costs. In case of cross-organizational collaborative demand planning also stakeholders from your supply chain partners, like distributors and suppliers, should be involved.
What steps does a collaborative demand planning process include?
Depending on your organization's business model, planning maturity and other aspects, the demand planning process can be more or less comprehensive. When working with supply chain partners, complexity grows because of added participants, alignment needs and associated legalities. Outlined below are the main steps of collaborative demand planning process.
1. Collect data
To obtain the most accurate results, data from various sources should be gathered. Not only past sales, product, and organizational information but also any other factors that may help to improve forecast accuracy such as customer information, promotional activities or prices. Additionally, company external data like macroeconomic trends, weather conditions and market prices can be incorporated for further enhancement of outcomes.
2. Prepare data
To make the data useful, it is important to adequately prepare it. Tasks such as managing outliers, cutting data, tackling formatting issues and constructing a suitable structure for your data are all necessary steps in this process. One should not underestimate the magnitude of effort required for this task.
3. Generate forecasts
Besides the input data the quality of the results very much depends on the applied forecast methods. Developing the most suitable time series forecasting approaches and tweaking them is highly complicated. Luckily, advanced forecasting solutions can be a tremendous aid in automating tasks and achieving optimum results.
4. Evaluate, adjust & collaborate
Once the baseline forecast is available, stakeholders from various departments can review it and include their valuable perspectives. At this stage different future scenarios can be created and demand shaping activities such as trade promotions may be incorporated.
5. Approve final plan
Prior to utilizing it for subsequent activity planning, acquiring authorization of the ultimate version is fundamental.
6. Communicate results
Collaboration is not only about gathering insights but also sharing them, so it’s essential to communicate the outcome. Don't forget to disclose also your planning assumptions.
7. Evaluate accuracy
Once the real numbers are available for the predicted period, it is essential to assess your forecast's error in order to pinpoint issues and recognize improvement potentials.
How is the collaborative demand planning process connected to other business planning activities?
Demand planning is the starting point for many other business planning activities. It can be integrated for example in an S&OP or IBP process. The demand plan is the key input for the downstream supply chain planning activities.
To ensure that you are able to provide all relevant inputs for the subsequent planning processes, like supply planning, it is essential to align upfront with your stakeholders on their planning needs.
Here are some important questions you need to answer:
For which time horizons do you need demand plans?
You could have long-term plans spanning from 18 to 24 months; medium-length plans ranging over 12 months; and short-term prognosis for 3 to 6 months
Based on which time increment should the demand plan be created?
For medium to long-term forecasts monthly level might be sufficient, but for short forecast daily or weekly might be needed.
Which level of aggregation is required?
This can range from corporate level down to very detailed levels, like Country - Region - Plant - Product Group - Product Variant - Customer Sold-to - Customer Ship-to. The planning requirements depend on the use cases. While a financial forecast can be sufficient on overall level for logistics or production planning you might need a high level of granularity.
What are acceptable forecast accuracy levels?
Long forecast horizons and a high degree of granularity typically lead to lower achievable forecast accuracy. Consequently, you need to balance this trade-off carefully to provide optimal results. Advanced demand forecasting and planning software helps to achieve best possible forecasts at scale.
Which cut-off dates need to be considered?
To enable the downstream planning activities the demand plans, need to be provided in time. Ensure, that your demand planning process is as good as possible automated to reduce the time pressure on your team members.
How to avoid a lack of buy-in in collaborative demand forecasting?
Securing support from different stakeholders is essential for successful collaborative demand planning, yet common pitfalls can derail your efforts. Avoid them to ensure buy-in and success:
Lack of understanding or awareness
Without a comprehensive understanding of the collaborative demand planning process and its advantages, some stakeholders may not be properly motivated to participate or commit.
If stakeholders are not kept informed about the progress or goals of the collaborative demand planning process, they may be less likely to engage and contribute to the process.
Inadequate tools and solutions
Slow, insufficiently user-friendly, or functional gaps in solutions can easily cause problems with user acceptance. Especially, when rolling out a solution globally ensure that it can fulfill the needs of your stakeholders in different regions and business units.
Stakeholders may have different priorities or goals that are not aligned with the collaborative demand planning process, leading to a lack of engagement.
Lack of incentives or rewards
Without seeing tangible benefits, stakeholders might be hesitant to partake in the collaborative demand planning process. To ensure engagement and enthusiasm from all parties, it is important for them to recognize the potential personal or professional gains associated with such an endeavor.
To avoid these issues, it is important for businesses to clearly communicate the purpose and value of the collaborative demand planning process to stakeholders, and to align the process with the priorities and goals of different stakeholders. It may also be helpful to establish incentives or rewards for stakeholders who contribute to the process, and to address any past negative experiences or concerns that stakeholders may have.
III. How to implement collaborative demand planning
Is collaborative demand planning suitable for my company?
Collaborative demand planning can be beneficial for businesses of all sizes and industries. However, it may be particularly helpful for businesses that have complex supply chains, serve diverse customer segments, have a high-cost pressure, operate in fast-changing or volatile markets.
Companies should thoroughly assess if the advantages of collaborative demand planning outweigh the resources and costs that go into executing it, as this strategy involves multiple stakeholders and may necessitate investing in tools and technology. Remember: successful implementation is heavily reliant on dedicating sufficient time, energy, and money to ensure success!
Steps to launch a collaborative demand planning process?
Of course, the details of the selected approach depend on your specific situation. However, here are some actionable steps that you should bear in mind when launching a collaborative demand planning process:
1. Secure management support
To ensure success, it is essential that you have the backing of your leadership team. Your ongoing collaboration with your internal and external stakeholders requires their full endorsement for optimal results.
2. Establish clear goals and objectives
It is important to establish clear goals and objectives for the collaborative demand planning process. This can help ensure that everyone is working towards the same goals and can measure the success of the process.
3. Involve key stakeholders
Involve all relevant stakeholders in the demand planning process, including sales, marketing, operations, and supply chain teams, as well as external partners such as customers, suppliers, and distributors. Try to engage them early to get their commitment.
4. Define roles and responsibilities
It is important to clearly define the roles and responsibilities of different stakeholders in the collaborative demand planning process. This can help ensure that everyone understands their role and can effectively contribute to the process.
5. Select suitable tools
Put people and processes first but be aware of the importance of the required enabling technology. Collaborative demand planning should be based on accurate and relevant data. If you don't have the suitable tools that facilitate seamless collaboration, furnish data-driven insights, and fulfill your necessary functions while providing good baseline forecasts, progress will be nearly impossible. Inadequate solutions can cause a lot of manual effort, diminish user acceptance as well as stall your advancement towards more accurate forecasts.
6. Think big, but start small
From the beginning, set up your tools and strategies in a way that they can be scaled. Even with the best planning, there will still be some things you won't have taken into consideration at first. Test out your software and operations on a small scale; for instance, maybe just one region initially. Make sure to get feedback from all relevant stakeholders as well! Once you're confident that everything is running optimally, it's time to take it further by scaling up even more.
7. Evaluate forecast value added
Utilizing Forecast Value Added (FVA) enables you to observe how much each step of the forecasting procedure, such as consensus forecast versus baseline forecast, positively affects accuracy. FVA helps reveal which activities add value and consequently assists in achieving more optimal results.
8. Monitor KPI and strive for continuous improvement
For the best outcome, clearly identify relevant KPIs to measure your progress. Make it a team goal to improve these numbers and keep everyone informed of any changes so that they can remain unified as one force driving towards success.
How to select the right collaborative demand planning tools?
When it comes to demand planning, there is no one-size-fits-all solution. You can choose between Excel-based planning, ERP system modules for demand planning or specialized demand forecasting and planning applications designed precisely for your requirements. By carefully considering the following factors, you can choose software that is well-suited to your business's needs and will support the success of your collaborative demand planning efforts.
It is important to consider the specific features and capabilities that the software offers, and how well they align with the needs of your business. Talk with your stakeholders to analyze their needs but also discover solutions from vendors to learn about additional functions that can provide substantial value for your business. Some key features to look for might include the ability to gather and analyze data from multiple sources, creation of high-quality forecasts, functions for collaboration and forecast updates.
Especially, when launching a solution on a global scale you will be confronted with different requirements. Ensure that the selected approach is flexible enough to incorporate those differences.
Quality of baseline forecast
When you start with an inaccurate baseline forecast, you will still have a hard time improving the overall forecast results. Thus, strive for a solution that provides you with an accurate forecast in the first place. Ensure to assess forecast errors on the levels of granularity, forecast horizons and time intervals that are required to address your business needs.
Required level of expertise
Many demand planning software solutions require data science expertise to select and tune forecast models. Be aware that in a productive environment with weekly or monthly rolling forecasts and changes in input data patterns those experts will be needed on a continuous basis to ensure good forecast results. Alternatively, look for solutions that leverage techniques, e.g. machine learning, which enable to automate those activities and thus are suitable for business users. For instance, Quantics offer such solutions.
It is important to select software that is easy to use and understand, as this can help ensure that all stakeholders are able to effectively contribute to the collaborative demand planning process and it allows to minimize manual effort. Be aware that user acceptance of the selected solution is important for the success of your endeavor.
Ease of innovation
Changes in technology enable better demand forecasting and planning capabilities. This will also be true in the future. Consequently, avoid solutions or approaches that are unable to keep-up with technologic innovations since this could eliminate your competitive edge in the near future.
Evaluate whether the selected approach is scalable in a production environment across many regions and with rolling forecasts on a frequent basis. Also think about the solution performance when data volumes grow.
Keep in mind the costs of the approach, including any upfront costs and ongoing expenses. Take a total cost of ownership view to better understand the true costs of the available options. Also evaluate if the software offers a good value for the money, based on its features and capabilities.
It is important to consider how well the software integrates with other systems and tools that your business uses. For example, if you have an enterprise resource planning (ERP) system in place, you may want to select software that integrates seamlessly with it.
As the solution will be feed with important business information, make sure the solution and hosting options are aligned with your security needs.
Support & Maintenance
Especially with self-developed solutions it can be hard to ensure continuous support and maintenance when key team members leave. Make sure the selected approach allows you continuous support and maintenance for the future.
All in all, collaborative demand planning is a powerful tool for businesses of different sizes and industries. With this approach, organizations can not only increase forecast accuracy and enhance agility but also reduce waste and bolster efficiency. As the market continues to fluctuate rapidly and with the shift towards a circular economy, optimized supply chain planning will become even more essential making collaborative demand planning ever more valuable. To ensure successful implementation, it is vital to gain approval from top management and buy-in from contributing stakeholders. Additionally, adequate software solutions are necessary to automate time-consuming and repetitive process steps, provide accurate baseline forecasts as well as facilitate swift plan revisions and collaboration.