How to Align Demand & Supply Planning
Demand Planning & Supply Planning, at its core, is the art and science of aligning your business operations to customer demand. Demand management differs from demand planning. It refers to the management of demand that operations uses for their supply planning by operations. Demand-driven planning requires trust and transparency in the assumptions and the understanding that a forecast is imperfect by its definition. When we are working in a demand-driven environment, the focus is on flow. The efficient flow of relevant information enables the efficient flow of materials.
To achieve the goal of alignment of supply with demand, you must trust the demand signals to drive operations. Only when the whole organization believes and works together to meet demand can you transform into a genuinely agile organization.
Becoming truly demand-driven is core to the journey of business maturity and evolving into a stream-lined, data-driven, agile enterprise.
Often, companies are out of alignment with what they believe they are, how they operate, and how they set-up their ERP system. SAP requires us to be definitive in setting rules in the system that mirror how we wish to behave and run our business. Reveal's value-driven oVo® methodology helps organizations define what they are and optimize the procurement and production process to meet demand by embracing a single source of truth.
The Power of Effective Demand & Supply Planning
One of the flagship “rules” that enables planning is our choice in planning strategy. Planning strategies are all about positioning adequate supply at the right time based on responding to the correct demand signal for that model of operation. For example, we may work in an environment that is Make to Stock, Make to Order, Assemble to Order, or oftentimes a combination of the above. Enterprises who get it right are clear from the start what they are, and they manage their business with one set of numbers and assumptions. Their focus is all about making what’s needed when it’s needed to support the demand program as opposed to making what they can. It’s a matter of could vs should.
Suppose your Demand & Supply strategy is working optimally. You can turn data into insights and insights into action, which leads to on-time supply to meet demand. Further, expectations for operations are clear and understood, empowering team members to take action, based on a reasonable, realistic and well aligned plans.
Demand & Supply Planning Challenges
When Supply & Demand are not aligned, your team focuses on merely making or buying what they assume is needed. They may fill the initial demand and then keep making or sourcing the same product because it is more "efficient" to keep the machines running or the trucks full, whether the additional product is needed or not.
If you have service issues, many exceptions (breakdowns), inventory stock-outs, or excess inventory, chances are your planning strategies are not aligned to how you are operating as a business. You are trapped in a "make or buy what we can" mindset with high inventories, waste, management by firefighting, and reactive communication.
The Reality
Businesses need to understand what is driving their need to procure or manufacture. Making and recording assumptions over time is the best approach to combat volatility and is required to test actual vs. forecast sales, scheduled vs. actual production attainment, planned vs. actual supplier delivery. Too often, these assumptions occur in a silo. Within our demand program, we may consider not only customer orders, also forecast, stock transfers and inter company sales. In addition, we will choose the which materials will be stocked, the level to which they will be stocked, and our overall strategy for coverage and replenishment. The planning process needs to evolve and become a cross-functional activity that sets the heart beat of the organization.
By aligning processes across teams, transparency is the result. Businesses will begin to recognize the real rewards of an agile, efficient supply chain: smaller lots/cycles, shorter lead times, optimized inventories, minimal waste, management by insight, fewer breakdowns in process integration, and proactive communication across the integrated supply chain.
Whether it’s optimizing supply chain performance or implementing additional SAP functionality, Reveal helps organizations improve internal business processes, educate users and deploy the smart use of SAP to achieve sustainable, tangible value. By challenging organizations to move away from being transactionally driven and move towards information-users that manage the process and apply knowledge, improvements in agility, service, cost, and inventory performance are achieved.
