Demand Planning: Friend or Fallacy

Sometimes we’re asked how our Demand Planning services help our clients. In short, it’s how we mix our expertise and objectivity into one of the most challenging aspects of running a business: predicting the future.

Demand Planning services gather and analyze past data and forecasts on items our customers expect to produce, kit, print and ship. It’s not an exact science but with the advent of database and analytics technologies its becoming far more relevant than ever before.

Demand Planning comes in part from Sales and Operations Planning (S&OP), an integrated business management process developed in the 1980s by Oliver Wight. Using this approach, executives and leaders meet regularly to align sales forecasts with production, inventory, backlog, financial plans and other functions. The more volatile the demand is or the shorter the product life cycle, the more the leaders need to meet. Done well, this process reduces inventory and supply chain costs otherwise hidden within the organization.

The flip side of S&OP is the “planning fallacy” a notion coined in 1979 by Daniel Kahneman and Amos Tversky and expanded in 2003 to be a tendency for people and organizations to “underestimate time, costs and risks of a task while overstating the benefits of the same actions.” Anyone who’s ever been responsible executing a project instinctively knows how this works. So while S&OP teams strive for the best, they can be blinded by their own “group think” over time.

As specialists in product and marketing fulfillment, we continuously see what’s moving and what isn’t while knowing exactly how much time it takes to produce, kit and distribute items to the field and end customers. Our data is objective, revealed to our clients in reports they often can’t get anywhere else in their organization. Sometimes we’re brought directly into regular S&OP meetings. Other times our cost estimates are used to make critical business decisions. In any case, we know Demand Planning works because our clients keep telling us it helps them improve their bottom line.

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