The year 2009 will present many challenges for manufacturers and distributors, and supply chain planning professionals will require revised thinking in their forecasting and planning of demand for products. An article in the December 2008 edition of Global Logistics and Supply Chain Strategies brings forth some insights relative to the challenges of forecasting demand in a very uncertain and turbulent economy.
Moving beyond the marketing positioning of technology vendors, there are three key takeaways for supply chain management and planning professionals to ponder for their 2009 demand planning processes:
- First and foremost, there has to be a forecast or a plan, and it has to be supported by a rather active and robust planning process. The notion of just utilizing last year’s forecast, or the best guess of sales and marketing just won’t cut it in today’s economic environment. Getting senior management involved and committed to the demand planning or Sales and Operations Planning Process (S&OP) is a mandatory requirement
- As experts in the article point out, forecasting demand within today’s highly turbulent industry environments requires a focus on minimizing risk and preserving cash, vs. maximizing sales. An emphasis for staying lean, and reducing as much as possible, inventory and safety stock requirements requires S&OP teams to think far differently about the overall planning process. As experts in the article point out, forecasting for risk often requires a range of forecasts, from best to worst case scenario. In 2009, the forecasting and planning of demand will require more intelligence on the effects of the economy on customer behavior, In my view, consensus planning will take on a whole new meaning, since more inputs relative to the impact of the business cycle vs. previous demand patterns will be the challenge for S&OP teams. Let’s reflect on one example. The U.S. Commerce Department just released information that retail sales are down a dramatic 3.7% in the previous three months. In you dig deeper into the numbers you’ll find that these declines were not reflected in all product segments. If you produce home security products or job search aides, you probably know what I’m talking about. The utilization of multiple Excel spreadsheets will only add more confusion, and the best advice I can share is to utilize some form of demand planning software application that can provide advanced optimization tools to plan for inventories and risk.
- Finally, pay close attention to how and where you sense overall demand for your products. In highly uncertain times, the sensing of demand at the point of actual consumption vs. production or distribution is more accurate in determining or sensing specific customer demand changes. As Fred Bauman of JDA Software pointed out, many high profile retailers actively collaborate with their trading partners to share real-time demand and inventory positions, which can be more accurate to sensing customer demand changes than pegging demand from a point further upstream in the supply chain.