The Common Pitfalls of Demand Planning

From the December 2018 edition of Supply Chain Management Review.

December 2018

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Effective demand management is critical to the financial performance and health of an organization. Demand management is boundary spanning and, as such, needs to be independent of the functional management organization. When we refer to demand management, we are referring to every functional group within the organization contributing to and relying on managing demand. Digitization and digitalization offer the promise of digital collaboration across functional silos and organizational boundaries without significant manual interaction. However, to be successful companies must overcome the common pitfalls and archetypes that have evolved from decades of insufficient and siloed enterprise demand planning and management. Let's take a look at the four most common pitfalls of demand planning.

The Problem: The traditional supply chain view is linear and disconnected Pitfall No. 1: Lack of an organizational commitment to improved demand planning

• Organizational culture has been conditioned to the “forecast is always wrong.”
• Lack of executive commitment to integrated demand/supply planning: – demand planning resides in functional silos with a bias to functional metrics; and – demand planning led by middle managers supported by junior analysts.
• Operational demand planning is supply chain focused and forecast oriented.

We traditionally view the supply chain as a chain of sequential links each with behavioral attributes that act separately and together to cause demand variation from historical performance. This has been widely characterized as the bullwhip effect. As demand variations are communicated sequentially through the supply chain there are time delays and amplification of the signal variations that cause error to propagate the network (see Figure 1).

Effective demand management is critical to the financial performance and health of an organization. Demand management is boundary spanning and, as such, needs to be independent of the functional management organization. When we refer to demand management, we are referring to every functional group within the organization contributing to and relying on managing demand. Digitization and digitalization offer the promise of digital collaboration across functional silos and organizational boundaries without significant manual interaction. However, to be successful companies must overcome the common pitfalls and archetypes that have evolved from decades of insufficient and siloed enterprise demand planning and management. Let's take a look at the four most common pitfalls of demand planning.

The Problem: The traditional supply chain view is linear and disconnected Pitfall No. 1: Lack of an organizational commitment to improved demand planning

• Organizational culture has been conditioned to the “forecast is always wrong.”
• Lack of executive commitment to integrated demand/supply planning: -demand planning resides in functional silos with a bias to functional metrics; and -demand planning led by middle managers supported by junior analysts.
• Operational demand planning is supply chain focused and forecast oriented.

We traditionally view the supply chain as a chain of sequential links each with behavioral attributes that act separately and together to cause demand variation from historical performance. This has been widely characterized as the bullwhip effect. As demand variations are communicated sequentially through the supply chain there are time delays and amplification of the signal variations that cause error to propagate the network.

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