Breaking Down Demand Planning: Part 1
As part of a 3 part series, Seth Pacha, our demand planning guru will outline key elements of demand planning.
When building inventory to stock in anticipation of future customer demand such as in an aftermarket or service parts industry, frequent pain points exist that cause less-than-desirable results. First and foremost is data. Not only the ability to have clean data, but also to have the knowledge to know how to correctly use the data provided. Another pain point centers around the planning system in place and proper configuration of the system to automate the decisions on 90 – 95 % of the part population. Furthermore, additional pain points exist around developing the proper processes to manage the 5-10% of the exceptions the system cannot handle. Finally, establishing repeatable, automated performance management also drives pain when planning inventory. Here are some key points to consider to help with these frustration points.
Demand – understand how the planning system captures and utilizes customer demand
- Does the system utilize the demand based on how the customer ordered or based on how the inventory shipped?
- How does the system capture demand when in a backorder situation?
- What does the system capture as demand? Customer only? Transfers? Inter-company?
- At what point does the system capture demand?
- How does the system treat canceled orders? Is the order entry system tightly integrated with the planning system to provide actionable intelligence?
- Does the system plan based on summarized monthly results or does it plan based on individual transactions? Does it plan based on pieces of demand? Or does it plan based on the number of ordered lines and the number of pieces per ordered line?
Just a few questions that need the understanding to improve results. The key to better demand planning is making sure the system captures demand based on how the customer orders. If a customer consistently orders 10 pieces of a part on each order, then the system should plan 10 pieces in inventory to consistently meet that demand. While this seems like something that does not need to be said, some systems today plan based on how parts to ship, which does not always align with how the customer ordered. Furthermore, some systems plan just on a summarized number of pieces per month. This does not align with how customers order. The number of pieces per month could be for 1 order line or for 300 order lines. Knowing this helps to drive an appropriate amount of safety stock to meet the anticipated demand.
Up next in our 2nd Installment on Demand Planning: Data, Systems and Processes. For further insight into our coaching services please reach out to Seth.
To keep up with Rockfarm and the latest supply chain industry news, follow us on Facebook and LinkedIn!
Contact Us Today
By Brad Stewart
Brad’s journey into logistics began as a Marine Officer and transitioned from the LTL docks to the non-asset side within the logistics service provider arena. As a co-founder of Rockfarm, Brad drives our business development efforts and delivery of our promise. An Arizona native, Brad enjoys spending time outdoors in his home state with his wife and family.
“Our approach to the market allowed us an opportunity to push forward in 2008 and enable our mission, “lower the cost to serve” to stand as a cornerstone to our company today.”