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 the 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 lines?
Just a few questions that need 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 said, some systems today plan based on how parts ship, which does not always align to how the customer ordered. Furthermore, some systems plan just on a summarized number of pieces per month. This does not align to 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.