THE WEEKLYLinkBARRY ELLIOTT

Demand plans a must

We have been discussing ''what's new'' in the new, improved version of Sales & Operations Planning, Integrated Business Management.

Simply integrating the first step, the product management review, is new. People used to assume it would be managed and plans would be communicated well. In the second step, making the demand plan an unconstrained plan through stretching it out to the full extent of the 24-month horizon is new in most cases, and especially facilitates growth.

The third of the five steps is the Supply Review. In our experience, this area is in good shape when we begin working with a new client. Almost by definition, supply side management is well-organised. So, what can be new at this step? The answer: no second-guessing of the demand plan. Traditionally, determining what products or services to make available has been a guessing game. Demand management has been very unstructured in the past with no responsibility or accountability for projections. Very often, the people who develop the forecast are on the supply side of the organisation.

According to one client in New Zealand a few years ago (although we've heard and seen this situation many times in many places), the supply people say that they cannot trust the demand people to know what the market needs. These are the marketing and sales people, remember.
Well, in Integrated Business Management, the demand people must anticipate what the market will take from you and convert that into the demand plan. Full stop. Who could possibly be better positioned to know the market?

Therefore, the supply people can no longer second-guess the demand side. The unconstrained demand plan is facilitated by the demand manager, who reports to marketing and sales, those who ''own'' the demand plan. This is the main input to the supply review preparation cycle. The objective of the supply review is to say, ''Yes. We can satisfy that demand plan.'' Demand has placed the ''order'' and it is up to Supply to fill it.

So the purpose of the supply review is to develop a supply plan and inventory plan. These two, together with the demand plan, are passed to the next step. This is when the integrated reconciliation is converted into the financial view and reconciled with the strategy and business plans. Gaps between the current ''bottom up'' plan and the established ''top down'' views are to be identified and analysed. Gap-closing actions are then recommended to senior management at the fifth step, the management business review.

Generally, as we said above, Supply people are good at developing the supply and inventory plans, with one major caveat. They are too short-sighted. Again, this is due to their traditional approaches, and their very here-and-now discourse that fails to anticipate future problems, such as capacity shortages.

There are a couple of reasons for capacity shortfalls. The first is that companies do not plan far enough ahead. Thus, the need to base the supply plan on an unconstrained demand plan that looks ahead at least 18 to 24 months and enables you to foresee new capacity requirements soon enough to do something about it.

The second reason why companies typically get caught short is that their plans and schedules are not based on demonstrated capacity. This is a logical concept: rather than assuming that output is theoretical, you must track the actual, demonstrated output and use that as your planning and scheduling parameters.

We cannot count the number of occasions where people have complained that a product line can never adhere to a schedule. This usually happens simply because companies create schedules based on theoretical output rather than demonstrated performance. Their challenge is then to be realistic with scheduling and, to launch a performance improvement initiative to get the line to perform at or above the theoretical rate.

This is all very logical, of course _ the forte of pragmatic supply chain managers.

Weekly Link is co-ordinated by Barry Elliott and Chris Catto-Smith, as an interactive forum for industry professionals. Comments and feedback are welcome at:

BElliott

Bangkok Post
Tuesday April 03, 2007