In a prior blog, “Using Forecasting Software to Drive Specific Business Improvements, Example One”, we emphasized the importance of ownership of the demand planning and S&OP process by a member of the C-suite. Who in the C-suite was not the end-game of that blog, as long as it was someone in the C-suite. But a recent energetic discussion in the Institute of Business Forecasting and Planning (IBF) LinkedIn group brought to light several issues that could drive that answer. I love discussion groups and forums: they are like roundtables that allow the kind of real time crossfire and discussion between thought leaders that was not possible before the advent of this and other online forums. Although not everyone agreed or even had a final opinion to the question of who should own demand planning, some of the issues that came up are considerations before organizational boundaries around planning should be set.
The following is a collection of some of the opinions gathered from the group as to demand planning organization ownership, together with a summary of the Pros and Cons of each approach.
Ownership Choice 1: Sales & Marketing
In his book on S&OP, “Sales & Operations Planning, Beyond the Basics” Thomas Wallace puts demand planning function in the hands of Sales, with longer-term demand planning with Marketing.
Pros: Sales & Marketing are the closest of anyone to the customer, thus having the best knowledge of demand. Advancements in processes and technologies allow them to have adequate statistical predictors of demand. They can work with customer service more directly to manage the market risks.
Cons: Sales people are good at sales, but not necessarily at predicting sales, so this placement can backfire. Marketing can be more focused on marketing and product analyses than on demand plan generation. Making the demand plan part of the Sales KPI could lead to low forecasts to ensure goals are met, potentially followed by failed customer service when Operations follows the plan and produces insufficient inventory.
Ownership Choice 2: Supply Chain Organization
Recent IBF event polls show that 61% of organizations have the demand plan generated here, with the trend rising. It can often end up here not by deliberate means, but out of Operations frustration of leading an S&OP initiative, or when Sales & Marketing rejects ownership. Business financial analysts could offer support.
Pros: This can be beneficial as an independent, more unbiased group. Higher-qualified statistical specialists are typically on staff.
Cons: There is no influence on pricing, marketing programs, etc., that is available if it were on Sales & Marketing side. Ownership too far from Sales can create disconnects. Smaller companies can often not have the budget to allow for a Supply Chain organization, meaning that another home could be Operations.
Ownership Choice 3: Hybrid
A handful of contributors offered up a hybrid approach, backed up by the IBF forum itself. The idea of the hybrid goes something like this: For the majority of companies, Operations or Supply Chain management would own and manage the planning function, while Sales can own the forecast in terms of the month-to-month unit volume commitment. In effect, the plans produced by Operations/Supply Chain are given to Sales & Marketing, who then identifies impactful factors like marketing campaigns, competitors, new markets, or economic indicators, and over-writes the baseline forecast where appropriate. Analysis would follow on both the original and overwritten plans, with metrics feeding back into the process to identify improvement efforts for Sales & Marketing.
Pros: This seems like a more collaborative approach, taking advantage of the skills of Operations, Supply Chain, Sales & Marketing, or any other organizations adding value.
Cons: Without a strong leader with responsibility and accountability, this could be a chaotic process that accomplishes little, and creates divisiveness between different camps.
My Takeaway on Best Demand Planning Placement
There are opposable forces at work here. There is no right answer, but in any case, I see 4 basic rules of thumb:
1. Do your homework. To pick a method, you will have to do some research and ask some questions. What has worked for others in the past, or companies like yours? Where are your skill sets? Where are the internal challenges that need to be addressed? Are there built-in biases, such as compensation tied to KPIs, or reviews tied to performance, that could affect demand plan judgment? Bias is inevitable, but it can and should be minimized.
2. Pick a champion. I see this as the cornerstone that makes it all possible, no matter what the plan. It all goes back to our blog about responsibility for the results. You need to find one individual that is willing and able to see the demand plan through, and with a passion for uniting different company departments to meet the company’s goals.
3. Enable collaboration. Buy-in from the groups from users through C-level executives is crucial to meeting the real goal of accomplishing the company goals. The stakeholders should feel that their voice and results are considered. Led by a facilitator, the collaborative platform should be in place to maximize communication between different business units, with the same goal of maximizing business effectiveness.
4. Make it repeatable. Make sure that the processes, people, and technologies in place are such that the demand plan generation is repeatable, and results are measureable and provide feedback to the process. The review meetings should be structured with a consensus of the stakeholders all present. The process should be automated and streamlined as much as possible.
While generous focus and energy invested on creating the demand planning structure will yield good results within an organization, continuous improvement efforts should be made to revamp the structure if necessary with lessons learned both internally and externally. A good demand planning organization can defend against market volatility and overcome competitive challenges, and follow a path to a demand-driven, and ultimately a customer-driven, success story.