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Demand planning for S&OP

In the early years of S&OP, efforts were in the direction of agreeing to a volume forecast. Demand forecast accuracy was the principal measure rather than customer service. Sales became the focus for demand forecast, and marketing often had contribution ignored.

Marketing and sales have different objectives, although they work together. In many customers guided businesses, the marketing sector is the principal driver of medium and long term demand prediction. While sales analysts spend a long time analyzing detailed history to get an accurate forecast, marketing analysts gain knowledge about customers future trends.

There is a growing realization that there is inherent uncertainty in different markets with different products and customers. Many companies moved from a detailed forecast based on history to 'guessing' the future. In an agreed forecast sales and marketing analysts must understand the range around the mean value. This range brings knowledge to those that strive to guess the future demand.

A robust demand plan is only possible by combining cross-functional views and integrated volume and value. Then, finance, logistics are committed to producing and delivering that output. In general, sales provide 4-6 months' forecast, and marketing provides information beyond four months based on market-share, goals, brand, product and investment. Strategic market research contributes beyond 12 months. The responsibility of finance and logistics is to ensure that the financial forecast is aligned. The demand plan occurs on the aggregate level. The aggregate product families chosen are understood and used by all functions.

The statistical forecast provides valuable input for the S&OP process, but understanding changes to global assumptions is even more relevant. Investing too much in salespeople, demand managers, and systems that produce a detailed 2-year demand planning creates an illusion of accuracy that can easily alter with any external change. S&OP aligns "roughly right" assumptions rather than "precisely wrong" about a detailed plan. Therefore, sales and marketing analysts should aggregate data using brand families and average revenue and evaluate the context to know the major market drivers.

In the context of decision-making, robust projections about the future rely on understanding scenarios. Therefore, managing and communicating premises is crucial in reconciling different future views. Assumptions, risks, and opportunities contribute to setting better high/low uncertainty ranges according to the period in the planning horizon and provoke a richer dialogue about future projections.

S&OP-online helps leaders to promote integrated planning. Operational and financial improvement comes with decision-making to the strategic direction. It also aids teams in understanding the value of focus and balancing priority. Focus means being excellent in one thing at the cost of not being excellent on another thing. If you pursue all choices simultaneously with the same emphasis, you will end up world-class at nothing.


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