Demand Planning Comes Of Age

Companies such as Litehouse Foods use demand planning tools to direct their organizations with greater intelligence than ever before.


Sometimes, change happens when nobody's looking.

Broad industry initiatives to promote concepts like the "demand-driven supply chain," for example, may generate a lot of heat and light at first, only to be dismissed as largely hot air after the initial hoopla dies down. Then, quietly, without fanfare, companies really do start to change the ways they operate.

While no one is attempting to achieve the "consultant's dream" of one unit produced at the factory for every item scanned at the store, a significant number of companies up and down the food and CPG supply chain, from growers and processors to retailers, are making healthy progress toward aligning their production and distribution activities more closely with demand.

This shift may reflect a sea change in thinking across the industry, but it is probably as much the product of another trend: the easy availability of high-powered software that makes it possible for companies of all sizes to predict, model and shape demand in a more accurate, detailed and timely fashion than was feasible for even the largest, wealthiest corporations a few years ago.

Sophisticated demand planning and forecasting engines, whether offered as standalone software packages, or modules within larger supply chain management or enterprise suites, are helping many companies today dramatically change the ways they look at and respond to demand.

For starters, these software tools enable organizations to dramatically reduce forecast error, leading to improved performance in a variety of key measures, from inventory investment and order fill rates to transportation costs-thanks to fewer expedited deliveries, for example.

But beyond the immediate, obvious benefits that flow from dramatically improved abilities to anticipate demand, down to the SKU, customer or even specific retail location level, companies are discovering that the flexible tracking and analytic capabilities embedded in these planning programs provide a host of capabilities to help managers better understand their business and the marketplace-allowing them to strategically direct the enterprise with greater intelligence than ever before.

More than just a crystal ball, good demand planning systems can serve as all kinds of useful instruments: barometers, microscopes, early warning detectors. They help companies become aware of changing trends in the marketplace, in real time.

For some companies, notes John Bermudez of Oracle, Redwood Shores, CA, which offers the Demantra demand planner, the systems are doing double duty as "a very streamlined and real-time version of sales and operations planning. They're using it to capture updated sales forecasts from each salesperson, so that they're automatically aligning their sales budgets with the demand plan," he observes.

"We've added capabilities in Demantra to do very accurate promotion planning based on trade funds provided, so that salespeople can actually use the system to track their trade spend against a forecast in real time. Then they can make adjustments sooner rather than later if, say, a promotion goes better than expected, so they won't end up overrunning trade fund budgets and negatively impact profitability."

Growing use of demand forecasting systems is sparking greater adoption by many companies of other, more conventional network optimization tools, Bermudez adds, such as inventory optimizers, expert scheduling systems and others.

"Companies are realizing that if you start with a much better forecast that is far more granular and specific to various products, geographies, and customers, then all your planning operations are going to get better," he points out.

John Shaw, IT director at Litehouse Foods, Sandpoint, ID, says that demand planning was the initial tool implemented in its supply chain management suite. Its success created the foundation for integrating two additional downstream systems, advanced planning and scheduling, to manage its production operations and inventory planning and replenishment, to manage transfers of inventory between its two factories and two warehouses. In aggregate, these supply chain management tools have had a powerful impact on the manufacturer's bottom line.

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