As this is the second part of my “right vs. wrong” series, I have to warn you once again: This post may contain satirical elements. If you feel offended because your company has an ERP system in its portfolio, then please keep in mind that I was probably not referring to you when I wrote all this terrible stuff about ERP systems’ demand planning capabilities. Your ERP system surely is a special exception of software brilliance which has yet to find its peer. But even then – is your system up to the challenges of complex demand planning in modern supply chains?
For all ERP users and spreadsheet fanatics out there: there are two ways to conduct demand planning – the wrong way and the right way:
Wrong
High self-esteem and the ability to ignore any kind of angry criticism is likely a prerequisite of your job. Your “forecasts” come straight from your gut, which relies on the “educated guess” method. Your most important tool is unfortunately not able to actually compute the vast amount of data you have to deal with. Sometimes it is quite right, sometimes it is far off with its predictions. In the latter event, you face a very serious conversation with your boss and uncomfortable situations with your colleagues, like these:
While you missed that your predicted sales figures kept distancing themselves from what was actually happening out there, your boss took a weekend to compare the dozens of circulating excel files which were all exported from the ERP system. Not a single one of your colleagues actually does his planning in the ERP system itself since it offers no dedicated demand planning functions and thus is quite inflexible. While your boss keeps demonstrating the impact of your poor planning on his high-level business plan, you are having a hard time making the connections. His rant does not get better as you point out that the spreadsheets your boss received per email from your fellow demand planners were exported at absolutely different timestamps and thus controlling does not really make any sense.
When you return to your office, the situation gets worse when Bill from production is already waiting there, telling you in a very undiplomatic way how much stress you put on him and his colleagues with your slightly too optimistic demand figures that were the basis for his production plan. A short time later he is joined by Sam from Distribution who likewise likes to point out that “your” products now block the storage space for the articles that the customers actually want. It seems, that you somehow can never make these guys happy. Several months ago Sam was complaining about several stock-outs from your portfolio.
After everyone has cooled down and left your office, you open your ERP system as well as a spreadsheet and ask your gut for some good guesses to fill in the figures for the next two months. You are absolutely convinced that a rolling plan would be far better than the current ad-hoc monthly planning, but your ERP system lacks this capability. You check your mails if Karen, who is responsible for your whole product group, has already sent you her figures, but she has not. Sometimes you wish that you could see on the fly what the other planners are doing. But since your telepathic powers are very limited, you just hope that your unbroken optimism for the future demand of your products does not get in the way of Karen’s ideas.
You keep smiling as you enter the figures, since there is no crying in demand planning.
Right
Even if you actually do nothing at all, there is still a plan. Based on the historical demands of your products, the forecast algorithms inside your demand planning software, which is an add-on to your ERP system, calculate a pretty concise picture of the future. So your own figures do not need to go on an empty stomach and your gut feeling can be put to good use – by incorporating your experience and market knowledge into the existing numbers.
But since markets have become very volatile, sometimes something does not go according to plan. In these cases, an alert in your demand planning tool warns you about this development far before a crisis could arise. If your projected demand figures start to distance themselves from the forecasted sales, you have enough time to initiate the right counter-measures and get your figures back on track. Your boss also uses the same software with the same database and likewise makes use of an alerting function, with which he tracks the sales performance compared to his yearly budget.
But your boss is not the only fellow user of the demand planning software. Everyone with the responsibility to plan within the supply chain is on board to participate in a sales and operations process. That way Bill from Production and Sam from Distribution can both see and understand your planning figures many planning periods ahead, as well as contribute their own numbers into the system. This way you obtain different perspectives on a certain product or the whole product group which further enhances your ability to get your numbers right. And with your boss’s business plan figures included, every process within the supply chain is aligned to the top-level business strategy.
With the software taking care of shifting the planning periods, rolling planning is no longer a problem, it is something you take for granted. You also no longer wonder what your fellow demand planners are doing and if your planning efforts will somehow interfere with their work. You can enter your figures at any planning level – whether you look at your products from a regional or a product structure perspective or whether you focus on certain customers. The software aggregates and disaggregates the numbers due to a defined relation and thus makes sure the demand plan is always consistent over all planning levels. Due to an inherent rights hierarchy, the demand planning software also verifies that there is one valid plan in the end and no “who comes last”-principle.
As you enter your figures, a smile crosses your face, because with all the information present in the software and the defined workflows, you have a pretty good feeling that your numbers will be quite right.
Conclusion
If you no longer want to live in your self-constructed spreadsheet hell, then use an ERP add-on to optimally manage your demand planning process. Maybe your colleagues will invite you to dinner sometime, instead of shunning you at the coffee machine.
