Demand Planning in CPG industry - Practising the Best Practices
No matter which industry you are in, I am sure you would have constantly encountered the term - "Best Practices". In order to maximize the shareholder value, organizations are constantly striving to adopt these best practices in almost every domain or process relevant for them. Demand planning is the most critical process in the CPG industry, since it drives all downstream processes (raw material/finished goods inventory planning, procurement planning, capacity planning, manpower planning, transportation planning, etc.) for running the organization in the most effective and efficient manner.
In this and next couple of blogs, I will make an attempt to capture the best practices in Demand Planning area in the CPG industry based on my past experience of working with some of the Fortune-200 companies..
First best practice is to set up the formal demand planning process in the organization. Setting up of the process would also need setting up of a "demand planning organization", and demand planning systems which would offer best-in-class performance. Demand planning process has many sub-processes which includes - setting up demand planning objectives and metrics for different business units/customers/key items/locations, setting up the frequency of the forecasting process (create/review/publish) with the time horizons, formulating a plan to cleanse the history data which is the main input to the statistical models, deciding upon the level at which the forecast has to be generated at, setting up the process for - accounting for a short term market event or promotional forecast, establishing a consensus forecast (a part of S&OP process), and finally reconciling the top level collaborate forecast at the bottom level before transferring the operational forecast for replenishment purpose. Demand Planning is a cyclic process and the last step in the cycle is a formal review of the forecast with the ongoing Sales. In this step, the actuals are compared with the planned metrics (MAPE, forecast accuracy, bias etc.) and the appropriate steps are taken to increase the forecast performance in the next cycle.
In the subsequent blogs, I will discuss on the best practices in some of the sub-processes in the demand planning cycle. Please note that I will not concentrate on Demand Sensing in this series of blogs as it is a separate topic altogether. So till then, please feel free to comment and share any best practice that you are aware of in the demand planning space in CPG industry.