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Businessexcellence September 07 10 have been to where you are going, the statistically derived forecast gives a base set of numbers from which to work. The one thing we know about forecasts, however, is that they are constantly changing. A statistically generated forecast by itself is insufficient to generate valid demand plans. The forecast itself may not be incorrect, but the assumptions behind the numbers are usually the cause of error. These assumptions are typically about the customer, the market size, market share projections, the competition, the economy, the leading indicators, product availability, and your company’s sales and distribution resources. The accuracy of these assumptions needs to be measured to determine which assumptions were correct and which were not. These findings foster a better understanding of what drives demand and ultimately leads to the creation of an improved and valid demand plan. To develop this plan, an organization requires multiple views and inputs of the demand, among them: • The marketing view. This includes market plans, pricing plans, promotions, competitive analysis, economic analysis, and external factors. The marketing view tends to be longer range in scope. • The sales view. This includes sales plans, territory plans, customer plans, and incentive plans. The sales view tends to be a shorter range perspective. • The product management view. This includes the plans to develop the brand and products as well as the future view of the products. • The customer view. This includes the customers’ selling and marketing plans, promotions, buying plans, and schedules. • The statistical view. This includes the statistical forecast and any modifications to the forecast needed to correct for abnormal demands or known changes to the forecast over time. • The business plan and strategy view. This enables us to see the gaps in revenue between the demand plans and the business plan. When all of these inputs are collected, analyzed, and included in the demand plan, the demand plan is in reality the collective, collaborative best judgment of the sales and marketing functions of the business. 2. Communicate the demand plan details. The demand plan is the basis for the integrated set of planning numbers used throughout the sales and operations planning process, therefore it is essential to share the demand plan’s details at both the aggregate and mix levels to all the functions of the business. It needs to be communicated to the sales organization that has to execute it, to the supply organization that has to make it, and the finance organization that has to cost it out and compare it to the business plan. 3. Create a consensus plan. In the third step of the demand management process the objective is to influence the key players to develop a consensus demand plan. The sales organization typically talks in terms of customer or territory plans while marketing talks in terms of market or product plans. Because they see the world from different perspectives, their views of the future are often not in alignment. The demand management process, properly executed, brings these two views together where they jointly develop a demand plan that marketing can support and sales can commit to sell. 4. Manage the exceptions. The fourth element focuses on the timely and effective management of exceptions, such as abnormal demand, and to control areas such as the allocation of product. When abnormal demand occurs, demand management must decide how to accommodate this demand while still protecting its regular customers. The demand review meeting in the sales and operations planning process reviews and considers inputs such as business strategy, sales forecast, customer plans, market intelligence, statistical projections, and the product management plans. The product portfolio changes developed in the first step of the S&OP process are included (Figure 2), as these inputs are the basis figure 1 Integrated Business Management – S&OP

family and detail by sub-family with the reasons for changes summarized, the assumptions documented, and vulnerabilities and opportunities to the plan noted. The unconstrained demand is the amount of demand for the product or service assuming there are no constraints. Unconstrained demand, however, is constrained only by the company’s strategies and the marketing and sales budget. Given the strategies and budgets, unconstrained demand is what sales realistically projects that it can sell. In the management business review meeting (step five of the five step sales and operations planning process), however, senior management may choose to constrain the demand and limit what sales can sell. The objective and goal of the demand review meeting is to develop a demand plan of what the company realistically expects to sell in the marketplace. It is senior management’s role to either provide the necessary capacity or constrain the demand to achieve the defined business objective. The demand review meeting of the sales and operations planning process establishes a valid demand plan that is agreed to by both sales and marketing, identifies the gaps to the business and strategic plans, develops the necessary plans and actions that will eliminate or narrow those gaps, and which will enable the company to effectively execute its business plan. The supply review meeting, from which valid supply plans are developed to execute the demand plan, will be the next topic of discussion in this series on sales and operations planning/ integrated business management. Strategic management September 07 Businessexcellence 11 John E. Schorr, a principal with Oliver Wight, is recognized as one of the leading experts in the areas of sales & operations planning (S&OP). Prior to joining Oliver Wight, John was involved in the implementation of MRP II at Haworth, where he was vice president of manufacturing, and Steelcase, one of the leading Class A users of MRP II, where he was director of purchasing. Demand Review Meeting figure 2 for the demand review meeting. The demand review step is owned by the head of sales and marketing and is facilitated by a demand manager, a critical position responsible for pulling all the inputs together, critiquing the data prior to the meeting, and facilitating the demand plan development through the demand review process. The demand manager also has the responsibility to monitor actual performance to plan, manage any abnormal demands as they arise, and update the plans based on daily discussions with sales, customer service, and supply planning. This is a full-time job. The demand review meeting is attended by sales, marketing, product management, the new product coordinator, the supply manager, and the demand manager. They work together to integrate all the inputs, critique the data presented, and jointly develop the assumptions that will be used as the basis of the demand plan and discuss how those assumptions will impact the plan. They also review past performance in the areas of demand plan accuracy, sales plan accuracy, demand plan bias, market share, and other appropriate process metrics. The attendees review the changes to the demand plan from the previous month and determine whether those changes are one-time, short-term, or long-term trends that need to be included in the updated demand plan. The goal of this meeting is to develop a consensus demand plan for senior management’s review and consideration. The outputs of the demand review meeting are the timely unconstrained demand plan in both aggregate by