Intro
Creating an effective demand plan is key for any business to optimize operations, minimize costs, and meet customer expectations. However, even experienced pros often fall victim to common mistakes that can throw a wrench in the accuracy and efficiency of their demand planning process. In this article, we’ll explore some of the most common mistakes made when creating a demand plan and provide insights on how to avoid them. By understanding these pitfalls, you can enhance your demand forecasting strategies and drive sustainable growth.
Starting too granular
It’s tempting to start at a very granular level and use all of the available data inputs to handle all scenarios in the forecast; however, it’s easy to get lost in the millions of rows of data. Instead, we suggest starting simple by generating a monthly forecast at the SKU or brand level and getting more granular once you prove the methodology is accurate. Focus on core demand indicators such as historical sales or orders and layer in more complicated logic (i.e., scrubbing sales history for service issues or accounting for promotional lift) later as necessary. The key is to aim for a model that is accurate in most circumstances and worry about outliers later. We’re looking for progress, not perfection.
Not using enough history
It’s tempting to start at a very granular level and use all of the available data inputs to handle all scenarios in the forecast; however, it’s easy to get lost in the millions of rows of data. Instead, we suggest starting simple by generating a monthly forecast at the SKU or brand level and getting more granular once you prove the methodology is accurate. Focus on core demand indicators such as historical sales or orders and layer in more complicated logic (i.e., scrubbing sales history for service issues or accounting for promotional lift) later as necessary. The key is to aim for a model that is accurate in most circumstances and worry about outliers later. We’re looking for progress, not perfection.
Making manual adjustments
In general, never allow anyone to manually change, update, or massage the demand plan. If you do, you’re never going to be able to remember the changes that were made, for better or worse. All changes must be system-driven and tracked so that next year you know how to replicate the good and avoid the bad. Hidden or forgotten calculations could cause costly forecasting errors down the line.
Looking at one plan and running with it
It’s important to compare multiple sources when crafting your forecast. By doing this, you are able to compare other forecasting sources, such as retailer orders, POS forecasts, or forecasts provided from 3rd party analytics, to better understand trends. All forecast measures will have their unique strengths and weaknesses, and looking at them together provides a better picture of demand.
Forgetting non-traditional data
While it might seem unimportant to include data from social media and the weather, it can influence and trigger unexpected demand. All it takes is content going viral, updated weather forecasts predicting a storm, or unseasonably high or low temperatures to trigger unexpected demand that will quickly lead to out-of-stocks. There are plenty of sources for this data, including free feeds; don’t be afraid to experiment with options.
Not shifting events
Events that don’t occur in the same weeks each year (i.e., holidays or promotions) need to be factored in so that you don’t overproduce and overstock at the wrong time. You need to make sure your demand planning processes account for year over year changes in key retailer events, such as holidays or promotions. To do this, make sure your process has a way to bring in each retailer’s calendars on an annual basis so your demand plan will shift demand surges appropriately.
Conclusion
In a nutshell, nailing demand planning is crucial for business success. By avoiding common mistakes, you can boost your forecasting accuracy, drive growth, stay ahead of the game, and keep customers happy. With a solid demand plan in place, you’ll be ready to conquer the market and thrive in the ever-changing CPG world.
