Companies today are dealing with a rash of new challenges related to supply and demand planning, says Byrne. They include "Big Data," the Internet of Things, retail SKU proliferation and the usual pressures to cut costs. What's more, all of this is taking place against a backdrop of flat or declining headcount. The result is a greater possibility of error – not just in the forecast, but also in how it affects distribution resource planning (DRP) systems.
“We’re seeing numbers like a 100-percent error gap between what the system’s recommending and what planners are doing,” he says.
At the same time, there are a number of innovations under way in the demand-planning area, as well as those related to improvements in supplier collaboration. “There’s a lot of interest right now in [looking at] how things will be different in five years,” Byrne says.
In the meantime, many companies are getting the demand-planning exercise wrong. “People think that forecasts drive the business,” says Byrne. “They’re really a reflection of your customer’s behavior.” Understanding that crucial element can be key to improving one’s forecast accuracy, and “predicting what the customer will do next.”
Demand sensing is a crucial element of the modern-day approach to planning and forecasting. It’s markedly different from the traditional time series-based approach, in which companies were depending on average sales for a given time of year.
It’s essential that all departments within the organization align on the same set of numbers, says Byrne. Only then can the forecast carry enough credibility to serve as the true basis for production.
New-product introductions offer their own set of challenges, since the items in question have no history of consumption. Again, demand sensing can help, says Byrne. “In such instances, it consistently outperforms demand planning.”
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