How to Become a Demand Planning Rock Star in the Food & Beverage Industry

This white paper covers the areas that are critical to successful demand planning, such as identifying stakeholders and their unique needs, and how to develop and implement the demand planning process as a continuous improvement model that drives business and meets the company's individual and overall goals.

Mnet 148862 Rock Star 784x392
www.aptean.com HOW TO BECOME A DEMAND PLANNING ROCK STAR For the Food & Beverage Industry WHITEPAPER WHITEPAPER FOOD AND BEVERAGE: DEMAND PLANNING ROCK STAR 2 www.aptean.com ABOUT The process of implementing a new enterprise resource planning (ERP) At At many companies, demand planners often work as a team of one, gathering data and interpreting it in order to improve the company’s ability to predict what supplies and ingredients it needs to purchase. The demand planner can just be the person who is only interested in forecasting, or the demand planner can be the hub of the company, the person who supplies the CEO and CFO with valuable insight into where they should invest money and where they can cut costs to drive profitability. With the right tools and guidance, you can turn this sometimes lonely position into one that improves the company’s flexibility and profitability. And make you into the company’s rock star with a solid career that adds value to the bottom line by taking three steps: 1. Identifying and engaging stakeholders 2. Obtaining the right data at the right time 3. Presenting data and motivating change to secure results This white paper covers the areas that are critical to successful demand planning, such as identifying stakeholders and their unique needs, and how to develop and implement the demand planning process as a continuous improvement model that drives business and meets the company’s individual and overall goals. In addition, this white paper provides some real-life examples of successful demand planning strategies as well guidelines and expectations based on interviews with food and beverage demand planners and overall industry findings. WHITEPAPER FOOD AND BEVERAGE: DEMAND PLANNING ROCK STAR 3 www.aptean.com INTRODUCTION In this extremely competitive environment in which every dollar counts, companies must replace merely tactical operations with strategic and innovative ones that enable them to plan and respond to market changes quickly and effectively. Too many companies are stuck in the “tactical rut.” Their forecasts and demand planning are time consuming, draining resources that could be used to improve customer relations, market share, and overall profitability. They do not have the right people contributing to and managing the planning process. They rely on outdated tools that do not provide the detailed and easily comprehended information necessary for strategic decision making. If this profile looks like your company, don’t give up. Sadly, about one-third of today’s companies are stuck in the tactical rut. Fortunately, there are steps that you, the demand planner, can take to help pull your company out of the tactical rut and into the fast lane of better planning and execution that leads to improved performance. Working in the food and beverage industries poses its own challenges. In addition to seasonal demands, demand planners in these industries need to deal with harder challenges, such as promotions and events that can falsely seem like a permanent demand. Food and beverage companies also have perishable stock that makes too much inventory a real problem. Without the right tools, demand planning and forecasting are very difficult. The global recession has particularly made demand planning more difficult for the food and beverage industries. With less disposable income and job uncertainties, more Americans suddenly decided to buy prepared meals instead of going to restaurants. At the same time, prices for grain and other commodities are skyrocketing. Is this merely a trend or a new demand reality? We cannot really know until the economy improves. So demand planners have to be more precise in their planning, as well as become better able to spot abnormalities in trends. The good news is you have the opportunity to be your company’s rock star. You can be the person who initiates a strategic planning process that unites strategy with execution and links the corporate objectives with performance throughout the company. Not satisfied with just the standard forecast vs. actual reporting, you integrate the plan throughout the company to enable the business to react quickly to market changes and plan with greater accuracy. You will garner the attention of executives by your ability to transform data into valuable knowledge that cuts costs and increases overall profitability. WHY DEMAND PLANNING? Demand planning is a vital part for improving your company’s value chain. It helps you create more accurate demand forecasts that tie together all aspects of your business, from production to sales. It enables your company to do more with less waste. Most importantly, it provides executives with comprehensive and timely information on how the business is actually running and where improvements can be made. A common misperception is that demand planning merely involves forecasting that can easily be done using Excel spreadsheets. This approach usually leads to many problems, such as various divisions using their own product terms and metrics, which in turn forces the planners to spend weeks cross checking the data simply to create a master document. When so much time is spent on just interpreting data, there is very little time left for analyzing the results or making improvements to the plan. Because the system knows a promotion was an added-in forecast, it makes sure that it will not repeat in the following year. If you try to do that with a spreadsheet, it can get very messy. Gregory Miller Litehouse Inc. “ “ WHITEPAPER FOOD AND BEVERAGE: DEMAND PLANNING ROCK STAR 4 www.aptean.com Moreover, when demand planners view themselves as the people who only create forecasts, they miss the opportunity to be the hub of their company, the people who see where improvements can be made, then translate that information into tangible reports. These easily understandable reports on the state of the business are vital for executives to make fact-based decisions that really increase profitability. According to Gregory Miller of Litehouse Inc., “Using Excel you can make linear forecasts, but there aren’t a lot of things that you can do. That’s why a demand planning system is so exciting. It has all kinds of algorithms, looks for patterns and two years of history, as well as seasonality. It reviews forecasting models and picks the best fit. It does that by plotting a model out, looking backwards, comparing the variances between the difference models and selecting the best.” Some may question the resources needed for this upfront investment. A better question is: Can we afford to have inaccurate and incomplete forecasts that result in shortages, overruns, shrinking profit margins, and unhappy customers? A recent study by a leading planning organization found that among medium to large-sized companies, a mere 1 percent improvement in forecasting accuracy led to over a million dollars in savings. For example, a company with annual revenue of $100 million annual sales could realize a $1 million reduction in costs simply by improving its forecasting accuracy a negligible amount. Now, imagine the possible savings if you invest in the tools and strategies that increase your forecasting accuracy a lot. This is what demand planning rock stars understand. Demand planning rock stars also know where real improvements in the company can be made because they have accurate information on how the company is actually operating. For example, they can provide a graphic report that shows the trends over a certain period that helps the chief executives see where funds should be allocated and when, such as increasing marketing spending or decreasing the production of a certain product, even helping determine if a plant should be expanded to increase the profit margin. DEMAND PLANNING FOR THE FOOD AND BEVERAGE INDUSTRIES The food and beverage industries have exceptionally thin margins, which means accurate planning and forecasting are vital to maintaining a competitive advantage. Seasonality is not only relegated to production but supply costs as well, since the commodities market is fluid. These companies are also significantly affected by transportation costs that makes them squeeze every dollar in production costs. In addition to these challenges, food and beverage companies must also factor in when it is best to plan changeovers in their factories. In addition, because life science companies have to take their Demand planners in the food and beverage industries must contend with new product lines being introduced on a regular basis, as well as certain products being discontinued. Delivering the correct amount of the right product and the right time is critical, perhaps more so than any other industry. They are a made- to-order business that needs to predict seasonality, promotions, changes in customer demand, and the switch to different product sizes. For these reasons, the food and beverage industries are ripe for demand planning rock stars who can find hidden opportunities and cut costs from the system by enabling manufacturing facilities to produce accurate demand forecasts. They need to be the hub that has visibility into all aspects of the business and provide that information to executives who will use it to make decisions that drive profitability. Products can’t make any money sitting in a warehouse; they have to be on the floor where they can be bought. Gregory Miller Litehouse Inc. “ “ WHITEPAPER FOOD AND BEVERAGE: DEMAND PLANNING ROCK STAR 5 www.aptean.com BECOME A DEMAND PLANNING ROCK STAR STEP ONE: IDENTIFYING YOUR STAKEHOLDERS AND CREATING MEASUREMENTS From a business controls standpoint, all lot controlled material inventory transactions should have a complete audit trail indicating: who, when, what lot, from what location, quality status, final movement location, to where—even information indicating the facility or screen the user was in when they performed the transaction. In addition, any field or table in the system should have configurable controls that can be turned on to create an audit trail. Because they are critical to furthering controls and security, changes to master records (i.e., payees, products, etc.) should also be monitored and changed only with multi-level approvals, and with electronic signatures applied to the change. Another area of importance, and one which Life Science manufacturers are already familiar with, is the use of single or double electronic signatures on any transaction or mater-data change. This was functionality originally designed for compliance with CFR 21 Part 11 (FDA regulation for electronic records and signatures). In addition to single or double electronic signatures for quality and inventory movements, a system should allow the administrator to enable electronic signatures for sensitive sales, procurement, and financial transactions. These signatures record the same information as the audit trail, along with assignment of reason codes, saving of the data before the change, and recording of failure attempts for further investigation. Identifying Stakeholders Too often companies have a silo approach when it comes to demand planning. Demand planning rock stars, however, know that to achieve results the process must be truly integrated across the company. In order to create an accurate and dynamic forecast, the right participants from different areas of the company must be included. The first step is to identify these stakeholders. The stakeholders are groups that are loosely tied together, including virtually any group with an interest in the annual budgeting process. They can range from executive management, the finance team, schedulers and planners, marketing, and the sales team. All of them have different input roles and expectations from the forecasting process. These stakeholders are also interested in the annual and/or monthly forecasts, depending on their role in the company. The most common stakeholders in a demand planning process include: a. Sales team leaders (e.g., the V.P. of Sales and various regional team leaders) who provide information from sales pipelines b. Operations and manufacturing team leaders who provide the link to the company’s operating targets and product sourcing c. Marketing team leaders who provide information on upcoming promotions and changing market dynamics d. Finance executives who maintain the linkage of planning and operations to the financial objectives and constraints of the company e. Major Customers. Do not underestimate the impact your top customers have. Working closely with them has benefits for your company and your customers. WHITEPAPER FOOD AND BEVERAGE: DEMAND PLANNING ROCK STAR 6 www.aptean.com A demand planning rock star is not intimidated by this list of different titles and divisions involved in the process but sees it as an opportunity to enhance communication throughout the various parts of the company to improve all aspects of the business. Each stakeholder should own their part of the planning performance and be able to easily understand the forecast measurements. A senior executive does not have the time to sort through pages of data before making a decision. For example, sales people are concerned with their customers and will often not implement a process that is too cumbersome. By getting buy-in and agreement in the planning stages, you are more likely to achieve the results you expect. Creating Measurement Criteria The saying “That which gets measured gets improved” is an easy way to underscore the importance of measurement. A good forecast measurement process should help find exceptions quickly, determine the accuracy of the forecast, and provide insight in how to deal with variables. You will need to determine with the stakeholders what measurements should be included in the forecast and where those metrics should be tracked, such as: • At the customer forecast level, and/or Item forecast level, and/or product family level, etc. • Exception conditions and alerts • The sensitivity of the measurements based on contribution stratification • The frequency of reporting (daily, weekly, monthly, quarterly, annually) These measurements are unique to each company. The days of simply reviewing the actual vs. the forecasted once a year are long gone. Different stakeholders may review accuracy at different intervals; however, a demand planner will usually review the forecast accuracy weekly or monthly to ensure everything is going according to plan. To summarize, demand planning rock stars take the steps below when initiating the demand planning process. 1. Identify the business units, teams, and individuals who will have input into the process (e.g., V.P. of sales and marketing, regional sales teams, etc.) 2. Determine their individual roles in the process and interests, such as monthly and/or annual forecasts, overall company forecast or rolled-down divisional forecasts, etc. 3. Develop a measurement criteria 4. Present the data in a variety of different ways to help various stakeholders better understand the data as well as a cross- check to make sure everything is going according to plan or if adjustments must be made. Aptean’s Ross ERP’s Demand Planning Module presents data in a variety of ways to help users visualize customer demand. WHITEPAPER FOOD AND BEVERAGE: DEMAND PLANNING ROCK STAR 7 www.aptean.com BECOME A DEMAND PLANNING ROCK STAR STEP TWO: OBTAINING DATA FOR ACCURATE FORECASTING What distinguishes a demand planning rock star from others is the ability to integrate sales, marketing, operations, and financial targets in the demand planning process. Tactical companies do not recognize the importance of collaborative planning that links sales forecasts to demand planning. Demand planning rock stars know that by integrating the sales data with the demand plan they will get more accurate data in an ongoing manner. Demand planning rock stars perform the following steps when dealing with data: • Link the data from the ERP system to the demand planning process • Use a good software tool to gather, analyze, and distribute data • Implement a process that coordinates planning and decision making across the company • Develop a strategy that links day-to-day operations to the overall company goals Linking Data from the ERP System Data, with rare exception, is almost always obtained from the ERP system. While it is possible to implement the demand planning system prior to integrating it to the ERP system, most demand planners have found it is much easier and less time-consuming to integrate the demand planning system with the ERP system prior to implementing it. An example of the ERP integration process includes mapping from the ERP system(s) that involves all the components of the demand planning pyramid. Essential Data • Master data (products, customers, etc.) • Customer order history • Shipment and back order history • Historical promotions • Current open customer orders Integrating the essential data with Ross ERP’s Demand Planning Module has been easily and successfully done in many companies. Finding a Good Software Program Once the data is extracted from the ERP system, the next step is to determine how to manipulate this enormous amount of data. Without tying each company or division’s processes with the overall demand planning process, annual forecasting is tedious and less accurate. Companies stuck in the tactical rut almost always rely on clunky Excel spreadsheets and fail to benefit from advanced software based on statistical forecasting models. Whether you are a multi- national company that deals with the same product being given different names in different languages or a smaller company that gets input from different business units that use different formats, trying to do efficient and accurate planning using Excel makes forecasting an extremely difficult and time-consuming process. Streamlining this process enables planners to spend more time analyzing the data rather than trying to make sense of it. Advanced demand planning tools allow spreadsheet users to move from a ‘manage by review’ process (where they have to review WHITEPAPER FOOD AND BEVERAGE: DEMAND PLANNING ROCK STAR 8 www.aptean.com everything in the spreadsheet to determine where the issues are) to a ‘manage by exception’ process where the system is directing the demand planner to the items requiring their expertise and attention. Some companies have hundreds of new SKUs for new products and packaging each month. The scalability of a good demand planning system simplifies the process. Multi-national companies must also make sure their demand planning software has the capabilities to allow data to be input in local currencies, and then converted to a standard currency depending on the company’s need (US Dollar, Euro, etc.). Coordinating Planning and Decision Making Across the Company A demand planning rock star will include the people who are most knowledgeable about their piece of the plan. Tactical companies too often put supply chain or finance managers in charge developing the sales forecast with little or no input from the sales teams. A demand planning rock star, however, realizes the teams most involved with executing their portion of the plan must be included in the planning process. They make sure that data from the sales pipeline is incorporated into the demand planning process through the right software to increase the accuracy of the data. Linking Day-to-Day Operations to Company Objectives Demand planning rock stars make sure that daily operations are tied into the overall company goal. By creating a spirit of integrated team work and choosing the right tools that deliver detailed information, they can help the chief executives make the decisions that really count. A subpar software tool will not provide the detailed, customer-level and product-level data that both sales and manufacturing need in order to better forecast sales and production levels. Without this knowledge, they cannot determine the best course for how to squeeze more out of every dollar and make the adjustments they need to achieve the company’s overall goals. In order to achieve yearly targets, you must make progress towards them on a daily basis. By obtaining the correct data on a granular level and being able to review and adjust forecasts on a weekly or monthly basis, demand planning rock stars can distribute the information that makes a positive difference. BECOME A DEMAND PLANNING ROCK STAR STEP THREE: GETTING RESULTS If you have the right tools and the right data, you are only two- thirds of the way to your goal. To make it to rock star status, you need to turn that information into action. Action that shows where to cut costs, increase top line revenue, and how to maximize profitability. You need to go beyond merely measuring performance to managing performance. The right people must have the ability to access the reports and the authority to take action based on the information you provide. You also need to create easy-to-read reports for executives to see where to best invest capital. Litehouse Inc. The Hawkins family started selling their homemade dressings out of the family’s restaurant in Hope, Idaho over 50 years ago. In 2006, the family sold the company to its employees. Every person at Litehouse has the same passion and commitment to bring customers the very best products available. Litehouse refrigerated produce dressings offer the best quality, value and freshness available. Its food products have no preservatives, no MSG, nothing artificial, and are made with 100 percent Canola oil. And that makes for growing demand across North America. WHITEPAPER FOOD AND BEVERAGE: DEMAND PLANNING ROCK STAR 9 www.aptean.com Once a periodic forecast measurement is done against actual demand figures, it is vital the stakeholders can review the information easily. It is also very important that a demand planning system be able to show exception data in an easy-to-understand manner to highlight potential problems. A good demanding planning tool provides the ability to present information to the various stakeholders, which motivates them to take action, as well as provide executive with a good temperature read on how the business is performing. Gregory Miller of Litehouse, Inc. sums up this concept: “Because a demand planning system has good exception reporting, you can run a report at the end of your month and get a new batch of sales data that goes into the demand planning tool. Then it decides what the best fit is for every SKU, plots a forecast, and it also calculates variations and exceptions. If it sees an anomaly in the previous month, it flags it, preventing you from having to look through five times the amount of data to find exceptions.” The following steps should be included to get the results you need: • Get executive buy-in to include data in performance reviews • Make sure the software enables users to run integrations on a regular basis • Software should deliver the data in graphical representation that drives people to achieve their goals • Demonstrate accuracy of forecasts across a variety of critical measurements, not just one Executive Buy-in Change can make people reluctant to use a new system. By obtaining executive buy-in the change process runs smoother. Demand planning rock stars show how reviews of historic data with current information can help better predict trends, such as the exact time to increase production levels to meet market demand. They illustrate how getting timely and accurate data on the company’s operations can really help determine where capital should be spent. By demonstrating to executives how a demand planning system provides accurate and timely information that assists them in decision making, they will win their support in rolling it out company wide. Once you get their buy-in, executives can promote the new process across the company and include the demand planning information into performance reviews of various teams as well as offer incentives for users to accomplish goals. Regular Integrations In addition to a lengthy forecasting process, companies without a good demand planning tool could only forecast using the top number of the grand total for the whole company to see how they were tracking against that number. This precluded them from getting the detailed information to determine how to improve their processes on a more targeted basis. It also prevented them from seeing exceptions that highlight potential problems and trends. A good demand planning system will facilitate regular data integration to refresh the data and make any necessary adjustments to the plan. Without good demand planning software, many companies only do this on a quarterly basis or worse yet, once a year. Demand planning rock stars run a full refresh on a weekly or monthly basis. This integrates data about new products, new product locations, sales’ histories, new product orders, and any other updated information pertinent to the business that enables adjustments to be made in a timely manner. With this regular, timely information, executives can see the entire company’s performance against objectives and better decide how to reduce costs and waste and how to improve profitability. In cases with multiple companies that act individually within the parent company, a good demand planning system gives them the ability to run the integration as often as they like, enabling them to refresh the data for updating and remodel their individual forecasts as necessary. This in turn helps the parent company to obtain more accurate data from a regional basis. WHITEPAPER FOOD AND BEVERAGE: DEMAND PLANNING ROCK STAR 10 www.aptean.com Information that Drives Change Once periodic forecast measurements are done against actual demand figures, it is vital the stakeholders can review the information easily. It is also very important that a demand planning system be able to show exception data quickly and in an easy-to- understand manner to highlight potential problems and uncover opportunities. A good demanding planning tool provides the ability to present data to each of the stakeholders in ways they need to see it. For example, a high level graphical representation to senior executives who need a high-level view to quickly determine the information presented by the data or granular product-level information for sales managers. The ability to see sales and forecasts in one place and actually do a measure of how well the company is forecasting on a granular level, such as customer-to-customer or territory-to-territory, opens up opportunities to better forecast customer demand. Having better information on a more detailed level also helps companies adjust their forecasts in sufficient time to prevent problems or find opportunities that were previously hidden. This ability to view the data at a more granular level often produces surprising revelations. For example, one company’s sales force, using its new demand planning software, analyzed its data to discover that a customer who was believed to be the 30th in terms of sales was in reality the company’s 4th most valuable customer just by comparing the data to the ERP system. This knowledge is extremely valuable in helping people understand the power of the new tool as well as implementing more resources to an important segment of the business and improving customer satisfaction. Ensuring Forecast Accuracy The next question is inevitably how do you determine the accuracy of your forecasts? Industry statistics show that while month-to-month errors average in the 0 to 20 percent range, that number goes down to 10 percent or less on a rolling, three-month forecast. Graphical representation lets planners create a quick comparison and cross check of how the annual forecast, the collaborate forecast, the system/management forecast, and monthly forecasts relate to each other to make sure the forecast is on track. By seeing the lines on the chart are trending according to prior forecasts and calculations, the demand planner can make sure everything is going to plan or make adjustments. Demand planning rock stars create a dynamic system that reflects changes over time. A table that shows the forecast vs. actual demand at different points in time, such as over a 3-month period, can help you see how a forecast varied over a certain time period as well as the most accurate forecast during that period. This information is very useful in predicting future demand and creating more accurate forecasts. Most importantly, this information helps everyone in the company, from the CEO to account and production managers, work together to take the right steps that improve competitiveness and maximize overall profitability. We do business with a lot of large grocery chains that have promotions. Whenever they do, they coordinate with us so we can deliver them the right amount of product. That’s where demand planning comes into play; it can add various sale activity expectations, weight it according to the sales’ expectation, and produces a nice forecast. Gregory Miller Litehouse Inc. “ “ Forecast Waterfall Report and Graph from Aptean’s Demand Planning solution. 11 Copyright © Aptean 2013. All rights reserved. WHITEPAPER FOOD AND BEVERAGE: DEMAND PLANNING ROCK STAR More than 9,000 customers around the world rely on us to give them a competitive edge. By providing innovative, industry-driven enterprise application software, Aptean helps businesses to satisfy their customers, operate most efficiently, and stay at the forefront of their industry. For more information, visit: www.aptean.com www.aptean.com CONCLUSION More than simply forecasting production needs, demand planning rock stars help enhance the performance of every segment of the company. By getting the CEO the information that results in increased sales and reduced costs that look great on a quarterly report, demand planners can help drive business. From helping the sales team identify top customers and better serve them by knowing what they need and when they buy it to helping the marketing team see new trends in order to increase market share, rock star demand planners touch every aspect of the company. They are the hub of the company’s goal to boost profitability by delivering actionable information on the business’ operations on a regular basis to senior executives. Demand planning rock stars use good demand planning software tools with advanced functionality and easy reporting features that provide more detailed and accurate data that can by analyzed, sliced and diced in various ways that are nearly impossible without them. This information enables their companies to create more accurate and timely forecasts to determine demand as well as gain a deeper understanding of the sales process, production planning and inventory process. Naturally, this helps reduce costs in markets with tough competition. Thee food and beverage industries face enormous competition that grows every month. They operate on the thinnest of margins and need to adjust to an ever-changing market place, to include promotions as one-time events and not as a new constant demand, and to determine new patterns and trends in order to act accordingly. These companies are where demand planning rock stars can really benefit and their careers. Equally important is the ability demand planning rock stars provide users to better understand sales’ trends. This in turn helps their companies to better manage inventories and stock levels, which improve overall customer relations. Lastly, demand planning rock stars know that demand planning systems also serve as the basis to implementing Advance Planning and Scheduling (APS) systems that can offer more detailed and accurate data and management tools for supply chain management. By helping to create an integrated demand planning system that spans the entire company and delivering easy-to-understand, accurate data, demand planning rock stars are able to initiate the change that takes gets their company out of the tactical rut and turns it into an innovative leader with the results that prove it.
More