Dorothea Grimes-Farrow and Michael Conley, consultants at supply chain firm SGS-Maine Pointe, examined in a recent article in Supply Chain Management Review how sales, inventory, and operations planning (SIOP) can help companies improve the accuracy of their demand forecasts.
The article – titled “Demand Planning/Demand Management: Winning the Battle for Better Forecasting Accuracy” – notes that the volatility of the Covid pandemic has upended previous forecasting strategies. However, using a few simple metrics and process steps can help organizations improve their forecasting accuracy within months, according to the authors.
One of the steps is to connect the supply and demand planning of front-end business operations to continuously increase and improve forecast accuracy. Front-end data at the SKU level is a popular target that may not be available to all businesses, but a useful alternative would be to leverage an aggregate level of demand data – which can also produce accurate forecasts.
Supply chain managers must then decide on the right level of forecasting to achieve optimal results and the level of data available from their systems. Grimes-Farrow and Conley say that, to determine the appropriate level to create demand forecasts, individual items can be grouped in several ways. They can be grouped by how they sell through different channels; product manufacturing methods; and the complexity of each product offering. The consultants note that line item extensions are generally best planned at the brand level, while industrial products are best planned considering raw materials and the manufacturing of those materials into like products.
After answering the questions above, companies will have better aligned demand aggregation to create more robust forecasts that support optimal safety stock calculations.
The next step is to leverage a SIOP process to guide the organization towards a well-planned order fulfillment strategy that meets forecasted demand – benefiting from higher fill rates and customer experience levels. The SIOP process involves the integration of sales, marketing, supply chain, operations, and finance with the leadership team to foster alignment and synchronization across organizational functions.
According to Grimes-Farrow and Conley, SIOP enables rigorous demand forecasting through a 360-degree consensus that connects front-end functions such as ideation, sales, marketing, and engineering to supply chain processes. supply.
In terms of target accuracy, companies should aim for the high 90 percent. Incorporating deviation data and actual results into the SIOP demand planning process can contribute to continuous improvement and greater precision.