Forecast fair

Few manufacturers have what they might regard as the luxury of a demand manager, much less a demand management system – believing both to be too expensive, and so unlikely to deliver a worthwhile return. Equally, many of those that have invested in the role and a supporting system find the promised improvements hard to come by, despite top performers reporting OTIF stats in excess of 95%, as well as reduced inventories, far less expediting, reduced cost to serve customers and increased profits. So, why the disparities? According to Debbie Bowen-Heaton, a partner at manufacturing excellence consultancy Oliver Wight, it's all about business processes and behaviours. And she should know. Bowen-Heaton was formerly the commercial director at Abbott Laboratories. She headed up its demand management programme as part of driving the organisation to Class 'A' supply chain operations worldwide. Published return on investment figures from that project were a "very conservative" $200 million, against costs of $10m. And she adds that other key benefits included synchronisation of product demand and supply, better understanding of customer requirements, reputational improvements and sustainable growth. What was the secret? Bowen-Heaton refers to research done for forest products giant Weyerhaeuser. "Its study revealed businesses that don't review people, processes and responsibilities, to make new systems work, achieve ROI well below expectation. Conversely, those that do the process redesign and change management far exceed expectations. So, it's all about thinking around people and process, not just tools. At Abbott, that approach meant ROI was greater than 20-fold." Hence for her, while a demand management system is important – certainly for manufacturers employing more than 50 people, and with some complexity in terms of production and product mix – it isn't the be all and end all. And it needn't be expensive. "ForecastPro, for example, can run the statistical projections that demand managers need to get forecasting, modelling and impact analysis right, and feed that into their ERP systems. That's how they give visibility of the demand plan to the supply chain. But what they need first are the right people with the right behaviours and the right skill sets." Who are the right people? Bowen-Heaton explains that it's no good expecting somebody in logistics to take responsibility. "To get these systems to work, you have to make sales and marketing accountable for demand planning. The demand manager then needs analytical skills to drive the system and help that team to understand the impact of what they're doing on customers." She describes the extremes of basic forecasting versus advanced demand planning as the difference between a supply chain that's left second guessing and one that is in lock step, minimising costs and expediting, while maximising value. She also says that it's not enough merely to have input from sales and marketing if people are consistently rewarded for going beyond their plan. "Typically, if people in sales sell 110 items when they forecast 100, they're seen as heroes and rewarded, but that drives the wrong behaviours. Production and the supply chain constantly have to respond and incur costs associated with safety stocks, extra shifts and expediting. So, we say you need to rethink the way people are measured and rewarded." Changing that, she says, is about making sales and marketing directly accountable for demand plan accuracy, with responsibility out through the supply chain. "You'll find that making commercial people responsible for finished goods inventory sharpens their minds. If they give silly numbers to the supply chain, they'll soon see the consequences – including in customer service." Bowen-Heaton's advice: align their goals to growth. "We all want to be excellent and we all need stretch calls, too. So get them to state the plan and the aspiration. And don't pull it out of the bag at the end of the year. Giving the supply chain visibility of the opportunity is the key. That may be hard for some salespeople, but directors need to give them the space and help them to understand that, if they believe they are going to make the sales, they should be in the plan." Then, she says, the benefits will follow – and not only in terms of supply chain and customer service excellence. "As demand planning eliminates process 'noise', you'll be able to see the remaining sources of variability. It might be to do with product mix, so you can assess whether certain products are worth manufacturing. Or it might be to do with customer buying habits or your sales terms. The point is you'll be able to see the issues and the solutions, so that instead of managing crises you're into continuous improvement."