FMCG Demand Planning: 4 Frequent Flaws to Avoid

The Enchange Supply Chain House is available for those wishing to embark on a structured, medium-term journey towards Supply Chain excellence. What about those companies who need change now with no time to waste? What can they do to effect meaningful change sooner rather than later?

The Enchange 6-Part Model

In a simplified view of supply chain, the priority of FMCG players work to get their stuff in front of consumers but with so many hurdles, this is not necessarily easy. The 6 simple steps:

Step 1: Sourcing

Step 2: Planning

Step 3: Manufacturing

Step 4: Warehousing

Step 5: Transport

Step 6: The all-important Consumer Shelf

The approach helps people to understand the day to day operational difficulties and challenges experienced by colleagues along these 6 steps. In the last article we looked a FMCG Sourcing (see link at Step 1, above) and 4 frequent flaws you can overcome quickly and without breaking the bank.

What happens at the important handovers/pinch points?

What happens at the important handovers/pinch points?
What can go wrong at these interfaces?
How do you identify and solve problems?
How can you improve the data and information hand-shakes?

Four Frequent Flaws – Demand Planning

Planning is important right across the extended supply chain and while we will focus on Demand Planning (DP) here, this is only a small part of the planning function. Supply Planning, Transport Planning, DRP, MRP etc, etc are at least equally important to DP and each has their own challenges or frequent flaws which we will consider in a later article.

Companies have thrown a lot of money at DP over the years by investing in technology in search of the holy grail of a better view of market demand. Some IT solutions are better than others but the best (and probably cheapest) tool is the human brain. By relying on IT you can become detached from reality and insensitive to recurring errors.

Here are four frequent DP flaws which you can avoid by switching on that cerebrum.

Unconstrained Demand. Is your sales forecast honest? Is your full assortment offered for sale to customers or do sales colleagues only sell what they know is available? An unconstrained demand forecast reflects what the customers may buy while ignoring any known or potential supply risks. If you only operate to a constrained demand signal you will never see your full sales potential.
Measure the bias. Is your sales forecast always low or is it always optimistically high? Both cause problems along the supply chain yet many companies do not measure this important variance or bias. Consistently negative bias indicates a tendency to under-forecast which means you will be missing sales as stock may not be available for sale. Conversely, consistent positive bias values indicate a tendency to exaggerate the forecast which leads to over-stocking and potentially, expiry and write-off. Measure sales forecast bias!
Focus on the few. Bring Mr Pareto into play and focus on those SKUs and activities which really deliver. Unless you are in a very specialised FMCG business your performance will be dictated by about 20% of the portfolio. Expending time and effort planning every single SKU is futile as those at the end of a long wagging tail are clearly not as important. Concentrate your DP efforts on the big sellers or most profitable SKUs depending on the financial drivers you are targeting.
The forecast will be wrong. Do not get hung up about your forecast accuracy measure as it will always be ‘wrong’. Ok, if it is in the twenties then you need to make some changes to the way you are working. However, searching for 100% forecast accuracy is far more damaging as this is very expensive to achieve. Every SKU has to be readily available in the (unknown) required quantities at every distribution or selling point, constantly! Demand variability is perfectly normal so set an aspirational target and work to understand the drivers or your performance.

What next?

In subsequent articles we will look at the Supply Planning handshakes in the chain and consider some potential quick wins.

If you need to make supply chain change in the next 2/3 months, we are just a call away.

Feel free to use any of our contact routes including Live Chat, if you have any questions about how the Enchange Supply Chain House can assist your journey to supply chain excellence.

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