|Supply Chain Definitions for Demand Management
|Requirements and Definitions for Supply Chain applications
|Beyond the definitions, context and references for these terms.
Full Article Below -
Requirements and Their Definitions - Demand Management
Assortment Planning – This process is the alignment of budgeting and planning with the execution of a dollar/unit merchandising/category plan—one item at one store. The core is the linkages and the cascading integration of the planning process with execution of products and quantity based upon the variety of store/item attributes by volume and merchandising direction within various tiers and product groupings or clusters. The functionality must satisfy multi-dimensional requirements all with the objective of optimizing the flow, frequency, turn and profitability within different product classification types. This is just not for Retailers. Brand suppliers must also participate. They evaluate the performance of their products at the shelf, especially if they are the category leader, and drive assortment planning from the Manufacturer’s side.
Participants: Merchandise planners from retail; Sales and Supply Chain planners from Supplier-side.
Category Management – the concept of segmenting items into buying units, such as cereal, pasta, greeting cards, etc. This segmenting is then used to plan store layout, drive forecasts by sales category as well as create agreements with brand companies on their shelf placement. Retailers are looking for profitability by category and by square foot. Categories that don’t make the grade can be replaced with new categories. In addition, brands in the category are allocated space according the brand power as well as margin contribution. Category leaders are the ultimate (often with store-within-a-store, such as Ralph Lauren or Estee Lauder’s brands), and they do display item level forecasting, monitor inventory and replenishment on the behalf of the retailer.
Participants: Brand Manufacturer who is category leader, Retailer.
Channel Partner Platform – integrated channel network, generally a web or MaaS platform capability, where channel partners can host their presence, capabilities, etc. and the operations of the channel master or OEM can be done with the network.
Participants: Channel partners, Channel Management, Marketing.
Channel Planning - Trading Partners – Which partner will represent which product at what price. Partnership, agreements and activities that nurture the channel partners’ ability to represent, sell and potentially service the product. What inventory strategies around stocking and returns need to be put in place? Most systems that include channel management have an integrated view of current inventory status, agreements on pricing, sales goals, territory/customer allocations/agreements, sales forecasts, as well as safety stock. Read case studies on channel management.
Participants: Channel Management, supply chain/distribution, Channel Partners.
Collaboration – This is another talked-about yet poorly practiced area. As we discussed earlier, creating an environment for true collaboration takes both technology and a corporate policy climate that values trading partners. Most technology companies have web-based tools, although they are transaction-based or practice shuttle diplomacy, (moving data back and forth, rather than having a shared platform). A true collaborative system provides those who need to share data with the tools (e.g. work flow tools, a shared platform and methods to adopt policy decisions that propagate only to the association).
Participants: relevant trading partners who support supply chain-wide process
Collaborative Demand Management – This is a process supported by web-based intersections of demand plans between trading partners in collaborative sessions until the plan is finalized. Finalized plans drive the planning process requiring hierarchical sophistication for the synchronization of product item file conversions. Capability to allow for multi-channel merging, aggregation and processing is required. For more on collaboration read here. In addition, today’s opportunity and challenge is collaborating across multi-tiers.
Participants: Trading Partners; Planners in Supply Chain
Consensus Planning – Many departments in the firm are part of the planning process. But who really knows how to plan and get the game right? And many firms strive to drive the enterprise and the supply chain to a one-number forecast rather than building consensus around an overarching marketing strategy. These tools allow you to work as a team to drive a consensus, based on the performance of the demand stream, or person who knows their stuff!
Participants: Planning staff
Customer-Driven Demand Signals – data collected from web or other sources on customer interests and queries. Read more.
Customer Experience – end-to-end design of customer encounters. The architecture of the customer experience needs to take into account all the elements of these encounters: supply chain/product availability, interpersonal transactions, web or store layout, access (from parking to shopping carts), artistic design, dealing with product defects, returns and exchanges (and their policies) and many more elements. This is another term that has been co-opted, especially by POS vendors who claim customer experience is merely check-out.
Participants: All functions. Should have a corporate customer experience head with clout. Done well, CEM can eliminate the customer service desk and percentage of product returns. Web-based solutions incorporate many analytics on performance on customer helps desks, web analytics and more.
Customer Intelligence – Here we are talking about the analytics framework behind various data that can be collected about market analytics, marketing decisions and performance critical to customer share. In addition, monitoring systems can look at employees/corporate performance behind web services, etc. to analyze and improve corporate performance.
Participants: Marketing and Sales.
Customer - New Segmentation modeling – Most companies use publicly available (from US government or for fee) demographic data. This is only a first step. Territory or geography in a very minor way may impact your success in that territory. Understand the unique characteristics of your potential customer grouping or segmenting requires analysis of these groups free of bias (i.e. your products). (Read about customer segmentation and the myths around customer loyalty.) Once these models are built then applications of products, features and pricing models can occur. Read more on integrative approaches between marketing and Supply Chain.
Participants: Marketing; Supply Chain planning.
Demand Creation – the definition of markets and customers and the process of stimulating interest and then customer acquisition. These blend with Demand Management activities usually associated with Product and Supply Chain process (see Demand Management).
Participants: Marketing, Sales, Chanel partners, Retail partner, Supply Chain and Product Management.
Demand Management – the totality of all Demand activities from market sensing, market creating, marketing and capturing demand. Not merely forecasting. Forecasting is the middle of the Demand Management process—not the beginning! Thus Demand Management—not Demand Forecasting—is the overarching concept. For a model go to Demand Management Model.
Participants: Demand Management includes Marketing, Sales and Supply Chain Planners as well as collaborative activities with trading partners.
Demand Planning – modeling customer segments by channels, brands, product, style, (and other classifications) down to the sku level. The models are then turned into unit and financial forecasts to create revenue plans. This is the foundation for collaborative planning for sources of supply. The functionality required is bi-directional allocation and aggregation, integration with brand, product and/or style level forecasting at various hierarchical levels supporting top down and bottom up justification in the collaborative customer-driven demand planning process. Demand planning is broader than forecasting, but must include a rich array of these forecasting algorithms that support different markets and products. These need to be supported by/and integrate with the complimentary elements. For more on Demand Planning practices read Demanding Times.
Participants: Supply Chain Planning, Sales and appropriate trading partners.
Distribution Requirements Planning – The process and supporting technology takes strategic plans and forecasts, converting to orders incorporating specific lead times for all component functions in a time series requirements plan for order fulfillment, inventory management, etc.
Participants: Sales, Supply Chain/Distribution management.
Event Management – Managing events such as new launches is another area, in many cases, left to art rather than systematic management. Events impact supply, cost, and price and need to be managed with grace. An event can be things such as opening a new store, having a book signing, having a sports star show up to launch a new product, and other much more mundane occasions. Post event, the sales numbers can skew or bias history numbers, so closing the loop on this data (as well as other one-time activities or incidents) is critical for your next cycle planning.
Participants: Marketing, Merchandising, Local Store Management.
Forecasting – SKU level product and sales forecasts cut by an array of data views: categories, territories, customer segments, products and their families, channels, by times lines, product performers, etc.
Newer approaches use intelligence, inference, reasoning, and various modeling techniques to discover unique patterns that fit your supply chains and products. And no formula should override plain common sense or actual orders!
Participants: Sales should own the forecast! Marketing, Supply chain.
Inventory Optimization - Retail Perspective – Retailers measure inventory by various categories and assortments plus turns and profit. Optimization attempts to strike the balance to pleasingly well-stocked shelves vs. “items flying off the shelves,” i.e. sales. This contrasts somewhat from a Manufactures perspective. A supplier optimizing the balance between the lowest possible level of inventory (generally) and still have availability and achieve service levels and market share.
Life Cycle Planning – Products behave differently throughout their life cycle, with demand, pricing and supply variability that needs to be taken into account. Today, most firms use crude methods to create and assess life cycle patterns and blend them into the process of forecasting, pricing, demand shaping, etc.
Participants: Product Management, Merchandising
Managing Demand Uncertainty/Risk – Demand forecasting is an exercise in resolving uncertainty. Various techniques which can be found in some analytic software, using range forecasts and modeling the uncertainly within the range as well as precision analytics are gaining interest in the user community. Analyzing the risk should also include financial impacts and investments associated with reducing risk. Only a few solutions have this capability. Changing product and business process can also all be applied to reduce variability in the forecast. These issues are both forecasting issues as well as sourcing issues. Shareholder value principles must also be taken into account. For more on these planning concepts read here: The Third Paradigm.
Participants: Risk Management, Supply Chain.
Market Sensing – Demand Management needs to include a forward-looking Market Discovery process. Today some of these capabilities exist as discrete functionality, and won’t be found in the forecasting packages. The approaches rely on modeling capabilities that access broad data formats and information from many sources and translate it to relevant business information. Today many firms subscribe to data and various market services that provide a myriad of demographic, economic, and statistical data that feed into the thought processes of firms who are contemplating market entry and new product lines. There are new approaches to these that use sensing and browsing technologies that highlight possibly undiscovered opportunities as well as insights into known markets. Creating and structuring market sensing is critical.
Participants: Marketing, Supply Chain, Strategic Planning, CEO.
Multi-Channel Marketing and Sales – the art and science of determining the media channel for sales, i.e. web, catalogue, store, etc. Beyond this decision best practices in aligning customer data, product data, supply chain fulfillment etc. in a way that identifies customers as they cross channel and can totally fulfill demand. Watch out for ‘web only’ or store only availability from providers who do have various channels. If you buy in one channel you may not be able to retune in another channel. This demonstrates poor multi-channel architecture of the business. Read more.
Participants: Sales, Marketing, Supply Chain.
Opportunity Analysis – evaluating the business opportunity, not just the product revenue forecast, which is so limiting. This analysis includes looking at life cycle, subsequent products in the family, probably total cost to serve (this is especially true in industrial, auto, high tech, software, and any product where installation and value sustainment may be required). In addition, opportunity analysis includes analysis of input from supply chain operations systems that tell you the costs associated with managing in that market (i.e. transportation and distribution costs; marketing programs and events; trade promotion dollars and other exotic deals with channel partners to move product into the market) and the impact of competition and other risks. Consistently, the data shows that businesses pursue markets and customer segments that ultimately have little potential, and so formalizing this analysis process is critical. Often the opportunity may be market share and a product in question may create market entry and presence and unto itself may not produce profit. Often companies do not purposefully recognize this. Read on Precision Retailing.
Participants: Product Management, Supply Chain Planning, Sales and strategic decision makers (C level).
Price/Profit Optimization – The process aligns the product price based on demand projections and margin to optimize profitability of specific items within classification, category, division and corporate profitability, merchandising and turnover goals across the channels. Functionality requires the capability of supporting multitudes of items, simulation and on-going tracking, performance, and analytics for decision support.
The logic capabilities must support intuitive demand/price relationships producing forecast lift, or trending equalizing, and balancing product demand, rate of sell-through, seasonality, end of season or sell off based upon life cycle, promotional, season(s), and transition dates.
Participants: Product Management, Supply Chain, Finance, Merchandizing.
Pricing – Definitely a treatise unto itself, pricing is an issue that is out of control in many supply chains. The inevitable markdowns, promotions, cost to install (that was not part of the plan and now must be eaten by the manufacturer) all impact cost—and profit. Price solutions should go beyond elasticity models, with analysis of demographics to determine what products should be offered in a given market etc. Many firms have used these approaches very successfully to gain more profit. Data from Demand Management customers actually showed that not marking down certain items increased profit with the same sales unit volume. Data from customers showed that demographic analysis allows price stabilization and also increased profit.
Participants: Product Management, Manufacturing/Supply Chain, Finance, Merchandising.
Promotion Planning – Although we are not good at these functions today, promotion management, etc. are more traditional activities. And if you want to feel very far behind in your ability to do well at these, just looking at forecast accuracy and promotion performance data ought to provide an impetus to improve your management of these. Although the theory is that they work, (certainly on the psychological level, by bringing customers into the stores), huge dollars can be lost, not gained, in promotions. But for tangible payoff, strict coordination needs to occur. This means the promotional management solutions need connectivity and visibility, and real-time event management to ensure we are executing.
Participants: Sales, Planning
Replenishment Planning – Creating a policy between customer and supplier, monitoring and assessing the performance value of that policy, are all components of replenishment planning. This capability is much underrated in its technical value, even though it is used in daily practice. The software for replenishment planning has to be a ‘smart,’ have a strong analytic component, and be as close to real-time as possible, since there are lots a false signals in the way things are bought and why they are bought. These practices vary greatly by industry as well.
Participants: Supplier Sales and Supply Chain Planners and Customers.
Replenishment, Policy, Strategy, Order Planning – The process requires a dynamic yet predictive capability to replenishment while cognizant of inventory management philosophies and constraints within policies, order strategies, optimization routines and order flow planning approaches. Order forecast methodologies, mathematical algorithms, weighting, filters and dampening factors, user controls, multi-user collaborative templates, end of season/life strategies, linkages and economic/service order/load building routines adjust the traditional safety stock level. Also, see the Truth About VMI.
Participants: Sales, Planners.
Returns/Recalls – process-supported technology facilitating the tracking, reporting, notification, and shipment - the reverse logistics flow of distribution from stores, warehouses or the customers’ locations. Integration with customer data, WMS, TMS, and/ or third party distribution firms. For recalls, linkages to the product to identify the lot/batch level and/or supply source of products to be recalled. Further linkages to the initial purchase order for claims, credits, disposals, etc.
Participants: Risk Management, Customer Service, Supply Chain.
Sales and Operations Planning – Lately there has been a resurgence of S&OP software buying and process focus, building on an established foundation of good real-time production modeling and managing upcoming demand. Discussion can occur on meeting this demand as well as burning off excess, or Demand Shaping. Virtually all companies do some sort of demand shaping using price, promotions, and sales force incentives to shape demand to meet various goals, such as driving traffic to the retailer or selling off excess inventory. But few have figured how to use something other than price to steer demand towards available supply and higher margin products. The goal is to encourage salespeople and customers to select items that are in stock and steer demand away from items in short supply. As a practice, demand shaping does not compensate for bad forecasting. And demand shaping and other promotions distort history data! They also lead to faulty replenishment practices potentially driving replenishment orders to products with low or no true demand. S&OP provides an integrative cross-functional management capability for Sales, Manufacturing and Marketing to manage the operational components to ensure sales quotas are met. Changes to product, price, availability, scheduling, etc. can be made to assure the tactical plan is met. Review of forecasts, pricing and activities is required in supporting the extended window for events, promotions, lifecycle/end of life decisions. The process must show integration with supporting processes linked and driving cross-functional actions.
Participants: Marketing, Sales, Account Teams, Supply Chain which might include: Distribution, Manufacturing and Sourcing.
Store Networks/Clusters – the art and science of grouping alike retail stores together. Today’s limitations in practice are geography and high level demographics (i.e. income, population, etc). More retailers need more fine-grain methods to design these networks or they will miss capturing potential customers in these markets.
Participants: Real-estate Planning; Store Management; Merchandising strategy.
Strategic Network Planning – The end-to-end supply chain must be optimized to support the best ‘path’ to meet customer demand. Dynamics are needed to support network design for transportation and facility location, inventory planning, etc. But network design needs to be driven by market forces.
Participants: Supply Chain/Logistics.
Sourcing – Functionality required includes tools to effectively manage all the elements of sourcing and procurement, including full global compliance. Capabilities include: Support the process from pre-purchase Request for Quotation (RFQ) capability for direct purchases to ensure optimal total cost of ownership/landed cost purchase capability, taking into account origin, destination and carrier compliance and cost issues Total Landed Cost/Total Sourcing Costs through to Supply Performance Management. Provide total visibility into the status of the orders as they are being executed and the status of the shipment plans until they physically move into logistics. Include support tables for HTS and Compliance, visible in the product profiles and insure that product destined from one origin to a destination can meet all regulatory requirements.
Participants: Merchandising/Buyers, Supply Chain.
Lonnie Childs, Predictive Demand Supply
Charlie Chase, Demand Driven Forecasting
David Simchi Levi, Managing the Supply Chain
Eliyahu Goldratt, It’s Not Luck
Ann Grackin, The Parallax View
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To view other articles from the May 18th issue of the brief, click here.