Demand variability is increasing. As consumer products (CP) companies execute growth strategies (see “Consumer Products: Five Actions To Take Now for Improved Innovation Success”), product volume is falling and demand error is increasing. When 120 CP companies were asked in a recent AMR Research quantitative survey if this trend was expected to continue, nearly 70% said the trend will likely grow worse, not better.

A time to rethink demand planning

Although 82% of CP companies have implemented demand planning, 74% supply planning, and 58% available-to-promise (ATP) technologies, they lack fundamental capabilities to adapt to increasing demand variability. Why? The primary focus of most demand-planning systems is to forecast what the factory needs to make, not the effect of demand variability on supply chain decisions. The systems implemented in conventional APS systems also lack what-if capabilities.

As a result, organizations struggle with how to quantify the effects of demand variability into quantifiable business results to lead discussions on product proliferation. As demand variability increases, there is a greater need for organizational collaboration, what-if analysis, and decision support to analyze the tradeoffs. There is also a need to quickly align demand and supply to respond to demand variability.

Areas to tackle

What follows are four areas to address to better deal with demand variability.

Conduct what-if analysis

The greatest gaps in what-if capabilities are in demand management, supply chain design, and determining the best operating strategy for sales and operations planning (S&OP).

The average company has 100 demand planners with the need to do frequent what-if analysis—76% of companies would like to conduct what-if analysis on some part of their demand plans multiple times a week—but the technologies are not available. What-if analysis with a high rate of concurrent usage is a challenge today’s demand planning architectures are not ready to solve.

Plan run time

The time to calculate a demand plan is too long. Today, 50% of companies take more than eight hours to calculate a demand plan, but the desired time is less than two hours. While computing power has greatly improved in the last 15 years, the calculation of the demand plan remains fundamentally the same. Most companies calculate a demand plan once a month, and do little what-if analysis to understand the effect of demand uncertainty or demand-shaping programs.

Train your staff

To manage demand variability, there is no substitute for a trained team. Today, these skills are scarce and need to be built from the ground up. Clients are having the most success training their teams using Institute of Business Forecasting (IBF) seminars, Accenture’s Supply Chain Academy Courses, and On-Point Group’s training simulations, in combination with vendor consulting teams.

Use VMI for help

Retailers are now looking to increase the usage of vendor-managed inventory (VMI) programs. In theory, this tighter connection to the customer should help reduce demand variability, but less than 5% of CP companies have synchronized the demand plan of VMI to their corporate demand-planning systems.

Who can help?

Of the companies surveyed, 53% state they would invest in what-if demand capabilities if they were available. AMR Research believes this will require a redefinition of demand planning. Who will be able to close the gaps? The answer is unknown because it requires a radical rethinking of demand architectures. Although there are no guarantees, our bets for what-if architectures are on products from Kinaxis, Logility, SAS, Oracle (Demantra), and Terra Technology.

Let us know how we can help—lcecere@amrresearch.com.

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