Page 359 - Orlicky's Material Requirements Planning

338 PART 3 Managing with the MRP System

Managing Demand

Demand management, including the accountability for forecasting, has developed signif-
icantly. In the early years of S&OP, a lot of effort went into agreeing to a volume forecast
emphasizing a single set of numbers. Demand forecasting was very often part of the sup-
ply organization, and forecast accuracy was seen as the principal measure rather than cus-
tomer service. Some organizations even went so far as saying, “You did not forecast this;
therefore, we cannot make it!” obviously alienating sales and marketing. The thinking that
sales and marketing form one homogeneous organization with a single view of the num-
bers misses the fact that these two functions have different drivers and objectives.
By the mid 1990s, people realized the importance of sales and marketing inclusion
in forecasting. At the same time, “Customer, Customer, Customer!” was fashionable, and
sales became the focal point for forecasting and the one-size-fits-all solution, ignoring the
importance of marketing input.
In many businesses following a “customer relationship” strategy, sales leadership is
appropriate, but in organizations with product/service differentiation strategies, mar-
keting is the principal driver of medium- to long-term demand prediction. This distinc-
tion is covered in more depth later in this chapter.
Giving sales single accountability for the forecast led to some organizations spend-
ing too much time analyzing detailed history in an attempt to get the forecast accurate
instead of being with the customers gaining knowledge about future trends. Against this
background of trying to get the forecast accurate, there was a growing realization that
there is a different inherent uncertainty in different markets, channels, and sectors, as
well as with different products and customers. After years of complaining about forecast
accuracy and trying to crank the handle faster on the same old detailed forecasting
machine, companies began to wake up to forecasting for what it is—predicting the
future! By no means does this remove the responsibility for forecasting, but it did lead to
new and innovative ways of making a more educated prediction. In agreeing with a fore-
cast, an important piece of knowledge is to understand the range (high and low), and
providing numbers without documented supporting assumptions is unhelpful. In some
companies, the rule is that a forecast number cannot be changed unless an assumption is
also changed. A summary example is shown later in this chapter in Figure 20-6.
Today, we understand that a robust demand plan over a minimum of 18 months is
possible only by reconciling cross-functional views; volume and value must be integrat-
ed. Finance and logistics/supply chain are committed to this output. In general, sales
input by major customer (with input from account managers) and channel is important
in the short term, typically the first four to six months. Marketing provides information
beyond four months based on market share, goals, and brand/product health and mar-
keting investment. Strategic marketing and research and development (R&D) in many
cases have a role beyond 12 months, particularly in new activities. There must be recon-
ciliation between foresight (i.e., strategic marketing) and forecasting (i.e., tactical market-
ing and sales). These are guidelines only to illustrate the collaborative approach and will
vary depending on the business. The responsibility of finance and supply chain/logistics