Planning is a continuous process that allows business leaders to recalibrate as things change. Knowing what consumers want and need and paying attention to how their desires shift over time is critical in planning demand for their product.
To make better demand decisions and to manage demand well, it helps if business leaders first establish the definition of demand in their business. A simple but effective definition is: “Demand is what your customers need, and when and where they need it.”
What is a Demand Review?
The Demand Review is a necessary step in any Integrated Business Planning (IBP) process. An IBP process aligns strategy, portfolio, demand, supply, and resulting financials through a focused and consensus-driven monthly re-planning process. The result is a single operating plan, over a 24-month rolling horizon.
In a Demand Review, the commercial management team (sales, marketing, and product management) reaches a consensus on the time-phased actions that they will take to influence and generate demand. It’s a to-do list rather than just a set of numbers. It also serves as a forum to decide which commercial actions are the right ones to take and invest in to achieve the company’s goals and strategies — such as growing in a particular channel or segment. Such actions may well change over time and therefore must be evaluated and re-adjusted in response to changes in the internal and external business environments.
How to Design a Trustworthy Demand Plan
The best way to develop a credible demand plan is to base the plan on reality and reflect the truth. To create trustworthy plans, an organization must ensure the plans are free of bias and reflect the best estimate of what customers will order.
Making the demand plan relevant to internal customers doesn’t, on its own, make it reliable. Because there are no facts regarding the future, it’s more important to focus on what’s most likely to happen in the future that will result in demand for the company’s products and services. These may include:
- Different perspectives of the marketplace
- Competitors’ pricing and product plans
- Understanding the company’s own internal strategies, capabilities, and actions to generate demand
Make Strategic Assumptions
Understanding likely or desired outcomes can be better determined by collecting information and creating assumptions about what the company will offer and what customers are expected to buy in the future. The drivers of demand will be different across businesses and industries, but they very often come back to the fundamental “Four Ps” of marketing — product, price, place, and promotion.
Assumptions can also describe strategic activities that may go above and beyond day-to-day sales and marketing activities, such as mergers and acquisitions or divestitures. They could also represent anticipated market conditions, competitive activities, and customer behaviors.
Beyond creating a more accurate demand projection, the comprehension and documentation of key assumptions helps business leaders become more strategic and consequently they are empowered to build more agile organizations.
Case Study: Cough & Cold Medicine Manufacturing OTC
Consider an example from a client who manufactures cough drops. The company looked at the factors that influenced customers to buy their product. They identified two that stood out: the price of the product and the occurrence of seasonal colds and flu. They determined that a single case of flu would, on average, create demand for 11 cough drops.
Given the extent of seasonal cold and flu sickness was completely outside the control of the organization, the demand planner made assumptions, derived from historical trends, as to what sickness levels would be. Once the assumption was agreed upon, the business monitored actual cold and flu sickness levels and adjusted assumptions and resulting projections accordingly.
By contrast, the price of cough drops was completely within control of the company. It explored its assumptions about competitors’ pricing and based its pricing decisions according to the competitive environment.
Demand Should Drive Business Planning
Demand should drive the business. Consequently, an advanced demand planning capability is essential in linking an organization’s strategy to its planning and execution via the Integrated Business Planning process. Companies that develop a strong demand planning capability go beyond establishing just one course of action.
Business leaders can focus in on likely assumptions about what might happen in the market with their competitors, suppliers, and internal capabilities, and then decide how best to respond to achieve the business objectives. This takes thinking from “What’s the right number?” to “What should we be concerned about and what actions should we take to achieve our business goals and objectives?”
Charity Lopez and Greg Spira are business advisors with Oliver Wight, with expertise in demand management, brand management, and integrated business planning. Charity’s passion is working with companies to transform their growth journeys. Greg is author of the book, Trust the Plan: Demand Management for Business Leaders. Learn more at oliverwight-americas.com.
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