Sales forecasting, also known as demand planning, is integral to achieving profitable growth. To ensure superior service and operational performance, visibility into customer and operational requirements is a must. The sales forecast powers the SIOP (Sales Inventory Operations Planning) process to align sales with operations to support customer success and fuel an operational rhythm to deliver bottom line results.

Case Study: Food contract manufacturer boosts service & operations with sales forecasting

A food contract manufacturer was experiencing issues in keeping up with customer orders efficiently and effectively and wanted to level up operational performance by getting ahead of the demand plan. Executives thought they could bring a few points to the bottom line with the increased visibility as it gave them the opportunity to optimize the production plans. They had a solid ERP system, JD Edwards, and an advanced planning tool to optimize and visualize the production schedule sequences. They thought the increased visibility would also enable their purchasing team to get ahead with MRP and proactively manage purchase requirements for ingredients to mitigate frequent production schedule changes due to shortages.

Thus, they decided to perform a cradle to grave supply chain assessment which concluded that a 3-prong approach would achieve the objectives.

  • Demand plan: The key to success was to upgrade the demand planning process to proactively manage demand, forecasts, and customer commitments.
  • Translate to 4-month plan: Turning the demand plan into a production plan and giving Operations a 4-month view into what’s coming down the pike was essential while managing short lead-time requests.
  • Priority support initiatives: To ensure the operations plan would deliver a step level change in productivity and profitability, we also had to address supporting processes.

None of the results would be possible without a better view into the demand plan. Thus, we focused on several improvements to the demand planning process.

  • Replace blanket order process: This manufacturer used blanket orders to secure longer-term customer commitments. However, as is typical across all clients, customers change their mind frequently, revise blankets and do not see them as a firm commitment for a specific date. Thus, although there is a level of dollar commitment, the demand plan doesn’t have timing associated with it and Operations cannot plan. Thus, the client decided to pursue alternate strategies to track secure commitments and convey timing to Operations. At a minimum, monthly quantity releases would be set up that align with forecasted shipments.
  • Sales & customer meetings by customer: One of the critical pieces for success is to coordinate interactive customer discussions. For each key customer, we put together historical sales patterns to review in the meetings as well as status of key customer priorities such as expiring inventory and new products. We set up sales and demand discussions with the appropriate Sales, Customer Service and customer contacts to discuss trends, issues, and forecasts. We received invaluable input and set up a regular cadence for these demand planning discussions as a part of the SIOP demand planning cycle.
  • Customer’s customer: During the sales and customer meetings, insights about the customer’s customers was also incorporated. For example, the same brand could be sold to Starbucks, Costco, local stores and doctor’s offices. During the pandemic, the sales at big box stores remained robust; however, Starbucks declined for items sold at the cash register (as people went through the drive thru only), local stores were closed, and doctor’s offices were largely closed. Thus, the customer’s customer became vital in forecasting.
  • Expiring materials: Bringing expiring materials into the discussion impacted the forecasts as it could expedite certain products in the forecast and positively impact inventory.
  • Large customers: A few of the large customers had consumption level data. Gaining access to what was being sold at the customer on a regular cadence is the best indication of how sales are trending. Thus, the team incorporated whatever information they could gain into the customer forecasts.
  • Customer forecasts: As is common across many clients and especially true for contract manufacturers, the key to success is to develop customer forecasts. Not all customers grow at the same rate and experience the same issues. Thus, the team took the information collected at the customer meetings, developed estimated timing and put customer forecasts and/or blanket order releases into the system to drive planning and MRP.
  • Smaller customers: Smaller customer forecasts could be incorporated into the “all other” forecast. Typically, these are based on historical trends or other key items that apply across customers. If an unusual order arose, we could set a longer lead time to maintain a stable 4-month demand plan.
  • Consumption: In addition, the team set the system and process to track consumption vs. the forecast. Thus, if a customer started to run behind, Customer Service would follow up to find out what was happening with the customer. The root cause was more easily pinned down and could be addressed or re-forecasted.
  • Tie with SIOP (Sales Inventory Operations Planning): All of the forecast information is incorporated into a rolling 12-month demand plan with a detail-level focus on the 4-month timeframe, making the basis of the SIOP process.

Demand Plan Powers Operational Results

The demand plan powered operational results. The demand plan drove MRP and production scheduling via JDE and their advanced planning system. MRP provided base production plans and time bucketed material requirement plans. Purchasing utilized this data along with business intelligence type reporting to proactively manage materials to improve availability with better management of expiration dates. For more information about these types of strategies, refer to our article, “Planning and MRP Upgrades to Support Revenue Plans & Proactively Manage Capacity“.

With improved material availability and sales forecast accuracy, the planning team could rely on the base production plan. They upgraded the process by refining and better utilized their advanced scheduling software. It provided a visual schedule and color-coded key characteristics such as key flavors requiring longer changeovers, changeover groups, ideal run sequences, items requiring kosher coordination, etc. For detailed strategies to upgrade production scheduling processes, refer to our article, “Scheduling Best Practices to Improve Service and Performance.” Service levels and operational performance increased, and slow moving and obsolete inventory (SLOB) decreased.

The Bottom Line

The value of demand planning and sales forecasting is often overlooked, especially by companies focused on lean initiatives. Lean and demand planning are complimentary, not contradictory. We have yet to meet a client with a stable and consistent demand pattern as real life intervenes, customer demand patterns shift, and disruptions occur. Thus, the more you can incorporate consumption the better; however, your forecast will be more accurate if you view these concepts as complimentary, set up a regular review and cadence, and incorporate changing conditions. The clients that follow these best practices drive substantial service and profit results.

Did you like this article?  Continue reading on this topic:
What is Your Demand Plan? Sales Strategies for Success