The Demand Review

The Demand Review – Deploying Strategy With Integrated Business Planning
Number 3 of 7 in the Oliver Wight Strategy Deployment white paper series
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Introduction

“Peace-time plans are of no particular value, but peace-time planning is indispensable.” – Dwight D. Eisenhower

The need for effective business planning has long been established beyond doubt, and recent global events, the financial crisis, COVID and armed conflicts, have proven Eisenhower’s quote as applicable to organizations as it is to the military. Nobody can predict the future but those businesses that plan well are more capable of detecting significant change early and being able to respond to it in a timely and effective way.

Business leaders who achieve their business strategies and annual goals have a different mindset, they understand that goals, and plans are different. Plans are the actions that will deliver goals, such as revenue and profit targets. While strategy, goals and objectives may remain static over a longer period, plans can and should adapt to new conditions that may impede achieving the goals and strategies. So, planning is a continuous process that allows business leaders to recalibrate when things change.

However, planning is challenging, and it doesn’t always come naturally. People and organizations have to learn how to plan effectively. This is especially critical in larger businesses where many different people in diverse roles must come together to connect and align various plans and link them to the business strategy.

Trust in the plan

Crucially, in Oliver Wight’s experience, when organizations routinely achieve or exceed their financial goals, business leaders are trusted more by their board of directors. Trust is the fundamental characteristic in planning – trust in the numbers, trust in leadership, trust in the process. Trust begins with leadership alignment and without it, there are real costs to the business, both hard and soft. When trust is lacking between leaders, it inevitably cascades down through their teams. Silos become strengthened, and cross-functional collaboration at lower levels in the company becomes difficult, if not impossible. People shift their energy away from proactively solving problems to preparing explanations for why they weren’t at fault. In extreme cases, things can become outright combative. If a business is to successfully connect its strategy to planning and execution, trust in the plan must be absolute.

In our first white paper in this series, “Connecting Strategy to Execution with Integrated Strategy Management,” we showed how to integrate the corporate strategy with operations by cascading it down the organization through the creation of individual strategies and plans at the business unit and functional levels (see figure 1). It then becomes the role of Integrated Business Planning to operationalize the strategies and plans of the business units, managing any performance gaps over a 24-to-36-month horizon.

The second white paper in this series, “The Portfolio Review – Deploying Strategy With Integrated Business Planning,” highlighted the role of deploying the strategy of the Portfolio Review (PR), the first step in the Integrated Business Planning cycle. This third paper focuses on the Demand Review.

Integrated Business Planning

Integrated Business Planning is the process that connects strategy to business results, and each month it asks these core performance questions to manage any gaps in the strategy and business plans.

How are we doing?
Do our plans meet business needs?
Are our plans still valid?
Do we have any gaps?
What are we going to do?

The integrated business model shown in figure 2 provides a blueprint for how business functions interact in a collaborative way. It illustrates the key leadership and management processes of a business. Integrated Business Planning sits at the top of the model, and each of the steps in the process is supported by underlying functional management processes.

The connectivity shown between the different functional management processes is vital to a business. Look at the connections between Supplier Management, Demand Management, and Project Management. The connections go both ways demonstrating teamwork at all levels, a collaborative culture, and an expectation for more reliable business performance.

A common and seemingly straightforward request to Oliver Wight from supply chain leaders is: Can you help me fix the demand planning process? I can’t get the sales and marketing leaders to be honest with me.

However, solving this problem is not straightforward. The challenges of trust are rooted in human behavior that often values self above all others. A lasting solution requires the sponsorship of the most senior leader – the president, general manager, or CEO. The reason accountability can’t be delegated is simple; when business leaders don’t trust one another to share credible information to run the business, it thwarts all sorts of collaborative efforts.

Only with ownership established at the very top of the organization can Integrated Business Planning then become the process for business leaders to routinely determine a single operating plan.

To make better decisions about demand and to manage demand well, it helps business leaders to first establish the definition of demand in their business. The word demand is often used but frequently understood differently by different people. A simple but effective definition is: “Demand is what your customers need, when and where they need it.”

The Demand Review is the second step in the Integrated Business Planning process. It follows the Portfolio Review.

Knowing what consumers and customers want and need and paying attention to how their desires shift over time is critical in planning demand. Demand doesn’t happen without efforts to influence people to buy your company’s products and services. The premise that your company is doing something to create or influence the demand for your products is foundational.

Therefore, as the culmination of the demand planning process, the Demand Review is where the commercial management team (sales, marketing, and product management) reaches a consensus on the time-phased actions that will be taken to influence and generate demand. It is a to-do list rather than just a set of numbers.

The Demand Review also serves as a forum for deciding which commercial actions are the right actions to take and invest in to achieve the company’s goals (revenue, profit, market share, etc.) and strategies, such as growing in a particular channel or segment. The right actions may well change over time and must be evaluated and adjusted in response to changes in the internal and external business environments.

The best way to develop a credible demand plan is to base the plan on reality and reflect the truth. To create trustworthy plans, the commercial organization must ensure that the plans are free of bias and reflect the best estimate of what customers will order.

Demand should also be planned without being overly concerned about whether the products or services can be delivered by the supply organization. This separation of customer demand from supply capability is critical to better-serving customers in the most profitable way. It enables identifying gaps between anticipated demand and supply capability – and resolving the gaps before they become problems.

The demand plan should also include activities for developing new products and services. That is not to say portfolio planning should be part of demand planning since the required skillsets for new product development and commercial development involving sales and marketing are distinctly different. It is just the demand element (for new and retiring products and services) from the PR that needs to be fed through.

The demand plan will have enough granularity for the supply organization to plan the acquisition of materials and manufacturing products in the near- term but will be maintained at an aggregate level over the longer term. Bear in mind that there are other stakeholders within the IBP process that use the demand plan to create their own plans too: finance, product management, and supply to name a few. The demand plan must serve the needs of them all.

Trusted advisors

Elevating the role of the demand planner

All things being equal, the best option is for demand planning to report to the sales or marketing organization since that is where accountability for the demand plan must reside. As established above, to leverage the information the demand planning function provides for the rest of the organization, the demand plan must be trusted. But the demand plan is not trusted on its merits alone. It is essential the people involved in developing and communicating the demand plan are viewed as credible and trustworthy. Building trust involves more than just having the right answers; it requires being respected for judgment and business acumen. So, demand planners must be competent in skills beyond forecasting and analytics. They must be skilled in developing trusting relationships and collaborating well with others.

Unfortunately, demand planners are all too often seen by leaders as an administrative staff that enter forecasts into a planning system. To create trust, the organization’s leaders must acknowledge that demand planning is not just number crunching. There is a clear distinction between trusting someone’s technical skills and believing they are trustworthy as an individual. Demand planners must be able to work across functional boundaries to gather critical information and understand how the plan is being used by the wider business. The most credible demand planners are often from a sales or marketing background. They are naturally better equipped to be able to tell the story of the updated demand plan each month and speak about the business in terms other commercial leaders will understand and trust.

As trust develops, the demand planner is relied upon for their predictions of the future and sought out for advice and objectivity – grounded in their understanding of the various levers that drive the business. This also means they become engaged earlier in the process of providing feedback on the impact of commercial activities and external drivers that influence demand. Their advice gives early visibility of how demand may materialize leading to fewer surprises. In the end, better business decisions are made to help ensure business strategies and goals are achieved.

The demand planner role should attract high-potential talent and be a route to accelerate a career trajectory. Demand planning should not be a parking lot for the mediocre talent in the organization.

Making assumptions

Making the demand plan relevant to internal customers in the desired level of detail and how it is expressed numerically, doesn’t on its own, make it reliable. There are no facts in the future, so to create a reliable plan, it is far more important to focus on the assumptions upon which the result is based rather than the result itself. This focus should be on what is likely to happen in the future that will result in demand for a company’s products and services, including:

Different perspectives of the marketplace,
Competitors’ pricing and product plans, and
Understanding a company’s own internal strategies, capabilities, and actions to generate demand

Understanding what is likely (or desired) to happen requires 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. Still, they very often come back to the fundamental four Ps of marketing–product, price, place, and promotion, which are shown as key inputs in figure 3. Assumptions about these four Ps typically come from the commercial side of the business. These same people provide input into the demand plan.

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 describe the anticipated market conditions, competitive activities, and customer behaviors. Not all assumptions in a demand plan are completely within the commercial team’s control, but they need to be included, nonetheless.

By debating the assumptions rather than the numbers, accountability is strengthened.

Consider this example from a manufacturer of cough drops:

The right tools for the job

Planning software tools often exacerbate the problem of focusing on numbers rather than how demand is being influenced and generated. Using tools to crunch, slice, and dice numbers is essential, especially for companies that have hundreds or thousands of product items or stock-keeping units (SKUs). However, tools do not typically provide the functionality for documenting qualitative information.

Demand planning software can be augmented with an assumption journal to document, track, sort, and update demand plan assumptions. The demand manager is usually responsible for creating and maintaining the assumption journal, and entries are typically made at the aggregate level to avoid the journal becoming too unwieldy.

Figure 4 shows an example of the flow of an assumption management process. The various inputs about future demand are communicated to the demand manager, as shown on the left of the process flow.

As the inputs are consolidated, asking pointed questions to validate them is critical. Doing so filters out weak or questionable assumptions early in the process. The final decision to align on the assumptions included in the demand plan, however, occurs in the Demand Review.

Mind the gap

Achieving business goals and objectives

Rather than just creating a more accurate projection of demand, the documentation and understanding of assumptions means business leaders become more planful and consequently create a more agile organization. Agility comes from being able to identify issues and create scenarios that consider different options. These scenarios are driven by different sets of assumptions of what might occur on both the demand and supply sides of the business.

When companies plan over a 24-to-36-month horizon, gaps between the latest demand projections and the annual budget, as well as business goals and strategies, are visible far enough in the future that the commercial and supply organizations have time to respond in the most cost-effective way.

The CEO of one Oliver Wight client said it well in a Management Business Review: “Good news is good news, bad news is good news, but no news is bad news.” News of any kind is better shared early than late. Trust is the foundation that ensures gaps are visible with enough lead time to address them. When gaps are communicated only in the near term, it can trigger many counter-productive behaviors and decisions, leaving businesses stuck in a vicious cycle of end-of-quarter or end-of-year pushes to achieve targets. These often involve giving incentives to customers to buy more than they would otherwise need at that time. All too often, this only shifts demand from one period to another. Worse, it trains customers to expect to receive incentives or discounts by simply holding back orders until the end of the period.

One way to stay focused on closing gaps is to review risks and opportunities in the Demand Review (and throughout the Integrated Business Planning process). Figure 5 illustrates some example assumptions and variations of those assumptions that would make them either risks or opportunities. Risks, by definition, are things that would cause demand to be lower than currently planned. Opportunities are things that would cause demand to be higher.The management of risks and opportunities should be a routine part of the demand planning process. Still, it is unfortunately common for business leaders to canvass the commercial organization for opportunities only when the demand plan is falling short of objectives.

As organizations mature their demand planning process, there is a clear shift in how time is spent on the Demand Review (and Management Business Review). Discussion shifts from debating the numbers to focusing on strategies and tactics for achieving the business goals for revenue, margin, and market share. In the most mature processes, most of the time is spent discussing opportunities and what it would take to realize them. Even when the demand plan projections are meeting or exceeding targets, a culture of continuously driving for more is best. Targets should not be downward limiting.

Scenario planning

Time for plan B (C, D, E, or F…)?

Companies that develop a strong planning capability go beyond establishing just one course of action. Business leaders can shift their focus to what might happen in the market with their competitors, suppliers, and internal capabilities, then how to best respond to achieve the business objectives. This moves thinking from what’s the right number to what should we be concerned about and what actions should we take to achieve the business goals and objectives.

When this type of scenario planning occurs regularly and with honesty, responding to change becomes nearly effortless. Potential changes are anticipated, and the most appropriate response is agreed to cross-functionally in advance. The company can respond more swiftly to change, giving it a leg-up on the competition.

1. Watrous, Monica. Hershey Outpaces Category during Tricky Halloween Season, Food Business News RSS, Food Business News, November 9, 2020. https://www.foodbusinessnews.net/articles/17246-hershey-outpaces-category-during-tricky-halloween-season

Summary

Demand should drive the business and advanced demand planning capability is essential in linking strategy to planning and execution via the IBP process. Trust is arguably the most important feature in planning and is fundamental to the effectiveness of the Demand Review. Leaders who embrace trust always seem to outperform their less-trusting peers. Companies where trust is embedded in the culture attract the best talent, achieve their goals and objectives, and offer rewarding careers for their employees. Leaders who are both trusting and trustworthy spend less time politicking and more time leading. They can move their focus to working on the business strategy and long-term goals.

The most capable leaders are not afraid to share their plans with their peers. One leader Oliver Wight worked with was so open to transparency that even his personal calendar was visible for everybody in the organization to see. He wasn’t concerned with people questioning or challenging how he was spending his time.

Not everyone is this confident or capable, however. In some cases, leaders may simply lack the courage to discuss options and then make the tough choices. So, they avoid sharing their plans. In other cases, the information being shared is not trusted.

Developing trust and becoming trustworthy usually involves change. Change is hard, especially for leaders. They must understand and accept what a change means for themselves, while dozens of eyeballs are on them, observing how they handle the change and expecting them to articulate what that change means for the rest of the team.

A business leader’s list of improvements may include making a personal commitment to adopt a best practice behavior, such as being more transparent with gaps or eliminating bias from their plans. In other cases, it may be making a commitment to learning about best practices, which leads to changes in ownership and accountability for the demand plan and the demand planning process. When this happens the scope of demand management often expands. Formerly disparate processes become consolidated into one process for planning and managing demand.

As we look toward the next twenty years and try to predict what will come, the one constant will be people. Companies are made from people and perform their best when people trust each other and can work together as a team.