8

The
demand
review
Integrated business management means managing all the business resources
via the sales and operations planning process. In the third of a six part series,
John Schorr explains the demand review process

In the first article of this series and synchronization among all the the first step of the S&OP process, the
on sales and operations planning (June functions of the organization. This product management meeting. This step
2007), we defined S&OP as an integrated includes sales and marketing, operations, covers the future direction of the product
business management process through supply chain management, finance, and portfolio. It includes new products,
which the executive/leadership team product development. additions to the product lines, product
continually achieves focus, alignment, In part two (July 2007), we described improvements, repositioning of current

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the plan. Specifically, action plans are

created to assure that the anticipated
demand happens. The plans also help
to prioritize the demand when there
is a shortage of supply. And when
demand exceeds supply, the plan
of recognizing all of the demand for the defines the policy that determines how
products and services that are required the product is to be allocated among
to support the marketplace. Demand the various customers.
management encompasses the activities There are four major steps in the
of demand planning, order entry, and demand management process:
order promising. 1. Create the demand plan. The first
products, and end-of-life rationalization Demand elements include customer thing is to predict what your customers
of older products. orders, sister division requirements, are going to buy. A demand plan is the
The second step of the S&OP samples, displays, spare parts, and forecast plus the assumptions behind
process is the demand review (Figure internal needs, such as branch the forecast plus the action plans to
1), which is the focus of this article. warehouse/distribution center make the demand plan happen.
The output of the demand review is requirements, interplant orders, and There is a significant difference
a timely aggregate unconstrained aftermarket and service requirements. between a forecast and a demand
demand plan which becomes the Service demand includes that which is plan. A forecast is typically a number
basis for the integrated set of planning required for implementation support generated either by a statistical forecast
numbers used throughout the sales and maintenance or repair support. package or developed manually
and operations planning process. The major components of demand based on history. Historical data is
The key to this step is in having an management include the demand plan, projected into the future using a series
excellent demand management process. the assumptions behind the plan, and of algorithms to identify patterns and
Demand management is the function the action plans necessary to execute trends. By connecting where you

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Integrated Business Management S&OP 2. Communicate the demand plan

details. The demand plan is the basis
for the integrated set of planning
numbers used throughout the sales and
operations planning process, therefore
it is essential to share the demand
plans details at both the aggregate and
mix levels to all the functions of the
business. It needs to be communicated
to the sales organization that has to
execute it, to the supply organization
that has to make it, and the finance
organization that has to cost it out and
compare it to the business plan.
3. Create a consensus plan. In the
third step of the demand management
figure 1
process the objective is to influence
the key players to develop a consensus
demand plan. The sales organization
typically talks in terms of customer or
have been to where you are going, the competitive analysis, economic analysis, territory plans while marketing talks
statistically derived forecast gives a base and external factors. The marketing view in terms of market or product plans.
set of numbers from which to work. tends to be longer range in scope. Because they see the world from
The one thing we know about The sales view. This includes sales different perspectives, their views of
forecasts, however, is that they are plans, territory plans, customer plans, the future are often not in alignment.
constantly changing. A statistically and incentive plans. The sales view The demand management process,
generated forecast by itself is insufficient tends to be a shorter range perspective. properly executed, brings these two
to generate valid demand plans. The The product management view. views together where they jointly develop
forecast itself may not be incorrect, but This includes the plans to develop the a demand plan that marketing can
the assumptions behind the numbers brand and products as well as the future support and sales can commit to sell.
are usually the cause of error. These view of the products. 4. Manage the exceptions. The fourth
assumptions are typically about the The customer view. This includes element focuses on the timely and
customer, the market size, market the customers selling and marketing effective management of exceptions,
share projections, the competition, the plans, promotions, buying plans, and such as abnormal demand, and to
economy, the leading indicators, product schedules. control areas such as the allocation
availability, and your companys sales The statistical view. This includes of product. When abnormal demand
and distribution resources. the statistical forecast and any occurs, demand management must
The accuracy of these assumptions modifications to the forecast needed to decide how to accommodate this
needs to be measured to determine correct for abnormal demands or known demand while still protecting its
which assumptions were correct and changes to the forecast over time. regular customers.
which were not. These findings foster The business plan and strategy The demand review meeting in the
a better understanding of what drives view. This enables us to see the gaps in sales and operations planning process
demand and ultimately leads to the revenue between the demand plans and reviews and considers inputs such
creation of an improved and valid the business plan. as business strategy, sales forecast,
demand plan. When all of these inputs are collected, customer plans, market intelligence,
To develop this plan, an organization analyzed, and included in the demand statistical projections, and the product
requires multiple views and inputs of the plan, the demand plan is in reality the management plans. The product
demand, among them: collective, collaborative best judgment of portfolio changes developed in the first
The marketing view. This includes the sales and marketing functions of the step of the S&OP process are included
market plans, pricing plans, promotions, business. (Figure 2), as these inputs are the basis

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Demand Review Meeting family and detail by sub-family with

the reasons for changes summarized,
the assumptions documented, and
vulnerabilities and opportunities to
the plan noted. The unconstrained
demand is the amount of demand for
the product or service assuming there
are no constraints. Unconstrained
demand, however, is constrained only
by the companys strategies and the
marketing and sales budget. Given the
strategies and budgets, unconstrained
demand is what sales realistically
projects that it can sell.
In the management business review
meeting (step five of the five step sales
and operations planning process),
however, senior management may
figure 2
choose to constrain the demand and
limit what sales can sell. The objective
and goal of the demand review meeting
is to develop a demand plan of what
for the demand review meeting. critique the data presented, and jointly the company realistically expects to
The demand review step is owned by develop the assumptions that will be sell in the marketplace. It is senior
the head of sales and marketing and used as the basis of the demand plan managements role to either provide
is facilitated by a demand manager, a and discuss how those assumptions will the necessary capacity or constrain
critical position responsible for pulling impact the plan. the demand to achieve the defined
all the inputs together, critiquing the They also review past performance business objective.
data prior to the meeting, and facilitating in the areas of demand plan accuracy, The demand review meeting of the
the demand plan development through sales plan accuracy, demand plan sales and operations planning process
the demand review process. The demand bias, market share, and other establishes a valid demand plan that is
manager also has the responsibility to appropriate process metrics. The agreed to by both sales and marketing,
monitor actual performance to plan, attendees review the changes to the identifies the gaps to the business and
manage any abnormal demands as they demand plan from the previous month strategic plans, develops the necessary
arise, and update the plans based on and determine whether those changes plans and actions that will eliminate
daily discussions with sales, customer are one-time, short-term, or long-term or narrow those gaps, and which will
service, and supply planning. This is a trends that need to be included in the enable the company to effectively
full-time job. updated demand plan. The goal of execute its business plan.
The demand review meeting is this meeting is to develop a consensus The supply review meeting, from
attended by sales, marketing, product demand plan for senior managements which valid supply plans are developed
management, the new product review and consideration. to execute the demand plan, will be the
coordinator, the supply manager, The outputs of the demand review next topic of discussion in this series
and the demand manager. They work meeting are the timely unconstrained on sales and operations planning/
together to integrate all the inputs, demand plan in both aggregate by integrated business management.

John E. Schorr, a principal with Oliver Wight, is recognized as one of the leading experts in the areas of sales &
operations planning (S&OP). Prior to joining Oliver Wight, John was involved in the implementation of MRP II at
Haworth, where he was vice president of manufacturing, and Steelcase, one of the leading Class A users of MRP II,
where he was director of purchasing.

September 07 Businessexcellence