Where should Demand Planning Report: Sales Organization or SCM Organization?

We had an informal meeting of small group of supply chain professionals representing various companies. One of the issues that came up incidently for discussion was, "where should Demand Planning report : SCM or Sales organization?" Everyone had very strong views about it & also a solid justification for the option selected. Then I posted the same question in Linkedin networking site and received about 25 responses on the subject during one week. The analysis of the responses is:

· 50% believed that Demand Planning should strongly report to SCM
· 23% believed that Demand Planning is one of the core responsibility of Sales & Marketing
· 18% were neutral & felt that it didn’t matter as long as accountability and processes are well defined
· 9% felt that direct reporting can be to either SCM or Sales but dotted line to the other function

Irrespective of the option chosen, all emphasized the need for collaboration to make demand planning successful.

After reading the responses I realized that it was a provocative question touching a sensitive issue. One of the respondents accused me of compartmentalizing the Demand Planning process between the functional silos. The responses included people’s personal experiences and also strong emotions about what they believed. The fact that question was posted in SCM section & responded by SCM people, it was not a surprise to receive highest number of responses in favor of “Strongly SCM”. Here is summary of the justifications given by each respondent, for each of the option:

Strongly in Favor of SCM
- Demand Planning should happen in function that is responsible for working capital management, customer service, product availability which is a SCM responsibility.

- Demand Planning is part of integrated planning process that happens in SCM function.

- Only SCM can challenge and take a balance & objective view of the demand forecast, without any influence of internal factors e.g. targets.

- Sales perspective of demand planning is to get sufficient stocks, since they are not responsible for working capital.

- Knowledge of statistical models is a core competency in SCM

- Keeping Demand Planning within SCM helps to avoid blame game

- Demand Planning needs to take into account inputs of Production, Finance, Procurement through consensus / collaborative process that is best done in SCM.

- Planning Process discipline in SCM better than Sales.Along with these justifications, there was a strong recommendation for the ability of Demand Planner to have good understanding of ground realities of market & competition.

Strongly in favor of Sales
- Demand Planning is truly a cross functional effort within an organization, but it should start with Sales driving the need for better, more accurate forecasts and demand plans.

- The role of demand planning is essentially SALES function based on different forecasting models, however its SOLE objective is to provide inputs to SUPPLY CHAIN and other stake holders (such as manufacturing, finance and HR) for both PRE Production (raw material and other manufacturing planning & execution) and POST production (distribution & logistics planning and execution).

- Sales is responsible for generating, improving and building-in the revenues / turnover of the organization.

- Sales is closest to the external customer & has first hand feel of the market demand.

- APICS state clearly that demand planning is a sales and marketing role.

- Demand planning reports directly to Sales for the simple reason that Sales manages the forecast. Organizationally, it is more efficient since the demand planner can directly communicate with Sales especially on sudden change in the market behavior. Demand Planning can focus on realizing the best mix as it directly gets input from the Sales Team.

Neutral
- As long as process happens the way it should and with clear accountabilities, doesn’t matter where it belongs.

- Demand Planning is not an exact science, so needs COLLABORATION

- Depends on the quality of people, size, type & maturity of organization.

- Let S&OP forum drive the Demand Planning process (integrated with other planning processes).

- Focus on Extended Enterprise to integrate customers & suppliers in planning processes.

- Identify critical touch point i.e. is it more critical (or complex) to drive sales to consensus or integrate consensus demand plan to operations. In former case, it should report to Sales & in the latter to SCM.

Dotted line to either Sales or SCM
- Since the Supply Chain processes are cross-functional, Demand management has to be strongly integrated with the Sales organization.

- Demand Planning Role should be a solid line reporting to Supply function from where it gets all the support and alignment for timely supplies and clarity on potential supply issues and risks. However the role should also be a dotted line reporting to Sales for the ownership of forecast and timely intimation of change in market dynamics causing a change in forecast.

These are views expressed by respondents coming from different geographies, companies & professions but all are connected to SCM profession.

I, personally, would go with the option “Neutral” (not the most popular option) and very much convinced with the justification given. While the type, size & maturity of organization is one of the factor for deciding, Demand Planning will work (irrespective of function it reports) only if :

· The rigor & discipline of S&OP is in place.
· The accountability of Demand Planning accuracy is clearly defined.
· Supply Chain configuration & design takes into account the Demand Planning capabilities or limitations
· Demand Planning is not considered as an end by itself but as a mean to achieve optimal balance between customer service, cost & working capital.
· Mixes well the science ( statistical forecasting etc.) & market intelligence through collaboration or consensus
· The information flows fast through the value chain & enables quick response to any change triggered by market or customers.

At the end, I felt it was a very involved & intense discussion as it is one of the grey areas in Supply Chain.

Building Supply Chain Competency

Every time I come across with a CEO / COO of any company, I see a tacit discontent with their Supply Chain performance written on their face. When I ask them about efforts being put on skills development of Supply Chain people by their companies, they draw a blank surface. "Yes, we send them for trainings", is the common answer.

Sending people for trainings is not same as developing skills. This holds true more for Supply Chain because of its vast overlap with many functions & far reaching impact. Skills development starts with assessment of Business & Supply Chain needs for today & future. This is then followed up defining various skills for different levels of positions, roles & responsibilities, linking it to the Key Result Areas for each. Next step is to get into detailed assessment of gaps in skills & performance for each individual in the Supply Chain. Only then the development plan can be worked out & training is just one of the way for development. There are many questions related to the kind of trainings e.g. whether customized or generic.

What makes the whole process complex is the lack of understanding of various supply chain skills, as they are not well defined. For example, is Demand Planning a skill for Sales or Supply Chain? Similarly, what role should be played by Supply Chain in product design or process design, is not clear to many. As a result, deliverable & skill gaps in Supply Chain are seen in a narrow context. In many cases, the effect experienced in the Supply Chain is caused by an event on which Supply Chain had no skills to influence. Companies keep beating around the outcome without understanding the cause & effect relationship.

Sending people to short term training courses or workshops is not an answer to address the skills gap. It can at best help to show your good intentions towards people development. The real training is a continuous process and has focused deliverable. It requires clear linkage with the real life situation & the job a person is handling. It focuses more on the addressing the cause, irrespective of the fact which part of organization it lies in.

In a nutshell, addressing the skills development in Supply Chain is a quite involved process and any simplistic approach could be counter productive. The ROI of hiring an expert over a long run could be very attractive.

Take a brief Survey on Supply Chain Skill Assessment.