New week on the blog. We are no longer beginners in logistics, since from our past posts we know what business logistics is and some of the main items to consider when designing a supply chain and deciding where the warehouses should be located.
This week our focus is on the demand planning and its impact on logistics. Without despising formal definitions, I thought the best way to explain this concept was through an example of a well-known company. So, here we go! I hope you like it!
Procter & Gamble
I am quite sure that all of you have used a P&G product at some point in your life, and probably most of you use some of them in your everyday life. If you are one of these, I can ensure that you are not a weird person, since 4.800 million of P&G products are consumed every day around the world.
P&G has one of the largest product portfolio of the world, with 65 brands in 10 categories arriving to consumers of more than 180 countries. These are just some numbers that help us to imagine that it should not be easy at all to manage the logistics of P&G. Despite of that, the company has achieved great success around the world, so, how has P&G managed to do that?
The consumer and the innovation are the centre of the P&G vision, and applies them to all the areas of its business, including the demand planning, which is one of the key ambits in its logistics system.
P&G knows very well that having a successful demand planning is likely to become a competitive advantage for the company through a positive impact on customer service, making it better and quicker. The multinational is also aware of the disastrous consequences that can occur due to an inaccurate management of this area, including an increase of inventory costs driven by over or under stocks and, as a result, a huge business performance decrease.
Because of all this, P&G constantly assesses the accuracy of its demand forecasting and also looks for its improvement. This lead to the implementation of Multi-Enterprise Demand Sensing (MDS), a system that has increased the performance (while also reducing the costs) of its forecasting models through the inclusion of customer behaviour information of all the markets, as well as data of all the available sources, as selling points and their inventory information, retailer forecasts, supplier data or the warehouse exits, among others.
To have a better understanding of the reason of this system execution, we can take a look at the explanation given by Rafal Porzucek, Global Process Leader Demand Planning at P&G at the moment of the implementation: “We are implementing MDS because traditional demand planning is simply not sufficient anymore”.
The idea behind this phrase is that the world is quickly changing, making forecasting and demand processes more difficult to perform, and the high level of competition makes crucial to manage these processes successfully. So, demand planning is about forecasting, of course it is, but it should not be limited to it, and this is what P&G has done through MDS. This system, that automatically adjusts supply forecasts twice a day for high turnover products, has allowed the company to not only synchronize supply and demand, but also to increase flexibility and reduce variability (that means, in fact, reducing its errors) of these forecasts.
We can see that P&G clearly understands the importance of coordination across the supply chain, a fact that can also be seen in other logistical areas of the company. One of these areas is the supply network design (blog theme during the past week), where they have gone from a focus on where plants should be located to a look at the whole supply chain system, which has lead the company to build more and smaller facilities due to the fact that today logistics costs are higher than manufacturing costs.
With all of that, we have understood the importance of logistics in the success of the company despite having such a large product portfolio.
A final point
So, once we have seen the P&G case, what’s the point behind it?
For me, the main conclusion that we can draw from this example is that it’s highly important to look beyond the company when thinking about the demand planning, since it will help us to improve accuracy of forecasts, align inventory levels with demand changes, enhance profitability of a given channel or product and adequately satisfy the customers’ requirements.
With all of that, I hope you don’t hesitate about the importance of a successful demand planning for a business, do you?
Anna Colomer Comellas
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