A guide to demand planning and forecasting
Demand planning and forecasting in the public sector are at a crossroads. As demands on your service change more rapidly, how can you be sure you have the breadth of data needed to manage this and plan for the future. While modern demand planning systems are better than ever, they’re limited by what they don’t know, so how can you get the complete picture?
What is demand planning and forecasting?
Demand planning and forecasting is simply how you formulate a plan to strike a balance between how much stock you have, how much stock customers want, and how to get it to them efficiently. So, you never have more than you need, or more importantly, never run out and customers end up looking elsewhere.
Or to put it another way, the Chartered Institute of Procurement and Supply (CIPS) describe demand planning as the “process within an organization which enables that organization to tailor its capacity, either production or service, to meet variations in demand or alternatively to manage the level of demand using marketing or supply chain management strategies to smooth out the peaks and troughs.”
Managing these “peaks and troughs” can be trickier for organizations in the public sector than in any other industry. Why? Because the demands on many services fluctuate unpredictably as and when needed. Which we saw happen in 2020 when the pandemic put many public services under unprecedented levels of demand.
So, is the answer simply having a dedicated system that lets you manage your demand planning and forecasting? Well, kind of.
Modern planning goes beyond demand.
Obviously, a system for managing your demand planning and forecasting is going to be a welcome addition to your service. But the challenges of the types of changing levels of demand you face don’t go away just by managing your supply change and delivery.
You must consider the bigger picture and how it impacts your people, service, and budgets. This is particularly true for public services, where budgets are set, and higher demand doesn’t mean higher returns that can be reinvested. It’s just higher demand.
So, you have to tie rises or drops in demand and impact your forecasting across aspects of your service.
The biggest challenge facing demand planning systems
The fact is, good demand planning and forecasting today relies on data. This data has to be accurate, but the data must be up-to-date and give the complete picture to work to its full potential.
The problem most public sector organizations face is finding and feeding this data into these systems. Many are still using manual or laborious processes that provide either limited or out-of-date data, and Excel is still the undisputed king of unnecessarily complex manual processes. And if you know how to use it, you can be the king or queen of data and wasted time! Let’s be honest; nobody went into finance to work in Excel, did they? What’s more worrying is that working this way has a hugely detrimental impact on how successful your planning and forecasting will be.
What’s more infuriating isn’t that you don’t have the correct data, or at the right time, to help you plan effectively for changes in demand, which is bad enough. It’s that much of the data you need is housed elsewhere, and these systems don’t speak to each other or play nice together. Which asks the question, if you don’t trust the data you have to use - how can you confidently deliver forecasting and finance strategy?
Now, what if they could speak to each other?
Click to read FP&A product brochure gated
Bringing planning together
The problem most public services have with managing demand planning is realizing its full impact. Modern demand planning systems, though powerful, are singular in their focus. So now what?
The solution comes in the shape of modern cloud solutions, like Unit4 FP&A. These systems use simple, user-friendly functionality like low-code/no-code adaptability to let you fully integrate with your third-party systems and bring together all your data and processes at the touch of a few buttons. What this means is you can now operate your Finance, HR, budgeting, demand planning, and more all from one place with instant access to data and analysis to boost forecasting accuracy.
This lets your demand planning; forecasting go beyond simple fluctuations to incorporate a bigger picture. Now you have deeper insights and understanding from your broader organization, from staffing levels to live budget updates. These help you build plans that you can implement instantly across all functions of your organization. And with new functionality like AI-powered forecasting and planning, this level of planning is getting easier and easier every day.
These tools also give you access to scenario planning functionalities. Scenario planning is an FP&A technique that guides companies through uncertainty by contemplating different possible plans and outcomes. Without these systems, forecasts are prone to errors. Conversely, scenario planning tools use actual data and results to understand how different strategies will deviate and respond to different circumstances.
But don’t tie all plans to one set of forecast figures. It’s better to employ a varied approach that incorporates optimistic and low-cases and assign probabilities to each. This approach lets you stay forward-thinking and agile, and ready for change. Read our blog on Scenario Planning in FP&A to find out more.
How to harness demand planning?
To make your demand forecasting work for you, your FP&A team will need to guide your organization towards more informed decisions that continually drive optimal performance. How they do this will rely on harnessing the power of scenario-based planning.
To help you make this happen, let’s look at the critical factors and steps in this process:
1. Identify key business drivers and critical uncertainties
Your organization will be managing a myriad of internal and external factors and challenges every day, like competitor actions, technological changes, tax and interest rates, and natural calamities. Despite these, several key factors influence your organization’s results more than others. Before any demand planning takes place, the first thing you need to do is identify these drivers.
For instance, for a plastic product manufacturer, the most critical external factors they face might be oil prices, government regulations, and research and development (R&D) work focusing on plastic alternatives.
Once you have your drivers, you need to know the factors that hold the most uncertainty for your organization’s future. Using the plastic company example again, an example of this could be in an election year if a particular political party proposes new stricter measures for plastic reduction. Measures that would, if they were elected, become a significant challenge to your business. Factors like this hold a highly critical uncertainty for your business and could affect your results significantly.
2. Generate multiple scenarios through decision tree thinking or with Unit4 scenario planning capabilities
With the uncertainties around your key business drivers, you will then build multiple scenarios of outcomes to test different solutions. To give this structure, use decision tree thinking or scenario planning to ensure you have a mutually exclusive collectively exhaustive (MECE) framework. Doing this will help you identify the best-case and worst-case scenarios your organization faces for each uncertainty and what activities may cause or resolve these.
A company that makes decisions without scenario planning is tying itself to a limited number of assumptions and exposing itself to unnecessary risk. Yet, a company that utilizes scenarios in its planning efforts is positioned to move quickly.
3. Look for possible cognitive errors and factor in what’s happening externally
Everyone is susceptible to cognitive errors. When performing tasks, people tend to look for outcomes they expect to see regardless of what the evidence says. This unconscious bias makes even the best leaders prone to resisting or ignoring what scenario planning tells them. How can you prevent this?
Start by always asking what you’re missing when working in any environment, but particularly uncertain ones. Our minds often disregard adverse or low probability outcomes, or we overestimate how likely the best-case scenario is. This is natural but has the effect of making organizations overconfident, and they fail to prepare themselves for unfavorable outcomes.
A great example was when Nokia famously ignored Android’s scalability potential. They did this because they overestimated the value of their brand. And because they were convinced of their success without Android, without asking why. They also didn’t ask whether other cell phone manufacturers would use Android to scale rapidly. And together, this led to Nokia’s downfall.
Your FP&A teams need to be the ones asking the tough questions. They must be the ones challenging the assumptions or preconceptions of your leaders. And they must avoid simply creating ‘dream’ scenarios on spreadsheets and not challenging the outcomes they are offering. Please don’t fall into the trap of thinking that because something hasn’t happened before, it won’t or can’t happen in the future. Awareness and an open mind to the external environment are necessary to bring all possible scenarios to the table.
4. Harness your technology to make real-time planning happen
Despite all the above, it’s also important to understand that no matter how hard you try, it’s impossible to capture every possible outcome that each critical factor could bring. In reality, demand planning circumstances change rapidly, and despite your best efforts, scenario planning must offer real-time planning capabilities to be truly effective.
Historically, FP&A teams would build three scenarios: a base case, a best case, and a worst case. Then, if they had a request for alternate scenarios, they would probably have to call in the team to work through the night to calculate and present.
That’s no longer the case. Modern tools let your FP&A team harness all available live data to build and iterate infinite scenarios instantly. This enables you to discuss plans in real-time, which drives more informed decisions when needed most.
On top of this, anyone making projections about the pandemic’s timeline is effectively doing scenario planning. For example, during the uncertainty created by COVID-19, many governments and organizations have to make decisions faster than ever before, whether that’s lockdowns, visa extensions, flight cancellations, remote working, or meetings via zoom. And the vast differences in their results illustrate the extreme variety of possible outcomes because right now, there is no cure to the virus, and we don’t know what will happen from one day to the next.
There’s no number of plans in these circumstances that can cover all the possibilities and outcomes even for one organization, let alone a whole sector. The result is, Organizations must look to dynamic scenario planning tools that can adapt to changes quickly.
How can Unit4 transform your demand planning process?
Our intelligent FP&A software solutions free your teams to spend more time delivering insights and creating value for your organization. We help you understand the numbers more deeply and turn that insight into action for better results. Helping you boost demand planning using real-time budget figures or HR insights for better project planning. Unit4 FP&A lets you bring all your data and planning together to guide your business into the future.
