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Manufacturer Aurora Plastics is known for their high-quality polymers, industry-leading service and customized solutions. As a company, they pride themselves on their consistency and reliability.
But until 2021—even as their business grew from two manufacturing facilities to seven—they were still trying to consolidate data offline, across Excel spreadsheets distributed through email. Just getting to the data they needed was hard.
“Anytime that we would add on an acquisition, we would have to do a tremendous amount of work,” said Joe Morris, Aurora’s Vice President of Finance, Corporate Controller. “You'd get into a meeting and the Operations team would be working off a different version than the Finance team.”
Within that environment, Aurora Plastics could only carry out their demand planning one month ahead. And for a growing business, that just wasn’t cutting it. Many manufacturers, however, find themselves in the same boat.
In today’s market—where consumer behaviors and supply chains can change rapidly—manufacturers need more agile demand planning to meet their revenue goals and ensure customers stay happy. Without it, they risk falling behind—finding themselves without enough supply to meet demand, or on the other side of the equation, unable to stay competitive because they’ve overproduced.
In this blog, we’ll delve further into how agile demand planning helps manufacturers strategically balance their supply and demand, along with the technologies that make this possible.
For starters, demand planning is a series of processes within supply chain management. It’s used to protect future revenues, ensure inventory is available when you need it and keep the supply chain moving. Drawing on data from across the organization, demand planning helps businesses predict stock requirements so that they don’t end up with too much inventory—or too little.
And while it’s used across industries, demand planning is particularly important for manufacturers.
“When it comes to manufacturing, you have lead times for materials, you have scheduling on the plant floor. So different production runs need to occur,” explained Rob Drover, Vice President of Business Solutions for Marcum Technology, a trusted Vena partner. Marcum Technology provides digital advisory services and strategic IT consulting for financial services teams across industries, including manufacturing.
Demand planning involves "everything related to planning production runs, including having material available, having staff available, having capacity to meet the demand,” Rob continued.
“Those are the short-term decisions, and then longer-term decisions would be as you look out 12 to 24 months ahead,” he added. “So there are a lot of things that come into play."
To manage all of this, demand planning relies on four main processes:
Statistical forecasting relies on historical data to predict future needs. It uses statistical algorithms to analyze that data and provide supply chain forecasting. In doing so, it accounts for any factors that might affect demand—from seasonal changes to macroeconomic events—in order to ensure there will be enough inventory in stock exactly when it’s needed, without the risk of oversupply.
Demand for one product can, in turn, impact the demand for another. As an example, consider sales of a printer—which will very likely influence demand for the ink cartridges it supports as well.
Product portfolio management takes that into consideration. It is the process of managing the complete product lifecycle, factoring in your entire product portfolio, including any new products—looking at how the demand of one product affects that of the others. This involves scenario planning as teams determine the best mix of products to ensure maximum profitability.
Demand sensing is a way of forecasting demand. Modern demand sensing often pulls on specialized technolology, integrating artificial intelligence (AI) to identify patterns in customer behaviors. It draws on real-time data as well as historical trends to predict any potential disruptions to the supply chain or other influences on demand.
Trade promotion management relies on the fact that, while you may be able to predict demand, you can also drive it. More of a marketing process than a financial one, trade promotions are used to generate demand—employing tools such as discounts, promotions, giveaways, special events, etc. to encourage customer demand. Trade promotion management keeps these types of promotions running smoothly, ensuring they’re executed properly to generate predicted results or meet ongoing targets.
“Demand planning is really the start of any type of decision that an organization can make. It’s all going to be based on that demand,” said Stacy Brown, Marcum’s Vice President of FP&A and Close Management Solutions.
Yet product demand can be an ever-changing thing. Depending on your product, demand may be influenced by the weather, the season or even geopolitical events.
As a manufacturer, you're also up against low profit margins. Between the costs of raw materials and product components, labor costs and shipping requirements, manufacturing can be capital-intensive. And yet, pricing has to remain competitive or you lose out on sales. That leaves very little margin for error.
With raw materials or manufacturing components often being imported from all over the world, you need to be able to stay on top of upcoming demand and supply chain changes to ensure you have everything you need to keep up with customer orders.
“If you don't do accurate planning, and you get presented with a huge influx of orders—like in the COVID world where everybody went home and all of a sudden started ordering things for home—what happens is the supply chain grounds to a halt,” Rob said. “It’s just not feasible in the short term to spin those things around on a dime."
It’s critical, then, to keep your demand planning as current as possible, or you’ll fall behind and won’t be able to produce the products your customers need when they need it. That's a situation that can have repercussions on your customer relationships and reputation as a whole.
On the flip side, you could end up with too many raw materials and not enough demand—a mistake that can have costly repercussions on your bottom line.
Agility, then, is key. But to stay agile, you need to first overcome some of the common challenges that can get in the way of accurate manufacturing demand planning.
Planning demand isn’t always easy. In fact, there are several challenges that manufacturers face regularly as they try to get it right. Some common obstacles include:
Demand planning is hard to get right without quality data—from historical sales data and inventory accounts, to market trends and competitor analysis.
“Data quality is key,” Rob said. “You can have the best systems in the world, but if data doesn’t get entered correctly, according to the right customers, the right product lines and so on, then you make bad decisions.”
But for many manufacturers, that data can be hard to access. It may be siloed within different departments or systems, incomplete, unstructured or inaccurate. And without the right technology to keep up to date with data in real time, it may be outdated before you even get to it.
All of this can make planning ahead difficult and unwieldy.
Effective demand planning requires input (and data) from across the organization:
But in reality, this can often be a struggle.
"With the manufacturing companies that I have talked to in the past, there's really been a breakdown between FP&A and Operations,” Stacy said. “They're not always looking at the same things or the same drivers of business."
When collaboration doesn’t happen between those different areas of the business, it can be difficult for your finance team to get a big-picture view of current and upcoming needs. Without that, it can be hard to forecast or manage your product portfolio effectively.
Manufacturers today are ordering materials from around the globe—and often shipping their final product to just as wide a market. Anticipating demand means navigating these supply chains and understanding what might hold up supplies or keep your own product from getting where it needs to be.
“Some manufacturers are starting to create more inventory in house in order to smooth out those wrinkles in the supply chain, and to be a bit more nimble,” Rob said. But that also opens up more risk. “That increases your costs because you're carrying inventory, but it also improves your flexibility," he continued.
Global supply chains can get disrupted by a range of ever-changing geopolitical events. Whether it’s currency fluctuations, changing trade policies, war or political instability, these issues can ultimately affect your ability to forecast and prepare for demand.
But, having accurate real-time data around market trends, competitor product launches and/or fluctuations in demand—as well as the ability to look ahead—can help ease the way.
"There are always these discussions on whether the economy is going to go into a recession or if it's going to go into a boom—and [manufacturers are always] trying to determine what those key indicators are in [their] business,” Stacy said. “But determining demand planning out for any length of time is hard.”
Getting a longer view ahead is especially difficult when data is hard to access, siloed or not available in real time. And when forecasting is extremely manual, exploring more than one scenario requires more resources than you have available.
With an extended view into potential market changes or supply chain threats, however, you can start to plan for potential obstacles months ahead, ensuring you have everything in place to meet those changes head on, and time to pivot if you need to. All of which will maximize your profit margins going forward.
To overcome challenges like those above, manufacturers need to break down the silos between both departments and data sources. Enhanced collaboration between finance and operations teams especially can allow your business to better understand past trends, current challenges and future needs.
Establishing a single source of truth is a great first step toward achieving this.
Take Mitsubishi Chemical Group, for example. Although a global leader in the design, development and manufacturing of chemical-based products, the company was previously relying on 12 separate spreadsheets linked through Excel for their forecasting and budgeting processes. That made it difficult for teams to collaborate.
By consolidating the 12 spreadsheets into one template and introducing real-time data aggregation with the help of Vena, they were able to update forecasts automatically and collaborate a lot easier. “It opened up a conversation and a dialogue between divisions,” said Mitsubishi’s Director of Finance Cindy Tynan.
By introducing a complete planning software, Mitsubishi was able to consolidate their data into a single source of truth, in order to better drive their business goals and add new efficiencies across their planning processes.
They’re not the only ones, either.
Through Vena, Aurora Plastics went from demand planning just one month ahead, to a rolling 12-month demand planning model. All with consolidated data and real-time insights that let them identify risks and take action quicker.
“A complete planning solution can help a business really align on what the key drivers are that affect demand planning,” Stacy said.
“From an operational side, you can then put in drivers that identify the workforce planning needs, the material costs needs, and so forth, which ultimately gets back to Finance—so they can see a whole picture.”
The right planning software can also help manufacturers break down data and departmental silos by:
“You really need an FP&A solution that’s flexible and capable at integrating lots of different data sets from different technologies,” Mark Erdmann, Vena’s Vice President of Solutions said added during the Vena for Manufacturing livestream session at Vena’s 2023 Excelerate Summit. “Otherwise you end up with a lot of different point solutions for all these different processes that don’t talk to each other.”
With today’s ever-changing market and volatile supply chains, demand planning needs to be agile and look well ahead. And manufacturers needs access to accurate, real-time data from across the organization to make that happen.
A complete planning software purpose-built for the needs of manufacturing such as Vena can help—improving forecasting accuracy, accelerating cost accounting and helping you better analyze material costs.
In turn, this makes it easier to analyze trends and better manage changes to the supply chain—optimizing demand planning as a whole and keeping you more agile to what’s ahead.
Leverage this free template to forecast unit sales and perform custom order planning based on prior year numbers.
