If you own or manage a business, you understand that demand planning is a critical element of your plan for success. It correlates your supply chain with the expected demand for your product by analyzing past sales, current and expected trends, and economic factors. The idea is to avoid excess materials but, at the same time to have enough (plus a safety net) to meet demands and shipping. At the same time to avoid overstocking and locking up warehouse space that could be used for more profitable or faster moving items.
Part of this process is to recognize a key performance indicator (KPI). Each company has specific goals, so it is important to select the best KPIs for your needs. KPIs are metrics that will help you achieve your goals. There are a vast number of KPIs and you will need to select those that most apply to or will benefit your company. Realize that this may involve trial and error.
Now that you know what it is used for, a KPI is some type of prompt or notification of one of the metrics or measures that you are watching for. These can be accessed as displays on a dashboard. Since these are real-time and based on data (rather than surmise), management is better able to forecast the demand for their products and keep their ordering, manufacturing, and product on track. Click here to learn more.
While KPIs will vary from company to company, there are some basics.
Obviously, you need to be as accurate in your forecasting as possible. This means gathering data, the best and right data, toward a good projection of demand. This applies to both current products as well as those ready for launch and even those still on the drawing board.
There are bound to be mistakes. These are often referred to as bias. We all have been leading down a path that was not right. The trick is to find the data that all leads in a single, but wrong, direction. Then you can adjust your plans accordingly.
This is what you are looking for. Those indications that the market is changing. An unexpected storm on some ocean can affect the raw product necessary for your manufacturing; a political election or coup can change the import duties; an “influencer” may convince consumers that they need blue widgets instead of the yellow ones you produce. This sudden change can affect your projections and these KPI signals will send an alert to dashboards. Then you can make the human decision about how to proceed.
This is the theory that 20% of all causes impact 80% of the outcomes. While not proven mathematically, it is a good rule of thumb in various industries. It can help in the decision making process to retain old products, introduce new ones, or which way to develop your next idea.
Of course, you have hard data at hand based on current and past sales. It is an indicator, like many of the above, but used in combination with other elements, it can swing the balance on critical decisions.
Today there are many good programs available to help you create forecasts and help with both demand and supply planning. There are also professionals who will provide the expertise you need to deal with these decisions.
Think of forecasting like one of those game boards where you drop a marble from the top row and you watch it bounce back and forth and left and right. You try to guess which column it will finally drop through. You can drop a marble from the same place each time but it will generally land through a different hole most of the time. However, as the marble comes closer and closer to the bottom row, you have a better idea which slot it will fall through.
That is the same with forecasting. Using KPIs you can track changes as they occur and watch for trends. It allows you to prepare different choices based on how the demand is trending and your ability to pivot to adjust to the increase or decrease in demand. Manual forecasting is all well and good but it generally takes more time to process and it may not be able to include all of the data available.
KPIs are able to handle large volumes of information and convert it to usable data. It will apply a number of different calculations based on programmable variables and analytics, including hypotheticals. They will help develop the best forecasting for your circumstances and company. Because they are displayed on dashboards, the information is able to be immediately applied without stopping for data entry or calculations.
There are demand planning KPIs for many different types of businesses and industries. There are those that are basic and general and can be used for almost any type of company. Some can be customized and some organizations have modified original programs to detailed planning for their own enterprise.
Choosing the best KPI for your needs can be tricky. There are challenges and specific characteristics to be considered. Look for the accuracy of the forecasts, signals, how it deals with biases, deviations, errors, as well as easy of use and clarity.
One of the best ways to decide is to speak with a professional in the field of demand and supply planning, forecasting, and materials management. You can discuss the opportunities involved in a dashboard KPI and how it can enable your team to make the decsions that will contribute to the success of your company.