Can Demand Planning unlock new profit potential for distributors?
Now that distributors are playing a unique and expanding value-add role in the total supply
chain, they must become more proficient at understanding, predicting, and helping to shape
demand for products. Moreover, given their proximity to the customer in the overall supply
chain, distributors are in an excellent position to add value to their suppliers through
increased visibility and potential supply chain savings. This benefits customers, distributors,
and manufacturers alike.
Despite the challenges, new opportunities are emerging for distributors:
•
Vendor-managed inventory (VMI)—In this profit model, distributors take ownership of a
customer’s inventory for a premium price.
•
Supply chain collaboration—By sharing information with vendors and customers,
distributors can profit from tighter relationships that foster more reliable supplier
performance.
•
Acquisitions—As distributors expand their coverage, opportunities arise for greater
economies of scale.
These opportunities include leveraging better customer demand data, sharing demandbased information, and performing real-time analysis of orders to become more demand
driven.
Pitfalls of current forecasting techniques
In the past, most distributors subscribed to the conventional view that forecasting added little
value. A distributor’s business was more supply focused than demand driven. Given today’s
complex global supply chains, those needs have changed. But current forecasting techniques
and the tools used by most distributors aren’t up to the challenge.
Some distributors use replenishment policies to trigger reorder points. But this method
doesn’t look beyond the next purchase order placed, therefore making it difficult for suppliers
to plan their business efficiently. For highly seasonal items or items that are subject to supply
constraints, reorder point forecasting results in stock-outs or excess stock.
Other distributors use multiple spreadsheets, usually with thousands of rows of data, making
this a painful, error-prone, and manually intensive process. Spreadsheets also hamper users
from easily integrating with ERP and procurement systems. With spreadsheets it is very
difficult to:
•
Introduce new products and phase out old ones, a frequent task for distributors.
•
Provide the manufacturer with visibility into future growth or decline for specific products,
so that they can plan their business accordingly.
•
Work with manufacturers to plan promotions to stimulate demand.
•
Build stock for a new product introduction or a store opening.
•
Determine sourcing strategies and supplier splits.
•
Manage demand for a project.
•
Identify slow-moving products.
•
Convert the forecast into a financial plan for revenue, purchase spend, and cash flow.
•
Collaborate to capture knowledge from supply chain partners, such as manufacturers,
designers, and transportation resources.
•
Manage large volumes of SKUs using exceptions.
Infor
Infor is in no way committing to the development or delivery of any specified enhancement,
upgrade, product or functionality. See “disclaimer” paragraph contained herein.
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In short, spreadsheets can’t provide the multi-dimensional analysis or collaborative planning
capabilities required to plan demand and supply. That’s why distributors are turning to
demand planning to help predict and shape customer demand with greater accuracy.
Demand planning accommodates even the toughest forecasting challenges associated with
seasonality, promotional events, and new product introductions.
Using demand planning to unlock new
profit potential
Strategic buying and demand management techniques can provide
cost improvement to buyers at all volumes.2
Distributor operations can be grouped into three main activities: buying goods, stocking
goods, and selling goods. As shown in Figure 1, demand planning can help distributors tap
into new profits across each of these aspects of their business.
This section provides an in-depth look at how demand planning impacts a distributor’s
procurement, inventory management, and sales functions.
Figure 1: Operational impact of demand planning.
Buy
Stock
Sell
Demand planning empowers Increased forecast accuracy
buyers to become more
means smarter inventory
strategic.
investments.
Demand planning improves
customer service.
Visibility builds stronger
relationship with suppliers.
Better forecasting results in
more efficient inventory
management.
Better fill rates increase
revenue and block
competitors.
More complete picture
means better negotiations.
Better inventory placement
means less repositioning.
Value-added services, such
as VMI, strengthen
customer relationships.
The result is lower cost of
goods sold.
The result is lower inventory
carrying and logistics costs.
The result is an opportunity
to increase price and
margin.
Buy: Better visibility, more proficient procurement
Every distributor depends on the professional buying skills of the procurement team. Demand
planning provides increased visibility and a longer horizon, so the negotiating skills of these
buyers can reach new levels based on a more complete picture of supply chain cost and
service. Having a long-term view of demand empowers buyers to move beyond reorder-point
purchasing to more strategic procurement.
2 Karen Prema, “Buyers leverage demand planning from distributors,” Purchasing, April 20, 2006.
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Infor
Infor is in no way committing to the development or delivery of any specified enhancement,
upgrade, product or functionality. See “disclaimer” paragraph contained herein.
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