ANALYSIS OF THE DEMAND AND S&OP PLANNING PROCESS IN BRAZILIAN COMPANIES – PART 1

Market opening and economic stabilization have produced profound changes in the Brazilian consumer market in the last two decades and, consequently, brought new challenges for companies' demand planning. The proliferation of products and the increase in competition resulting from these changes made the complexity of the demand fulfillment process increase significantly in our country, requiring the use of more sophisticated mechanisms for sales forecasting, inventory planning, production scheduling. and organization of supply and distribution activities.

To assess the degree of maturity of the demand planning process in large companies in Brazil, the ILOS Market Intelligence team conducted a survey between March and May 2009 with 94 companies, among the XNUMX largest listed in the magazine's revenue ranking. Examination, seeking to understand the sales forecasting methods used, the organization of the process, the areas involved, the main indicators and the decision support tools. In addition, we took the opportunity to evaluate the use of S&OP (Sales and Operations Planning, or Integrated Sales and Operations Planning), its challenges and main benefits.

Thus, in this first article we will focus on the descriptive analyzes of the companies' demand planning process, highlighting the main results found. Next, another article will address the S&OP process, drawing a map of its use in large Brazilian companies.

Considerations about data collection and sampling In most studies, the greatest difficulties reside in structuring the questionnaire, convincing potential respondents to participate in the study and data analysis. In this research on demand planning, however, we faced an additional difficulty: identifying the company's professional most capable of answering the questionnaire.

When we do a transport inquiry, the transport manager is usually the best person to respond. If the survey is about logistical costs, the executive manager or Director of Logistics are the most suitable. In this one, however, most of the companies contacted did not know how to direct the questionnaire internally, which resulted in an additional effort by our team to understand the planning process of the investigated companies.

A large part of this difficulty is not exclusively a result of the multidisciplinary character of planning, which involves several functional areas, but also the fact that many companies have a poorly structured process, without clear responsible persons. The consequence of this is that several areas independently take care of part of the planning process, which often leads to problems in meeting the demand due to the imbalance of resources.

At the end of three months, 94 interviews were conducted with large companies from more than 20 sectors. Graph 1 shows the distribution of companies by the different sectors of the economy analyzed, highlighting the segments with more than three answers.

“Each regional office has a sales information department and in each department a person is responsible for planning demand.” These statements reflect, in part, the commercial indicators that lead to the belief that the greater the sales volume, the better the financial result of the company. This hypothesis, however, is only valid in a company without service restrictions or with idle capacity.

When there are supply, production or distribution resource constraints, meeting additional sales volumes can mean additional costs that destroy value and reduce the company's bottom line.

This commercial bias of the demand planning process was ratified by the question about which functional areas participate in the demand planning process, whose answers are presented in Graph 2.

If, on the one hand, this graph confirms the multidisciplinarity of the demand planning process, on the other hand, it indicates that the commercial and marketing areas are still the main responsible for this activity in companies.

DEMAND PLANNING PROCESS

Before entering into the analysis of the survey responses, it is essential to remember that demand planning is the process of aligning market demand with the supply, production and distribution capabilities of the company in a given period of time, which explains the multidisciplinarity of the process and the need to involve several functional areas. In other words, it means saying that it is a much broader process than simply making a statistical forecast based on sales history.

However, some comments from respondents suggested a more commercial view of the process, in which the company should try to adjust to market demand without quantifying the costs involved in doing so. Below are some of these testimonials:

“The company adjusts itself according to the external demand for orders, that is, without orders there is no flow. Its visibility is based on an observation of the market without quantifying the scenarios.”

“The Marketing department takes the market data, assesses the size and passes it on to the Sales area.”

To verify whether companies that use sophisticated statistical techniques for sales forecasting manage to obtain better results, we calculated and compared the mean absolute percentage error (MAPE1) of companies that use more and less complex models. The conclusion, shown in Graph 4, shows that the sales forecast error is 32% lower in companies that use more sophisticated models.

Thus, there still seems to be room for a more intensive use of statistical techniques to improve sales forecasting performance, which could mean a reduction in rescheduling and customer service costs.

SALES FORECAST

In general, the first step in the process of aligning demand with internal capacities consists of making a forecast of future sales, which can be based on statistical models and/or on the tacit knowledge of planners. Very often, especially in companies with a more commercial orientation, the activity of forecasting sales ends up being confused with the demand planning process itself, since the predicted number only serves as a guideline and the capacity areas must adapt to the orders as they are placed by the sales areas.

Thus, in an increasingly complex environment and with the commercial direction of part of the companies, it was expected to find the use of sophisticated statistical tools and models to carry out the sales forecast.

However, what was verified, as can be seen in Graph 3, is that about 80% of the companies only use the planner's experience or simple quantitative models, such as historical averages, to carry out the sales forecast.

PERFORMANCE INDICATORS

The performance indicators used to measure the demand planning process confirm the commercial bias and the little structure of the sales forecast, as previously described.

Graph 5 shows the percentage of use of the main indicators listed by the companies.

It can be seen that the indicators of sales volume and inventory level, typically commercial measures associated with market share and availability, are the most widely used by companies, with 90% and 85% of adoption respectively. Then, used by about half of the companies interviewed, financial indicators appear, such as Ebitda construction and pharmaceuticals, more than half of the companies surveyed already use precision indicators in their demand planning processes.
In addition, it was possible to calculate the average error in the beverage (14,2%), pharmaceutical/hygiene/cosmetics (23,3%) and food (21%) sectors, where a significant number of responses was obtained.

CONCLUSION

In this first part of the research analysis, some descriptive results of the demand planning process in Brazilian companies were presented.

The information gathered indicates that, despite the increased complexity of the Brazilian market, with and of process. Finally, with less than 33% adoption by companies, indicators of accuracy in sales forecasting, such as MAPE, MPE and assertiveness, and the level of logistics service, such as OTIF and percentage of stockouts, appear.

Conducting a sectoral analysis, we noticed that segments with greater planning complexity, especially those with a large number of products and intense competition, more frequently use indicators to measure the level of assertiveness of their planning.

Graph 6 shows the percentage of companies by sector that use MAPE, MPE or another accuracy/assertiveness indicator.

In the sectors of beverages, auto parts, material for product diversification and increased competition, many companies still use the same planning mechanisms as in the past, that is, market changes have not been accompanied at the same pace by the search for new solutions and mechanisms of planning.

Another important point to be highlighted is that, despite confirming the multidisciplinarity of this important process, there is still a very strong commercial orientation in the market when it comes to demand planning, that is, the Commercial and Marketing areas are the main ones involved in this activity. , which often results in service problems due to non-alignment with supply, production and distribution plans. Thus, demand planning is starting to be seen as an opportunity to integrate the different functional areas, but there is still a long way to go.

This point will be the focus of the next article, which will present the results of the survey on S&OP initiatives in Brazilian companies.
BIBLIOGRAPHIC REFERENCES

Wanke, P.; Julianelli, L.. Sales Forecast: Organizational Processes & Qualitative and Quantitative Methods, Editora Atlas: Rio de Janeiro.

ILOS – Institute of Logistics and Supply Chain. Research: Analysis of the Demand Planning Process and S&OP in Brazilian Companies, 2009.