Should You Outsource Demand Planning?
Outsourcing non-core business processes has been a time-tested way to cut costs while improving performance. Initially companies focused on functions like Finance and HR. But now they have started outsourcing supply chain business processes like demand planning, allowing them to focus on other business processes while gaining access to world class capabilities.
Here are three common drivers of companies considering outsourcing:
- Excess time spent on forecasting is sapping resources away from value-added tasks, and planners are spending a huge amount of time cleansing data and doing analyses to get to a plan. This manual intervention may also be increasing the risk for human error.
- Lack of planning resources/skills, or lack of expertise in advanced software and quantitative approaches (e.g., statistical forecasting, calculating promotional lifts). In addition, they may lack the time or expertise to reconfigure solutions or to continually improve and address changing business needs.
- Situations where capital expense (CAPEX) approval is difficult or unobtainable.
Companies facing these challenges and the need to improve their business processes are considering the question of business process outsourcing (BPO) versus building internal capabilities. Do they have the process and technical knowledge they need to get to the next level? Is the demand planner talent pool deep enough internally or through acquisition and training? How long will it take to implement, and if it’s a multi-year process, what are the ramifications to the supply chain and the business?
When outsourcing is managed via an advanced technology platform, the benefits are even greater. Highly automated software allows planners to be more effective, while providing advanced functionality to the client. Everyone involved is more productive, working on value-added tasks like collecting sales and market intelligence data to “feed” the statistical engine and analyzing promotional lift with help from the statistical engine.
Case example: supply chain planning as a service
External market disruptions and internal changes (such as moving forecasting back and forth between Sales and Supply Chain) left one of our CPG customers facing an array of challenges with its demand planning processes. They lacked quantitative methods for forecasting, and the existing cumbersome tools were causing planners to spend way too much time on administrative work, pulling them away from providing real business value. The forecasting process had become very complex without adding value. Some additional challenges included:
- Mixed forecasting targets (such as constrained shipments versus unconstrained demand)
- The initial forecast was perceived as being driven top-down by the budget goals
- The current process needed more transparency, traceability and evaluation, such as identifying sources of forecast adjustments, forecast bias and forecast value add
The company needed to decide: would they rebuild their own demand planning and forecasting expertise, or outsource? They chose to outsource in order to rapidly deploy planning expertise and automate much of the administrative work. Within less than 12 months, the company saw rapid improvement. The solution was deployed in a shared platform through which sales staff collaborates with ToolsGroup demand planners. Most of their items are now more accurately planned using the statistical forecast vs manual overrides, taking a lot of work off of the salesforce.
The final forecast is still reviewed and approved by consensus among the executive team, but now their focus is strictly on the value-added part of the process. The system has about 70 users and covers nearly their entire product line, including custom products.
Who should outsource?
How about your business? If any of these statements sound familiar, a BPO solution for supply chain planning may be a good fit for you:
- You have business problems to solve and perhaps you don’t care as much about the technology or the specifics of the software model used to solve them, as long as you get the desired results in a sustainable business model.
- You want access to domain and technology expertise that shortens your time-to-value.
- You want to quickly achieve business results while mitigating the time and cost challenges of building an advanced planning team in-house.
- You’d prefer someone else handle infrastructure, so you can put your human capital to better use analyzing the market and adding value.