Forecasting and the art of demand planning
*Mark Chockalingam, president of DemandPlanning.Net, on how to forecast with real market information in mind*
By on Mar 7, 2011Mark Chockalingam, president of DemandPlanning.Net, on how to forecast with real market information in mind
Pharma forecasters traditionally get a free pass when it comes to demand planning.
The cost of manufacturing in the pharma industry is generally so low, its easier for companies to warehouse excess inventory than to focus on forecasting the current market demand.
With the FDA cracking down on expired drugs, however, and companies still reeling from underestimating the severity of the recession in 2007 and 2008 and the swiftness of recovery in 2009 and 2010, demand planning has grown in importance.
The pharmaceutical industry is taking stock of the past few years and realizing that demand planning is now critical to move forward, says Mark Chockalingam, president of DemandPlanning.Net, a consulting boutique based in Boston, Massachusetts.
DemandPlanning.Net helps companies understand and implement the organizational change necessary to integrate demand planning into traditional forecasting capacities.
Chockalingam says his company has never been busier.
At the end of the day, we do process re-engineering, he says.
And companies understand this is the time to do itto get closer to the customer and plan with real market information in mind.
Harnessing the sales force
The essence of demand planning is to use current market dynamics to glean how much product should be produced in the months and years ahead.
There are several ways to accomplish this.
The first is to harness the sales force, whose reps and managers work with customers on a daily basis and thus know what theyre up tonew stores theyre opening, new products theyre carrying, new competitors theyre dealing with.
Demand planning requires that this feedback get integrated into short- and mid-term forecasts.
This is what differentiates demand planning from traditional forecasting, says Chockalingam.
You start with a statistical forecast based on seasonality and trends, but you leave it open at the customer level and regional level for the sales team to look at and make input.
Sales reps should be trained to look for insightful cues from customers and to direct those insights back to the forecasting team, the finance department, and senior management to ensure across-the-board alignment.
Demand planning has to be very close, virtually joined at the hip with the sales group, says Chockalingam.
Wherever sales is, there has to be a demand planner. (For more on reps, see New sales force models: Get ready for the hybrid reps.)
The IMS approach
A second way to monitor market activity is through channel data.
Basic access to IMS and other pharmacy data can reveal what products are selling, how much, and with which specific customersWal-mart, CVS, Walgreens, and so on.
Using this information can be very valuable to developing an outbound shipment forecast, says Chockalingam.
At the same time, he cautions that data should not be considered in a vacuum: You still need to be talking to the customer. If theyre projecting any type of inventory changes during the next three to six months, that will certainly impact your shipment forecast.
Again, gathering input from the sales force or the marketing department becomes critical.
Organizations talk to customers all the time through sales and marketing, collecting consumer research, says Chockalingam.
That information has to be incorporated into forecasting.
Customer collaboration
A third way to track the market is to establish customer collaboration programs.
These programssuch as Vendor Managed Inventory, Collaborative Account Based Forecasting, and Collaborative Planning Forecasting and Replenishmenthelp the manufacturer get closer to the true customer demand in order to produce, ship, and warehouse correctly.
Consumer goods companies and over-the-counter healthcare manufacturers have been pioneers in establishing these collaboration programs with their retail customers, says Chockalingam.
In these programs, the company gets deeper into the data of the retail customer, analyzes their sell-through at retail, and also looks at inventory changes at the warehouse and store level.
Retail customers benefit from this collaboration with improved in-store stocking levels, minimized out-of-stocks, and better monitoring of gaps in their distribution channel.
These programs essentially act as joint business planning exercises, says Chockalingam.
It is much more advantageous if you can know the future by engaged collaboration rather than trying to passively forecast the future
Executing change
If companies want to integrate demand planning into their forecasting, Chockalingam recommends they adopt a mix of the three paths outlined abovesales force input, data aggregation, and customer collaboration.
The pharmaceutical industry already has a strong and well-staffed process when it comes to pre-launch and new product forecasting, he says.
The forecasts they need to pay attention to now are these short- to medium-term demand plans, and they need a balanced approach to do it.
Accomplishing such a transition requires a change in mindset as well.
Pharma forecasters are traditionally modeling-oriented; they excel at developing curves based on different algorithms.
Oftentimes from a mindset perspective, theyre very wedded to that, Chockalingam says.
Incorporating customer and sales input can therefore feel like a seismic shift.
Chockalingam says its important to create an internal demand planning group with established members of the forecasting team assuming new roles.
The perspective of this team, furthermore, must be embedded in the forecasts and financial predictions senior management receives.
If that happens, then alignment will automatically happen, says Chockalingam.
People will agree or disagree on the demand plan, or there will be dialogue that will take place among sales, marketing, and finance. Even if there is disagreement, that dialogue is important and healthy for the organization.
Outside of the demand planning group, Chockalingam says that the demand planning mindset and tools should be applied with a wide net, so that wherever sales and marketing go, demand planning naturally follows.
Globally, demand planners should be in different places reporting into corporate forecasters, so its evenly distributed and cohesively integrated throughout a companys geography.
For more on forecasting and demand planning, join the sectors key players at Pharma Forecasting Excellence Europe on June 14 and 15 in Berlin.