How to Collaborate with Suppliers for Better Demand Planning

The processes and tools that help us achieve our goals in supply chain management are ever changing. As technology evolves, the roles and responsibilities for you, the practitioner, evolve as well. And the need for more efficient, profitable operations is ever before you.

To compete and succeed today, think of supply chain planning as significantly more than replenishment. One critical area is collaborative demand planning with your supplier partners.

Do you frequently experience incomplete order receipts from key suppliers? Would you like to exert better control over your supplier’s fill rate to you? These are just a few reasons to put additional effort into collaborative demand planning with your most important suppliers.

The idea of engaging in a collaborative forecast with the supplier has been around for a long time. The benefit to you is obvious. If you can provide your supplier partner with better forecast information, theoretically they can provide a better fill rate.

What It Takes To Collaborate With Suppliers

It takes two to make this work, but why does the supplier care? Aside from being a good partner, their ultimate goal is greater efficiency and profitability by better synchronizing production and capacity planning. The problem: Collaboration to date has been a labor-intensive effort.

Historically, collaborative demand planning started with a time-phased demand forecast, or a projection of your seasonal forecasts, usually aggregated by SKU. Some consumer-facing partners even managed to insert their event plan.

While a good start, it leaves out important information. The supplier still has to translate the forecast into a production plan.

Being able to give your supplier a time-phased forecast is one approach, but limiting their view to only the demand forecast can be ineffective. You need to share additional segments of the demand plan such as event or promotion uplift and daily profiles.

Furthermore, the demand planning projections you share should be time-phased and adjusted for joined ordering logic. Driven by all segments of the forecast, you can deliver a real picture of what you’re likely to order. This is leaps and bounds ahead of sharing simply what you think you’ll sell.

This takes into account all inventory drivers like committed quantities, expected receipts and projected on-order and on-hand quantities. It also includes strict ordering constraints like buying multiple, minimum/maximum and lead time. All of these components are then balanced for service and profitability. The resulting SKU order projection is a very precise number. You can export the order projections to your supplier at the appropriate level of aggregation. They will then know the entire picture of your future demand plan, allowing for better manufacturing planning and scheduling decisions.

The reality of this approach is that significant effort is required, particularly on the supplier side, making it difficult to sustain. The supplier needs input that is readily actionable and meaningful. The retailer must have a process in place to generate that input, such as order projections. The effort on both sides is essential. But even if the supplier has a better understanding of the customer forecast, they might not be able to use it in a meaningful way.

Let us think about it from a different perspective. Do your orders represent a significant portion of your suppliers’ volume? What if you could execute demand planning into the future with significantly better precision? Taking that idea a step further, what if your orders were automatically adjusted so they still maintained your customer-facing service goals and were also within the supplier’s production capacity? If your orders were synchronized with their capacity, this would enable suppliers to guarantee better fill rates. It’s a win-win.

It is possible by leveraging a solution that automatically compares future orders to supplier capacity thresholds. This way future orders are automatically adjusted to fit within the supplier’s production capacity. Holidays and other known supply chain disruption events are also accounted for automatically. It is end-to-end collaboration made easy.

Steps Along the Way

Let’s look at the collaborative supply planning steps:

First, you and your supplier need to want to collaborate. This process is pretty easy, but you should agree to touch base periodically in case there are changes in the supply plan.

Confer with your supplier on their capacity to make or assemble goods to fill your demand. The following are key inputs to the supply plan:

  • The supplier will need to tell you how they measure a capacity period. For example, how do they plan production capacity? Is it by week? By month? Every 90 days? It is completely definable by you and your supplier?
  • Ask the supplier for the capacity minimum and maximums. Are they the same for each period?
  • Establish whether the capacity plan refers to one item or a group of items.
  • Ensure any holiday closures or other known disruptions to the supply chain are identified.

Once the capacity plan is established your solution should automatically adjust the future supply plan. Quantities on future orders outside the established capacity thresholds are moved into earlier orders in the most profitable way possible. The result is better supplier fill rate, better customer service and greater efficiency for your supplier.

Each collaborative capability outlined above helps increase profitability and reduce the need for manual processes. Companies adopting these solutions experience fewer out-of-stock scenarios and fewer unexpected expenditures on last-minute orders to cover what should have been a predictable supplier constraint.

Rod Daugherty is the Vice President of Product Strategy for Blue Ridge

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