THE NEW DEMAND PLANNING: - River Rock Advisors

THE NEW DEMAND PLANNING:

River Rock Advisors

RiverRockAdvisors.com

Operational Performance

OperationalPerformance.com

Leveraging CRM for Post-Pandemic Supply Chain Success

By Dave Nelson, Principal | River Rock Advisors

https://riverrockadvisors.com/

2River Rock Advisors | [email protected] | 404.915.1578 | RiverRockAdvisors.com

TABLE OF CONTENTS

Hindsight is 2020, but Foresight is 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Using CRM Data to Improve Demand Planning . . . . . . . . . . . . . . . . . . . . . . . . 4

Can CRM Fit Into Your S&OP Demand Planning? . . . . . . . . . . . . . . . . . . . . . . 7

Defining Next Steps: Implementing Your S&OP Strategy . . . . . . . . . . . . . . . 10

Refining S&OP Forecasting with Expanded CRM Data . . . . . . . . . . . . . . . . . 13

Our Expertise, Your Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

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HINDSIGHT IS 2020, BUT FORESIGHT IS 2021

It’s no secret that the pandemic completely derailed supply chains around the world. Organizations in multiple industries have spent years continually fine-tuning their processes and models to achieve key performance and cost-savings metrics, only to have those systems brought to a screeching halt in a matter of days and weeks.

As supply chains continue to pick up the pieces, it’s evident that the same designs, strategies, processes, and ways of thinking that once provided visibility and structure into supply chain performance must change.

Organizations and entire industries cannot afford to be caught off guard. While we all hope that the pandemic will one day be declared over, there remains the possibility of spikes and even the chance that similar situations could arise.

Supply chains must consider new approaches to understanding their production demands and how to best meet them in a reliable, consistent, and sustainable manner.

One of the best ways to do that is through two systems already in place:

• Customer relationship management (CRM) tools and processes• The sales and operations planning (S&OP) process

In this paper, I’ll explore the concept of using CRM data in the S&OP process — allowing supply chain leaders, executives, and the heads of other functions within an organization to conduct more effective demand planning.

Dave Nelson




USING CRM DATA TO IMPROVE DEMAND PLANNING

THE WORLD HAS CHANGED — SO MUST S&OP

As supply chain and operations leaders work to return to “normal” patterns of demand fulfillment, it’s clear that absolutely nothing is business as usual. No company progressed through late Q1 and Q2 2020 on the same paths and using the same projections as they had developed earlier in the year (and even at the end of 2019 when COVID-19 first arose). As a result, gathering input from the sales organization and using it in the sales and operations planning (S&OP) process is more critical than ever.

While some industries have experienced only minor disruption to their demand and associated operations planning, many manufacturers are grappling with how to effectively account for the major volatility now present in their historic demand patterns. Simply expecting future sales to resemble past sales — perhaps with the usual slight trending or seasonality factors — is not adequate to properly plan for post-coronavirus customer activity. At this point, all demand should be treated as new demand.

So where does that leave the countless manufacturers and distributors who were forced to hit the reset button? More importantly, where does this leave manufacturers and distributors that had customers controlling a significant portion of their volume, such as those with concentrations of 20% or more? The impact of that demand shift in such a large customer base is immediately visible and challenging to navigate.

HOW CRM CAN FIT INTO THE S&OP PROCESS

Customer relationship management (CRM) processes and tools have traditionally been viewed by supply chain and operations teams as residing exclusively in the marketing, sales, or service domains. Sales input during S&OP exercises has often been in the form of validating statistical forecasts generated by planners or providing high-level estimates of incremental or decremental business volume associated with customer acquisition or defection. Yet well-managed CRM processes and data can provide a significant improvement in operational forecast accuracy.

CRM tools are designed to track potential future sales by individual customers in a given time period. While many companies may only track incremental sales (i.e., new business) and only at an aggregate revenue level of detail, the systems they use are capable of much greater precision. A well-managed CRM process can — and should — capture both ongoing and incremental (or decremental) sales by customer, by month (at a minimum), and by product family (at a minimum). In fact, many organizations will run incentive programs for their sales teams that are geared around specific customer segments, timing, and product groups and often use their CRM platforms to track such performance.



https://riverrockadvisors.com/2020/05/business-post-covid-19-triage-and-rediscovery/


Of course, CRM data (like any other) is only useful if it’s properly maintained. Ongoing run-rate demand estimates may be quite reliable, but any estimates of new or lost sales — especially those that are being used for operations decisions — should be constantly adjusted with the appropriate probability filters. These include the likelihood of gaining (or losing) the business and the likelihood of it occurring in the expected time period(s). This same logic applies as companies attempt to forecast the ramp-up (or permanent loss of business) in the post-coronavirus economy.

An effective CRM process can provide valuable insights (and serve as a validation) for exactly where and when expected demand will occur. Instead of relying solely on a top-line demand estimate for a given product in a given period, CRM data can point to which customers are expected to comprise that volume, and what portions are expected from as-yet unknown customer purchase activity. Thus, CRM is an additional tool in a planner’s arsenal for ensuring that supply chain decisions are based on the most accurate assessment of demand.

THE CONCENTRATION PROBLEM

When using CRM data to determine which customers have and are likely to generate future demand, it may become clear that certain customers or groups of customers comprise a significant portion of the overall customer base. In fact, this may already be known to your organization simply through day-to-day operations and financial reports. Regardless of whether high customer concentrations were known or come as a surprise, what matters most here is that they represent a risk to your organization.

Virtually every industry saw some downturn in one form or another. Even if your customers were in one of the industries that experienced staggering growth during 2020 due to their products being in high demand, there will still be an impact on your organization that will make planning future demand difficult. Demand will lessen in some segments while others will see significant spikes in demand. It’s important to remember that these shifts don’t represent the new normal, however. Just as everything changed in the span of a few weeks, it can change right back — or into something completely different.

TAKING CRM INSIGHTS HIGHER

Because of this potential for another rapid shift, it will be imperative for your sales organization to dig into your segments to truly understand what’s been happening in their businesses, what’s going on right now, and what they expect to see in the future. This data must be represented in your CRM process, but this is just the foundation for the data. To give leadership the insights they need to guide the S&OP process, intelligence platforms should be implemented alongside the CRM process, with data from the latter being pushed into the intelligence tool to provide leaders with a high-level dashboard for decision-making.




Now, this approach isn’t for everyone. If your demand pattern is selling to a larger number of customers fairly consistently, this approach may not yield insights you’re not already aware of. But if your sales lead time is lengthy, and it takes time for you to complete an order, then this approach can yield more actionable insights.

For example, aircraft manufacturers only have a finite number of customers. Thus, their customer concentrations are higher — say 30% from one customer, 25% from another, and then three smaller customers at roughly 15%. With such large concentrations, it can be difficult to know what’s coming, from which customer, and when.

Leveraging CRM data from the sales organization into an intelligence tool using the appropriate filters can give leaders the ability to more effectively plan their operations, supply chain, and other critical areas of their business so they don’t become overextended, tying up valuable resources in goods that aren’t going to be moving anytime soon. Conversely, it helps leaders plan for potential surges in demand so they’re not caught off-guard, which can lead to service challenges and customer loss.




CAN CRM FIT INTO YOUR S&OP DEMAND PLANNING?

RECAPPING THE CRM–S&OP CONCEPT

Thus far, we’ve discussed the idea of using CRM procedures and tools in S&OP. The aim is to better understand future demand patterns during this volatile time. While some industries boomed as a result of the pandemic, many others didn’t. The historical methods of forecasting demand are no longer accurate predictors for what’s ahead. However, before this concept can be put into practice, some fundamental questions must be asked to determine whether CRM can fit into S&OP demand planning.

SIX CONSIDERATIONS FOR USING CRM IN S&OP DEMAND PLANNING

1. Who is Driving Your Demand?

One of the key requirements of integrating CRM into S&OP demand planning is customer data. Without it, you won’t be able to understand historical patterns and dig into the information you need to make new decisions for the weeks and months ahead. But which customers are the ones driving your demand? More importantly, are you actively engaged with those customers throughout the year (either through your sales team or some other team that engages with customers frequently)?

In terms of engagement, more consistent touchpoints, sales, and other activities are more likely to be the case for B2B relationships than B2C relationships. This is because the latter is high volume. While consumer-direct sales certainly produce data and insights, you’re not necessarily building the same kind of relationship with those customers as you are with business contacts. Sales and other teams will learn more about the business’ plans, activities, needs, and so on as they communicate with their contacts, place and manage orders, etc.

2. Do You Already Have CRM Capabilities?

Note that this is for both the process of CRM as well as a system. One does not necessarily include the other — they must both be developed and in active use in order for the CRM–S&OP strategy to be effective (and possible). If so, your next step is to determine whether this system is capable of being used to support S&OP demand planning.

If you don’t have a CRM process or system, this strategy simply won’t be effective because there is no data to utilize nor is there a process for acquiring and acting on it. But if you do, you likely have the capability to put CRM to use for demand planning. A related question here, however, is whether you use CRM for new as well as ongoing demand planning.




While the goal of this approach is to figure out what you should expect post-pandemic, there still remains the possibility for rapid and unexpected change. That’s why it’s worth using this approach for ongoing S&OP demand planning as well. This way, you ensure that any shifts are more quickly accounted for and acted upon, rather than finding yourself in trouble one month after your demand planning process has been completed.

3. Is Customer Demand Data Meaningful to Operations?

Made it this far? Outstanding — you have the necessary engagement with your customers and also have a CRM process and system in place to understand and manage those relationships. Here’s the next challenge: are you able to understand customer demand at a level of detail that’s meaningful to your operations team? Remember, virtually every piece of information about a customer is important and informative for sales and service teams, but for operations, the focus is on how and why this matters for S&OP demand planning.

Data that is particularly important for operations teams is detailed information on products, product families, customer locations, and of course, certain time frames. These criteria should be combined to provide more accurate detail to augment “top-down” or statistical forecasted sales numbers that are typically input to S&OP sessions.

4. Do You Understand Customers’ Purchasing Characteristics?

While you may have an arrangement where certain parts are produced and delivered on a consistent basis, it’s likely that your customers have distinct buying habits. For example, do your customers tend to place orders consistently with a certain lead time or are there constant surprises like rush orders or higher- or lower-than-expected volumes? If you’re unable to meet a larger order due to timing and have to short-ship an order, do they threaten to stop buying products altogether?

This information is critical to understanding how your customers impact the S&OP demand planning process. This information should be available in your CRM along with how you responded and resolved any unique situations. Accounting for this information will enable your sales and operations teams to make more informed decisions as they review it.

5. Can You Tag Customers and Their Expected Demand by These Characteristics?

You know your customer base better than anyone else — or do you? While one sales team might have some customers that fit the buying behaviors described above, another team might not. Using data in your CRM, consider creating segments or categories of customers that fit certain criteria.




For example, you may have a segment identifier for customers who consistently order last-minute and require rush production. By separating them out, you can better understand the (likely) demand signal from the larger group of customers who aren’t constantly putting out fires (and causing fires for you). This will give you more accurate data and insight as you move forward with S&OP demand planning.

6. How Reliable Are Sales’ Demand Estimates?

Depending on the processes you have in place now, the demand estimates your sales teams are putting into your CRM system may or may not be accurate. This may be due to how they’re incentivized. Often, total volume and other higher-level metrics are used, when instead, they should be focused on specific segments as identified above and by product (at as granular a level of detail as practical). Narrowing in on this information will enable your team to have a better and more accurate understanding of what is expected from an operations perspective.

Additionally, you should constantly be evaluating demand estimates for accuracy over time. If they’re becoming more accurate, then sales is learning and applying that to what they input. If not, it’s most certainly time to re-evaluate how they’re incentivized, how demand estimates are entered, and so on.

EVEN IF YOU HAVE ONE PORTION OF YOUR BUSINESS THAT EXHIBITS SOME OF THESE QUALITIES, ALL IS NOT LOST.

CAN’T ANSWER ALL OF THESE QUESTIONS?

Few companies can consistently say they have the tools, knowledge, and capability to say “yes” to these questions, and that’s OK. You may be able to answer them for specific customers, products, and geographies, but across your entire organization, that might not be the case. There is good news here, however.

Even if you have one portion of your business that exhibits some of these qualities, all is not lost. These smaller slices of your business can serve as pilot tests to help prove the concept of leveraging CRM intelligence in S&OP demand planning. As long as you have some of the pieces discussed above in place, efforts made in testing this approach may just yield the short- and long-term results you’ve been looking for as you move forward in a new world.




DEFINING NEXT STEPS: IMPLEMENTING YOUR S&OP STRATEGY

YOU’VE COME A LONG WAY — NOW IT’S TIME TO IMPLEMENT

By this point, you’ve come to understand the importance of accurate demand forecasting and planning as your organization navigates the new abnormal. That, and you should now have greater insight into whether leveraging the CRM function in your S&OP strategy is a valuable process to undertake. Now you might be wondering: what happens next? Of course, you wouldn’t kick this off throughout your organization right away. Just as with any other major initiative or change, it’s important to consider a pilot approach to assess viability.

SEGMENT

Once you’ve evaluated the questions asked earlier and feel confident about proceeding, the first step is segmenting your customer base to create a pilot group. Now, this initial segmentation is not just any group of customers — remember, this must be a group that a) is driving your demand, b) you’re constantly engaging with, and c) you have a more thorough relationship with than you would with B2C customers.

Recently, we mentioned an aircraft manufacturer as a potential candidate for this type of S&OP strategy. The manufacturer’s parts business features a shorter, less predictable sales cycle from more — and sometimes fewer — customers because the demand isn’t consistent. While certain parts will need to be replaced to ensure safety and performance, there’s no precise way of predicting when this will happen. Segmenting customers around parts won’t be as accurate for this approach. It’s more likely that the dominant revenue from parts sales would come via new aircraft construction.

In the finished aircraft area of the manufacturer’s business, things are much more predictable. The sheer investment needed for an order of completed aircraft requires extensive conversations, planning, and of course, time. Aircraft tend to have consistent life cycles as well, not only due to wear and tear but also due to regulations and safety. This means that a company would need to consider placing a new order for aircraft some years down the line, whereas the parts business is sporadic.




PILOT

Here’s a quick breakdown of steps you can take once you’ve identified the appropriate segment.

1. Start (or ensure you are) capturing your pilot demand in CRM at the appropriate level of detail necessary for good S&OP decisions — e.g. for our aircraft example above, each CRM opportunity should specify not only the model but any expected customer-requested options for the interior, avionics, etc.

2. Be sure your CRM process assigns real probabilities to this sale in terms of value and timing — don’t simply use a generic probability based on the sales stage. We really want to know what the sales team believes will objectively happen.

3. Ensure that the CRM info related to these pilot opportunities is being used in S&OP sessions — and that it is properly separated from other demand to avoid double-counting. One way to do this is by cross-referencing entries in the CRM and S&OP tools.

4. Make sure the CRM data is being reviewed and refined on a regular basis — i.e. as we move closer to the expected sales close date, the level of detail should be getting firmer, as should the probabilities. If not, then the sales leadership needs to challenge their teams to do so.

5. If not already in place, make plans to evaluate how well your CRM data actually reflected final customer demand. That will help determine at what stage in the sales process such data can reasonably be relied upon for S&OP consideration.

Monitor

Using the finished aircraft business segment (or a smaller subset, such as for a specific model), set up the appropriate dashboards or views in your systems and begin to monitor data as it comes in. Remember to monitor everything — not just the high-level order or model but all related customization requests or additional needs, as those will impact demand. Communication with the sales team is critical throughout the pilot — they must assign a logical probability to the deal to provide accurate data for demand planning.

Allow time for the pilot to produce meaningful data. While the finished aircraft business has a long sales cycle, your segment might need less time (or more). As teams meet for S&OP sessions, pilot program data should be evaluated separately from other demand needs. This is to prevent mix-ups and help the team focus on the program.

Eventually, CRM data will reveal whether the pilot program is worth continuing, has provided the data needed, or needs to be revisited. As data comes in, be sure to make decisions. Additionally, ensure CRM data is being reviewed for accuracy throughout the pilot. Probabilities should become firmer over time; if sales is shifting them or important details aren’t funneling in, leaders may need to act.




When you’ve reached the end of the pilot program or have otherwise come to a decision on the effectiveness of the approach for your segment, it’ll be time to do an assessment. Was CRM data accurate? Of the sales that closed, which indicated the greatest chance of closing? Did they shift frequently throughout the cycle? Was it more accurate earlier, in the middle, or toward the end? Determine this, and you’ll know whether leveraging CRM data in your S&OP strategy is the right approach for your business.

FOCUS ON IMPROVING DEMAND RELIABILITY

As you see the impact of your CRM data on your demand, be prepared to make new decisions and adjustments. Don’t hesitate to revisit the data to ask “why” — keeping in mind that what made sense a year ago is by no means a justifier for operations today. The goal of this approach is to give your organization a path forward through this complex and ever-changing time, but that doesn’t mean that it’ll be the right path for your business. It’s only an option based on the data that you’ve built over time and an effort to use that data in the most reliable and forward-thinking way.

As you move forward, also consider how you can continue to improve demand reliability. Perhaps evaluating how CRM tools and processes gather data and what that data lacks would be worthwhile. What additional data points do you need to make more informed decisions? What data is needed despite lacking present utility? What data points are no longer valid? What data would be good to have in the future if it can’t be gathered today (and thus informing an expansion of CRM tools and processes to get it)?

HELP YOUR OPERATIONS TEAM UNDERSTAND THE IMPORTANCE OF ALIGNING THEIR BACKEND WORK WITH

SUPPORTING NEW AND CHANGING DEMAND

Also, consider how your sales and operations teams view this whole procedure. Sales views customers and planning as revenue opportunities, whereas operations is focused on what they need to do on the backend to keep up with demand and fulfill customers’ needs. As we discussed earlier, greater alignment between these two key functions is critical to the success of this initiative and your organization as a whole.

Consider how your sales team is being incentivized so they can contribute to more accurate data capture rather than focusing on the data that will help them earn more commissions or hitting certain benchmarks. Help your operations team understand the importance of aligning their backend work with supporting new and changing demand.




REFINING S&OP FORECASTING WITH EXPANDED CRM DATA

THE STRATEGY HAS LANDED — NOW IT’S TIME TO EXPAND

First, we introduced the concept of leveraging CRM in demand planning — underscoring the need for a new way of thinking about demand planning in light of the ongoing concern over the pandemic and the uncertainty it instilled in manufacturers and distributors around the world. Second, we outlined how to determine if this approach was viable in your organization. Third, we explored the steps needed to pilot this strategy while testing and monitoring it along the way as well as taking steps to improve demand reliability.

If you’ve completed the pilot program, conducted the recommended assessment, and have made a decision to continue, you can begin to explore new ways to expand the pilot to new customer and product segments and involve new teams from across the organization. The purpose of this is to continually build out your CRM data and further refine how this data is used in S&OP. Let’s explore these new focus areas as well as a few others.

START PILOTING CRM DATA FOR OTHER PRODUCTS AND CUSTOMERS

With the initial customer segment complete, you can begin to identify new customers and products for which you want to better understand future demand. However, before including these customers and products in your S&OP forecasting, it would be wise to take another pilot-type approach. Just because the pilot worked for a specific segment of the business doesn’t mean it will work for another.

Remember, not every customer and product type is ideal for this approach. You want to focus on customers and products for which there is a more in-depth sales cycle requiring greater involvement from sales, operations, and supply chain teams. Customers that purchase smaller quantities from you at more frequent intervals may not generate the data you need for more accurate S&OP forecasting.

INVOLVE EXTERNAL PARTNERS AS APPROPRIATE

Since your pilot program was focused on a specific segment of your overall customer base, it understandably didn’t involve people from outside of the organization. However, now that you’ve decided to broaden the program for expanded S&OP forecasting capability, it may be appropriate to include external partners whose involvement with your products and customers may provide new CRM data and insight for planning.




For example, consider involving your channel partners in S&OP discussions and preparations, such as your distributors. These partners play a significant role in your ability to meet customer demands and expectations, so gaining their input will help you further refine this approach.

Another recommendation is to involve supply chain professionals from your key customers in your planning. This doesn’t mean actively involving them in your internal discussions of course, but instead consider having a regular cadence of calls with production planners, buyers, and other purchasing/supply chain professionals (if you’re not already). This will help you to catch any upcoming changes in their production plans, which in turn may impact your own planning.

COLLECT MORE DETAILED DATA FROM NEW AND EXISTING PILOTS

Because the initial approach has been validated, you can begin to gather and include additional information about customers and products into overall reporting and decision-making. While the contents of this data depend on your industry, business, customers, and products, examples might include:

• Additional sales-related data to further improve probability scores• More in-depth supply chain information such as vendor costs• Amount of inventory kept on hand for a customer (if applicable)• Logistics information and costs from historic orders

S&OP forecasting teams should evaluate the type of data being factored into this approach to ensure it is relevant, supportive of the overall strategy, and that it will contribute to increasingly accurate demand planning.

EXPAND THE FEEDBACK MECHANISMS FOR COMPARING DEMAND

Throughout this approach, you’ll be faced with two specific demand-related datasets: actual demand and forecasted demand. The goal of this approach is to refine your forecasted demand repeatedly until it reflects actual demand. This is an ongoing process that requires consistent review during S&OP meetings to ensure progress is being made.

To ensure S&OP teams have the information needed to evaluate demand, the mechanisms you’re using to provide feedback should continue to grow and be refined themselves. While much information will be available in CRM tools and processes, what other solutions are available to you? Are you leveraging business intelligence tools — which can and should be integrated with CRM tools — to provide even deeper analysis and forecasting capability? Evaluate the tech stack available to you, and should you identify any gaps or new opportunities to enhance it, consider doing so.



OUR EXPERTISE, YOUR SUCCESS We hope this exploration on the viability of leveraging CRM for S&OP has been informative to you as you consider your approach for the road ahead.

As a leading value chain optimization firm supporting manufacturers and distributors in multiple industries, River Rock Advisors is uniquely positioned to help you develop a strategy for improvement and execute it through our Operational Performance team.

Whether you’re just beginning to explore the opportunities available to you for more reliable planning or already have an approach in place that you feel could be enhanced, our team has decades of expertise in driving successful results for our clients — and we’re ready to do the same for you.

CONNECT WITH DAVE NELSON AT RIVER ROCK ADVISORS TODAY...

404.915.1578 | [email protected]

https://operationalperformance.com/

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