“One-size doesn’t fit all when it comes to demand forecasting.”
Those are the words of one of our clients, Mads Kaa Schou Nielsen from Dinex.
And he couldn’t be more right.
Demand forecasting depends on more than just the specific products you are selling or the segment you are selling them to. The most important factor in demand forecasting is understanding the market and culture you are working within, because different markets need different approaches.
In other words, unstable environments need more flexible solutions. In these situations, spending time building client relationships is vital for accurate forecasting.
During our latest with Mads Kaa Schou Nielsen (Group Supply Chain Manager at Dinex) and Birgit Bæk Thomsen (former Group Director Supply Chain at Dinex and now Board Member), we became more educated on the subject of building strong client relationships.
The next sections discuss the potential of client relationships and when and how to use it.
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The Triangular Forecasting Approach
Why should you focus on building stronger relationships with clients?
Because building stronger relationships with customers affects demand predictions, in the sense that you get even more perspectives to include in your demand planning. This affects the potential scenarios predicted for the future, which leads to more accurate forecasting and suggested solutions.
Mads explains how they have called their way of managing all the different information coming in the “triangular forecasting approach”:
“The triangular forecasting approach tries to merge all the different perspectives on the market status together, including the relationships with our clients,” Mads explains. He emphasizes that it specifically covers three areas:
- What information can we get from the market?
- What do the statistics predict?
- What are our customer schedules telling us?
The idea is essentially to strive for a perfect balance between the three areas, and by covering all these areas you will get the most accurate information.
But to get to this stage, you need all the answers. And to answer the million-dollar question “How will our demand look in the future?”, you need answers to questions at a lower and more detailed level.
You must dive into the details and adjust them according to your new findings. When you see the impact of those adjustments, you can return to the surface level and answer the bigger question concerning the overall demand forecast. Getting insight directly from your customers provides some of the vital details and adjustments you need.
The typical debate over whether companies should do their capacity, supply planning and demand planning on a very high level or on a low level needs to be reconsidered. This triangular forecasting approach shows that management is necessary on both the higher level and the lower level: it is important to adjust on the lower level and observe the impact on the higher level.
But how should client relationships be built? It depends considerably on where you are in the world.
The Further East, the More Explaining
If you have only worked within the European market, you are likely used to having a large number of people working on demand; different customer service personnel and key account managers make it easier to make predictions in a more traditional sense.
However, working with other markets can be very different, as Mads explains:
“Working within the Russian or Chinese market is very different from working with most European companies. Fewer people are involved in the forecasting process and the market is more volatile.”
Because the market is more unstable and volatile, the relationship between companies needs to be based more on communication. Mads explains further:
“My rule of thumb when it comes to demand forecasting is that the further east, the more you need to talk. And when I say talk, I mean picking up the phone and getting personal weekly updates. Otherwise, you are not getting the best assessment of the situation.”
When you are operating within markets east of Europe, it is simply not enough to wait for an Excel sheet to arrive in your mailbox. You need to stay in touch with the market and stay in touch with your customers.
During the COVID-19 pandemic, the need for direct feedback and status-updates from customers increased. Sudden uncertainties also called for more frequent updates.
“The feedback I have gotten from clients using a more relationship- and communication-based approach with their customers is that not only is it the most optimal solution for understanding supply and demand during the crisis, it subsequently brings everybody involved in the decision-making closer together. People feel more connected to the decisions made because they were involved,” Mads explains.
When you start communicating with your customers, you gain the ability to easily adjust and reschedule production to match changes in demand without using the actual customer forecast. Basically, you are getting the demand-gap analysis directly from the market.
This is the key takeaway from this article. And just one last thing…
Don’t Disappear in Demand Details
One last piece of advice needs to be given: don’t get too lost in the details.
Despite what has been said until now, you occasionally still need to take a much more pragmatic look at the numbers. You need to use your common sense and experience with how things have previously turned out.
Admittedly, the balance can be hard to find.
But with strong customer relationships, frequent customer dialog, sound statistical predictions, and a thorough understanding of your supply chain and production setup, your forecasting will be as resilient as possible, even during extraordinary events.
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