Demand Planning KPIs Guide: 5 Metrics to Drive Performance

Demand planning KPIs are essential for optimizing overall Sales and Operations Planning (S&OP) procedures. They supply valuable insights into certain operational data such as stock turnover, delivery times, and sales statistics. This gives you a clearer picture of product demand and availability, ultimately helping to improve inventory management.

Utilizing these demand planning KPIs creates a shared language that can be used by S&OP practitioners and Financial Planning and Analysis (FP&A) practitioners, which is crucial for driving both operational and financial performance. But what are the top demand planning KPIs and why do they matter? Find out in our comprehensive guide.

What is Demand Planning?

Aligning Operational and Finance Plans to Drive Financial Performance

Five KPIs of Demand Planning

Why Demand Planning KPIs are Essential for Your Business

FAQs on Demand Planning KPIs

What is Demand Planning?

Demand planning forecasts and manages customer demand to ensure that your business can meet customer needs. It also helps minimize excess inventory and optimize resources. This process involves predicting future demand for products or services and aligning production, procurement, and distribution processes.

Key aspects of demand planning include:

Data Collection: Gathering historical sales data, market trends, and other relevant information.
Forecasting: Using statistical information and predictive analytics to estimate future demand.
Demand Review: Collaborating with sales, marketing, and other departments to refine forecasts.
Planning: Developing plans for inventory, production, and supply chain management based on the demand forecast.
Monitoring and Adjusting: Continuously tracking actual demand against forecasts and adjusting plans as needed.

Effective demand planning helps to improve customer satisfaction, reduce costs, and enhance overall operational efficiency.

Aligning Operational and Financial Plans to Drive Financial Performance

Everything in an organization has financial implications. If the S&OP forecast (see Figure 1) inaccurately accounts for how much material is needed to meet demand, then inventory holding costs and obsolescence issues may increase. Additionally, if too little material is available to meet demand, then costly rush shipping can impact the bottom line and cash flow.

Today, uncertainty across the global economy is drastically impacting consumer demand, affecting commodity prices, and disrupting supply chains. Amid such volatility, FP&A teams must help enable and accelerate decision-making processes such as demand planning.

Figure 1: Demand and Capacity Planning in OneStream

5 Demand Planning KPIs for Better Financial Results

Five KPIs for Demand Planning

For FP&A professionals, understanding and utilizing the KPIs for demand planning creates a common language to unify key processes and drive both operational and financial performance.

Here are five demand planning KPIs that can inform better financial results.

1. Inventory Turnover

How quickly is inventory being turned over? As inventory sits, inventory holding costs increase and obsolescence becomes more likely. This can lead to material being scrapped and then repurchased at a later date as a replacement, which will likely come at a higher shipping cost. And with disruptions to global supply chains and shipping channels, you could end up with a heavy financial burden and managerial headaches.

Tracking inventory turnover is an important metric in the demand planning cycle as it helps assess the health of the supply chain organization, the variables affecting demand, and the ability to satisfy the demand in time. Considering the financial planning cycle is crucial because it impacts the budgeting, planning, and forecasting cycles. Bridging the gap between the operational and financial plans can ensure lockstep in the various planning efforts happening across large and complex organizations.

2. Total Sales

Finance professionals are acutely aware of the important role total sales plays in the FP&A planning and budgeting cycles, but the S&OP process also looks closely at this metric. Sales metrics are essential to understanding the bigger picture. Specifically, the numbers show how the supply chain and operations are performing when it comes to fulfilling orders and keeping customers happy – which ultimately generates sales for the organization.

In other words, the goal is to align financial planning inputs with the results of the operational planning processes happening as part of the S&OP process. That alignment ensures that Finance and Operations are moving in lockstep to measure and achieve organizational goals.

3. On-Time Delivery

Organizations must analyze their supply chains and ensure their teams are delivering products on time to reduce inventory holding costs and ensure customer expectations are being met. If this isn’t happening, a supply chain issue likely exists and needs to be addressed.

This issue affects more than just the supply chain, however. Like inventory turnover, on-time delivery metrics are important to understand in the demand planning process and can also help inform the financial planning process. Finance cares about the impact on financial metrics when customers aren’t happy and therefore aren’t placing orders or, even worse, when the company becomes liable for unmet deliverables and expectations.

4. Gross Margin

Is gross margin hitting projected targets? Understanding gross margin - which is net sales minus cost of goods sold - and tracking performance against projections matters to both a supply chain organization and Finance.

Forecasting customers and demand volume is a supply chain activity that can map gross margin projections. And for the Finance group, utilizing the outcome of that activity informs on how to forecast gross margin at the enterprise level.

5. Working Capital Projections

As everyone knows, cash is king, so asking whether the company has as much cash in the bank as the team forecasted is important. Understanding how much money and what assets are needed to run day-to-day operations matters just as much to operational planning as it does to Finance. For instance, incorporating the S&OP insights into a 13-week cash flow strategy ensures liquidity – something that is as important as ever with economic conditions becoming more uncertain.

Working cross-functionally with the Operations team and the Finance team ensures all efficiencies in the process and operations are being explored. Cross-functionality also ensures the financial implications of those efficiencies are being folded into the financial and operational plans.

Why Demand Planning KPIs are Essential for Your Business

Ultimately, aligning these key KPIs in the plan and tracking them across operational and financial reporting, ensures that the organization can sense issues before they impact the financial results. It also saves time by ensuring effort isn’t duplicated across the planning processes within your organization. This allows more time for generating useful insights and analytics.

Ensuring alignment with the ongoing financial planning efforts is critical to driving financial and operational performance. Utilizing the shared language and KPIs between Operations and Finance helps bridge the gap and move closer to a single, unified plan for the organization to work toward and track progress against.

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Want to learn more about why unifying FP&A and demand planning are critical to driving performance? Request a demo on how OneStream can help empower your business with valuable insights while streamlining your financial planning.

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FAQs on Demand Planning KPIs

Why are Demand Planning KPIs Important?

Demand planning KPIs are integral to sales and operations, as they help to measure efficiency and increase the effectiveness of the supply chain. They help to improve forecast accuracy, increase customer satisfaction, enhance supply management, and drive overall business performance.

How Can Demand Planning KPIs Improve Inventory Management?

Demand planning KPIs help to maintain optimal inventory levels by keeping track of the supply chain. This minimizes holding costs, reduces waste, and ensures products are available when needed, improving overall inventory management.

How Do Demand Planning KPIs Impact Customer Satisfaction?

By tracking KPIs businesses can ensure they consistently meet customer demand, particularly in the case of guaranteeing on-time delivery. High service levels and low stockout rates will ultimately lead to improved customer satisfaction and loyalty.

What are the Best Practices for Implementing Demand Planning KPIs?

There are a number of ways to implement demand planning KPIs effectively. Here are some of the best practices to consider:

Define Clear Objectives: Establish what you want to achieve with your KPIs.
Select Relevant KPIs: Choose KPIs that align with your business goals and industry standards.
Ensure Data Quality: Use accurate and up-to-date data for reliable insights.
Automate Data Collection: Use automated systems to gather and analyze data efficiently.
Regular Review and Adjustment: Continuously monitor KPIs and adjust your strategies as needed.
Cross-Functional Collaboration: Engage various departments to ensure comprehensive planning and execution.