Demand planning Key Performance Indicators (KPIs) are essential metrics that
organizations use to assess the effectiveness of their demand forecasting and planning
processes. Accurate demand planning is crucial for optimizing inventory levels, reducing
excess inventory, improving customer satisfaction, and controlling costs. Here are some
common KPIs used in demand planning:
1. Forecast Accuracy:
 Forecast Error: This KPI measures the difference between the forecasted
demand and the actual demand. Common metrics used to assess forecast
error include Mean Absolute Error (MAE), Mean Absolute Percentage Error
(MAPE), and Mean Squared Error (MSE).
2. Inventory Turnover:
 Inventory Turnover Ratio: This KPI indicates how many times a
company's inventory is sold and replaced over a period. A higher turnover
ratio often indicates more accurate demand planning and efficient
inventory management.
3. Stockout Rate:
 Stockout Percentage: This metric measures the frequency with which
products are out of stock. A lower stockout rate indicates better demand
forecasting and inventory management.
4. Fill Rate:
 Fill Rate Percentage: This KPI assesses the percentage of customer
demand that can be met from available stock. A higher fill rate indicates
better inventory and demand planning.
5. Customer Service Level:
 Service Level Percentage: This KPI measures the percentage of customer
orders fulfilled on time and in full. A higher service level percentage
reflects better demand planning and customer satisfaction.
6. Lead Time Accuracy:
 Lead Time Variance: This metric evaluates the accuracy of lead time
forecasts. Accurate lead time predictions are essential for proper demand
planning and inventory management.
7. Demand Variability:
 Coefficient of Variation (CV): CV measures the relative variability of
demand. Understanding demand variability helps in optimizing inventory
levels and forecasting methods.
8. Excess and Obsolete Inventory:
 Excess Inventory Value: This KPI quantifies the value of excess inventory
that a company holds due to inaccurate demand planning.
Obsolete Inventory Value: This metric assesses the value of obsolete or
expired inventory that could not be sold.
9. Demand Forecast Bias:
 Bias Percentage: This KPI measures any systematic overestimation or
underestimation in demand forecasts. A balanced forecast with minimal
bias is ideal.
10. Forecasting Horizon Accuracy:
 Horizon Accuracy Percentage: This KPI evaluates how well demand
forecasts align with actual demand at different time intervals, such as daily,
weekly, or monthly.
11. New Product Forecast Accuracy:
 Accuracy for New Products: This metric assesses the accuracy of demand
forecasts for new or innovative products, which can be more challenging
to forecast accurately.
12. Supplier Performance:
 Supplier On-Time Delivery: This KPI measures how often suppliers
deliver products on time. Supplier delays can disrupt demand planning
and inventory management.
13. Sales and Operations Planning (S&OP) Process Efficiency:
 S&OP Cycle Time: This metric evaluates the time it takes to complete the
S&OP process, which includes demand planning. A shorter cycle time can
improve responsiveness to changing demand.
14. Forecast Collaboration and Alignment:
 Forecast Alignment Score: This KPI measures the alignment between
demand planning and sales forecasts. Improved collaboration can lead to
more accurate demand planning.
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These KPIs provide insight into the effectiveness of an organization's demand planning
process and help identify areas for improvement. Effective demand planning is critical
for optimizing costs, improving customer satisfaction, and maintaining a competitive
edge in the market.