Demand planning means predicting the demand for products so that there is a steady supply of goods to customers. Shortages in the market would mean revenue losses for suppliers and surpluses may lead to plummeting prices, and adds to inventory management cost. The need to strike a balance between the two makes demand planning an essential feature of supply chain management.
A wide variety of factors can affect demand. Most companies faced major supply chain disruptions during the COVID 19 pandemic owing to the ‘bull-whip effect’ — where small errors get magnified at every stage further up in the supply chain. At such times, demand planning helps a company to tailor its capacity and better tackle demand variations.
Here are some aspects of demand planning that are known to have a major impact on supply chain management.
Product portfolio management
Taking a strategic view of the company’s entire product catalog forms the crux of product portfolio management. In many cases, product lines are interdependent and the introduction of new products could influence the demand for other products. So, it becomes important to understand the overall product mix to allocate resources optimally and maximize market share.
Statistical forecasting
Data is key to demand planning. Past data is used as the basis for forecasting future demand or trends. Supply chains generate big data that could turn into veritable insights. However, one must be mindful of the limitations of certain statistical models and also account for outliers and assumptions. A statistical forecast, ignorant of statistical errors, would be a futile exercise.
Consumption trends
A company’s historical data reveals consumption trends. Sales patterns are influenced by several factors such as seasonal variations, competition, socio-cultural factors, technological changes, and politico-economic environment. Therefore, demand planning ought to account for a variety of trends.
Events and promotions
Marketing events substantially influence demand. Discounts, promotions, campaigns all add to brand visibility, and could lead to considerable changes in demand for products. Hence, a demand plan must go through timely improvisations to be able to cushion sudden surge in demand from events and promotions.
Demand planning isn’t simply a task, but a process in itself. It involves multiple steps and is reliant on right information, and tools. It is a nuanced process attempting to strike a balance between surplus and deficit, within the framework of organizational goals. Here are some of the best practices for demand planning.
Apply the right software
There are a plethora of options when it comes to resource planning softwares for companies to choose from. It can be tricky to choose the right Enterprise Resource Planning (ERP) software that can handle nuanced forecasting along with data collection.
Gather and prepare data
Real-time supply chain data is crucial to demand forecasting. Metric reports and data mining are efficient ways to identify potential choke points and areas for improvement.
Well-defined demand planning models
A well-defined process of demand planning is imperative to avoid confusions in supply chain management. A methodical approach to demand planning enables seamless functioning and operations within an organization.
Critical thinking to hone system generated data analysis
There is more to demand planning than merely collecting data and running it through softwares to determine trends. Accuracy is key, which requires one to go beyond analytics to interpretations. As the Institute of Business Forecasting (IBF) asserts, data is a language and the demand planner the storyteller. Interpreting data is vital to devise solutions for business problems.
Monitoring and analysing effectiveness
Ideally, pilot projects are the best ways to test the effectiveness of plans.
Reducing errors and biases, and improving processes require constant monitoring and a detailed analysis of previous implementations.
At H&S Supply Chain Services Private Limited, we use HSConnect, a set of proprietary algorithmic logics to enable efficient and effective route-kitting and freight optimization, and Business Intelligence dashboards to give our clients real-time visibility of operations. Our processes enable detailed demand forecasting and planning. We believe in an integrated approach to supply chain management.