When it comes to effective supply chain management and planning, finding the balance between supply and demand is critical, which is why demand planning is considered to be an essential step. With benefits including more accurate forecasts of revenue streams, the ability to match inventory levels with anticipated demand, increasing revenue, and reducing stockouts and (conversely) excess and obsolete inventory, implementing Demand Planning seems to be a no-brainer. But, what exactly is Demand Planning?
For those who haven’t come across this term before, Demand Planning is a process that looks for and uses patterns in past demand alongside forecasts to reliably predict demand for items across the supply chain. While that might seem a bit wordy, the key takeaway here is that Demand Planning uses past data to predict what future data will look like, making it incredibly useful for informing your sales and operation (S&OP) process.
Why Demand Planning is Important
Since Demand Planning is all about looking to the future, it can be useful for creating an effective S&OP strategy, especially in earlier stages. By implementing Demand Planning, you can be better prepared for different kinds of demand and factor those differing demands into your supply chain management.
Specifically, this method of planning can enable you to meet anticipated changes in demand (and prepare supplies appropriately), while also informing future demand based on available supply. And, this information can be shared with manufacturers so they too can be ready in terms of what, when, and how much of a given product that they need to produce. Put simply, Demand planning means that everyone has the capacity and materials at the ready to meet expected demand.
Forecasting in the Supply Chain
If you’re thinking that Demand Planning sounds pretty similar to Demand Forecasting, you’d be right to make that assumption. But, there are some key differences between the two. Namely, Demand Forecasting solely involves generating forecasts predicting future demand, whereas Demand Planning is considered to include forecasting as just one of several components and is primarily concerned with determining actual demand now and what it will likely be in the future.
In fact, smart Demand Planning can actually help reduce and eliminate bias from forecasting by providing a more realistic prediction of demand based on qualitative data. By doing this, the risk of over-forecasting (and the potential loss that comes with having excess stock) can be avoided.
Key Steps for Effective Demand Planning
Demand Planning is a multi-step process, and understanding what’s involved will enable you to build accurate, up-to-date demand forecasts. Not to mention that understanding how Demand Planning works will work to inform your S&OP plan as well. Generally, Demand Planning involves four key steps:
- Create a statistical forecast. Using historical sales data, and other information such as market research, surveys or even weather patterns, forecasts give you a better idea of historical patterns and fluctuations in demand for your products. This can then be used to create more accurate and realistic forecasts in the future.
- Identify when greater demand is expected and by how much. By collaborating with customers, manufacturers, and distributors, you can understand the relationships between demand and supply in ways that historical data alone can’t show, which can be factored into planning processes.
- Manage and combine forecasts. Since having up-to-date data is crucial for accurate forecasts and well-informed decision-making, you’ll need to be able to update and manage forecasts. This will help you gauge your progress and make it easier to combine separate forecasts into a larger consensus forecast.
- Re-examine the data. By reanalysing your data, you can ensure that your teams have sufficient capacity and capabilities to ensure that demand can be reconciled with available supply. Reanalysis is also useful for identifying whether the forecasting models and resulting forecasts need to be revised.
Implementing demand planning might seem complex, but following these four steps will not only ensure that your demand planning strategy is effective, but will also lead to other benefits. Mainly, successful demand planning ensures that demand and supply balance each other out, as well as strengthening the relationships between you and your customers and your distributors.
A crucial aspect of Demand Planning has got to be Demand Forecasting. And, when it comes to Demand Forecasting you might say that we’re the experts (we like to think so at least). So, if you want to find out more about all things Demand Forecasting, head here for a conceptual breakdown [link], here to see which types will suit you [link], or find out how Demand Forecasting can benefit start-ups here.
Still wanting more? Don’t worry, there’s plenty more where that came from. Have a read through of our case studies and find out how we’ve used demand forecasting to help increase stock availability and improve the accuracy of forecasts. Then, once you’ve had a look through those, why not check out our blog for the latest AI reads. Or, if you’re looking to implement Demand Forecasting for your business or improve the accuracy of your current forecasting methods, drop us a line here.