Predictive, proactive, flexible, and integrated. The right approach to demand planning can provide every organization with a degree of stability in an uncertain climate. To underscore the importance of demand planning, consider the following facts:
- Businesses with optimized supply chains have 50% fewer inventory holdings compared to peers without.
- 34% of businesses have shipped an order late because they sold an item that was out of stock.
- Industries carry an average of 32 more days of inventory than they did in 2007.
The right demand plan is the linchpin of an effective supply chain. If it falters, the impact quickly ripples through each node. In the end, overall profitability suffers.
Holding more inventory than demand requires more warehouse space which means higher costs. On the other hand, repeat stockouts can erode customer confidence in both B2C and B2B exchanges, leading to a permanent loss of trust and business. Achieving the perfect equilibrium is challenging to achieve, and it remains the moving target that every plan should aim to hit.
An optimized demand plan is more important than ever.
In fact, “the development of a consensus-driven demand plan that optimizes the balance between market opportunity and supply network capability” — as Gartner put it — may be more important than ever. The past few years have illustrated that certain organizations are better equipped to sustain unexpected events than others, whether a sudden economic downturn or a global emergency. What sets them apart is their approach to demand planning and forecasting.
What does an effective demand plan look like?
An effective demand plan is collaborative, created with input from multiple departments, such as sales, marketing, and supply chain. This ensures that the plan is aligned with the overall business strategy and takes into account the perspectives of all relevant stakeholders.
The constant state of uncertainty requires a plan flexible enough to adapt to evolving market conditions extrinsic to the enterprise, such as changes in customer preferences, supply chain disruptions, competitor activity, business cycles, interest rates, and more.
Built-in flexibility, in turn, hinges on being responsive to contingencies and prioritizing them in accordance with their likelihood and degree of impact. Gartner recommends creating a detailed action plan for each scenario to enable quick execution. Key stakeholders must reach a consensus regarding metric thresholds that trigger the need for a change in the plans.
The revenue budget can serve as a top-down goal for demand, while bottom-up demand forecasts can be monetized. The plan should include the assumptions that the projections are based on and define what is considered normal demand variation. Ultimately, the objective is to close any gaps between goals and forecasts.
It is also iterative, meaning it should be continually reviewed and updated to reflect changes in the market, consumer behavior, and other factors that affect demand. The process includes, for example, tracking performance metrics to identify areas for improvement. This may include metrics such as forecast accuracy, inventory turnover, and customer satisfaction.
Using historical data to inform forecasts and demand plans is no longer enough. According to Gartner, chief supply chain offers must embrace proactivity when developing demand plans. (“Demand planning is what drives results in today’s fast-moving, ever-changing business environment”)
An optimized demand plan uses forecasting techniques to predict future demand. The forecast is developed based on trends, seasonality, and other factors by analyzing historical data and using statistical methods.
Perhaps, most importantly, the plan should be fully integrated into a platform that leverages the latest in demand sensing, demand pattern recognition, and machine learning to automatically detect and respond to evolving market conditions. Utilizing a blend of novel data sources including, but not limited to, weather, infectious disease trends, government data, and historical trend data, demand sensing leverages artificial intelligence to identify disturbances and influences on demand in nearly real-time.
Automated multi-echelon modeling based on item demand history, point of sale data, machine, and S&OP data can drive increased revenue and reduced inventory. A demand planning platform can synchronize planning across the organization and among enterprises as part of the Sales & Operations Planning (S&OP) process, helping to accelerate supply chain response times.
We can help
Demand planning has emerged as a cornerstone of successful supply chain management. But it requires an approach far removed from Excel spreadsheets and guesswork. Demand variability and forecast errors do not, by design, have to play havoc on your supply chains.
GAINS operates as a fully-integrated supply chain planning and optimization suite. By creating a dynamic and optimal demand plan, we integrate robust inventory and replenishment optimization techniques to decrease your inventory and working capital.
Contact us today to start a conversation.