History tells us that businesses that can withstand the test of time and adapt to change are the ones that emerge as industry leaders. Understanding customer requirements and mapping demand are two of the most integral components of this equation.
Organizations that can undertake demand planning effectively can prepare better for tomorrow. In today's hyper-competitive ecosystem rife with existing geopolitical and economic challenges, it has become important for businesses to derive the right demand planning strategy.
Demand planning helps businesses achieve their targets with improved profitability and better visibility of the future. However, in such an uncertain ecosystem, demand planning is easier said than done. Enterprises need to continuously keep an eye on internal and external factors to plan demand cycles effectively.
Here’s everything you need to know about demand planning:
What is Demand Planning?
Before getting into the exact meaning of demand planning and how it impacts business, it is important to realize that demand planning plays an integral role in each stage of the business. In simple words, demand planning is the process of forecasting demand for products offered by a business. Demand planning not only impacts product manufacturing and sales but also plays a critical role in other business functions such as human resource planning, supply chain, and marketing.
Demand planners are expected to analyze the external and internal factors to build a demand planning strategy for the business. Factors like labor issues, geopolitical challenges, natural disasters, news events or weather patterns can impact the business cycle. A business is expected to consider impending challenges and build optimal inventory for the forecasted demand.
Demand Planning Best Practices
One of the best things that can help enterprises achieve better demand planning is the use of technology. Spreadsheets and traditional ERP systems are outdated. Today, businesses can make use of demand planning tools that harness the power of technologies such as artificial intelligence and machine learning. Enterprises need to have modern software for effective demand planning.
Build The Right Dataset
For any demand planning strategy to work effectively, the business needs to have a reliable dataset that can help it build further. Data that is incomplete or inaccurate is a recipe for disaster. Therefore, businesses must invest in building the right dataset, considering especially the variables that can impact performance.
Promote Communication and Collaboration
Demand planners alone are not enough to achieve the right demand planning framework. It is necessary to encourage communication and collaboration at each stage of the business. Other units like sales and marketing, finance, supply chain and operations should work together at the planning stage or at least before the execution of the demand planning strategy. Removing silos is essential for demand planning to be both efficient and effective.
Hold People Accountable
The supply chain function of the business is already a complex activity that has many variable functions that are beyond internal control. Adding demand planning to this mix further complicates the supply chain function. As a result, demand planning in SCM will work only if people have clear cut responsibilities and are held accountable for those.
Notice New Opportunities
A robust demand planning strategy is not only expected to handle the demand cycle effectively. Demand planners are also expected to notice the new opportunities that exist in the market. For instance, an effective market and product analysis can provide an insight that a particular product will attract an increase in demand. This insight can help the business prepare the resources required for this expected pent-up demand.
Role of Demand Planning in Supply Chain
Demand planning plays a critical role in effective supply chain management. Here’s how demand planning is important for supply chain management in any business:
Maintain sufficient inventory levels
Proper demand planning allows businesses to maintain the right inventory levels. Excess inventory would lead to high working capital spending, and lower inventory levels would result in dissatisfied customers.
Meet Consumer Demand
Effective demand planning helps a business meet increased consumer demand for any product of the company. Demand planning plays a critical role in establishing a positive reputation for the business by enabling it to meet consumer expectations.
Demand planning is critical to supply chain management as it helps in increasing profitability. It is important to have an effective demand planning strategy to handle end-to-end supply chain issues.
Demand planning in supply chain management helps increase the overall efficiency of the business. Improved business processes can help achieve the forecasted demand for various products.
Demand planning is a continuous exercise that makes the best use of supply chain, inventory management and sales forecasting. It is important that demand planning plays an integral role in business operations to analyze the possible impact of the internal and external factors on the expected demand for a firm's products.