Demand Planning

The start point of the supply chain planning is the demand planning. In this article we are going to discuss the definition of demand planning, its importance to business, and what are processes involved in demand planning.

Demand planning is the first phase of the supply chain planning process. We can identify the demand planning as the process of predicting market demand to make sure that it will be delivered on time and achieve customer satisfaction. Effective process should result in revenue forecasts improvements, profitability enhancements, and inventory alignment with troughs and peaks in demand. This means to have sufficient inventory to meet demand without having any surplus. There are many factors that might affect the demand such as global economic crisis events, natural disasters, and severe weather.

The importance of demand planning comes from the market environment. Since the market can change on a dime, demand plans need to be changed accordingly. If demand plans cannot be in sync quickly, that may cause several issues for a business, i.e. insufficient stocks, dissatisfied customers, inventory obsoleted in warehouses, and wasted capital investments. Demand planners should focus on market data and take it into consideration along with historical sales data.

Demand planning process consists of the following elements and steps,

·         Statistical forecasting: crucial to demand planning by the use of historical data supported forecasts to evade over or shortage stocks and guarantee customer’s satisfaction. Supply chain forecasts are made by means of advanced statistical models. Each model needs to be tested for its accuracy, assumptions, outliers, and rejections.

·         Trade promotion management: running of marketing tactics especially in retail industry that cause in-store demand such as discounts, promotions, and in-store giveaways. This help companies to be obvious from competitors by promotional activities.

·         Product portfolio management: the overseeing of the product life cycle from introduction till decline. This to understand the attachment rate of how each product is affecting other ones’ demand and select the optimum product mix that maximizes the profitability and market share.

Since demand planning process is crucial to supply chain system, it needs to be controlled and enhanced all the time. These improvements take place by using methods such as metrics, which provide gauge readings for current status. Demand planning metrics for example, and not as a limitation,

·         Forecast versus actual: this metric is concerned about comparing the actual data with the plan. It is reported on regular basis to key stakeholders to keep attention on the targets and actual performance; as well as empower proactive approach and decision making. This metric is presented as bar chart showing the actual versus the plan. This metric demonstrate to what extent the monthly forecast is accurate.

·         Pareto analysis of customers: using Pareto principle, top 20% customers make 80% of the sales. This metric is responsible for closely watching the buying actions of these top customers and report any deviations to be considered by sales team.

·         Demand variation warning indicators: this metric is accountable for finding any indicators that might lead to demand variations causing stock out or over stocking scenarios. This will help to make proactive decision to prevent side effects of demand variation.