What Is Demand Planning?
Demand planning, a key function of supply chain management, is the process of forecasting demand for a product or service, and executing a strategy across supply chain operations so that future demand can be met efficiently. The function of demand planning is to map out statistical forecasts across all areas of supply chain; accurate forecasts are a result of excellent demand planning.
The Critical Importance of Demand Planning
Demand planning is an essential business planning function: It tells you where you’re headed, when you’ll get there, and how to adjust and automate operations and finances accordingly. Dynamic, highly accurate forecasts inspire confident demand plans, which enable teams to work together in order to meet future demand targets within budget and hit revenue goals.
Supply chains are complex beasts with lots of moving, co-dependent parts. Often, however, the data and processes unique to certain areas of supply chain can become siloed, rather than fluid, collaborative, and efficient. What this means is that each aspect of a supply chain can have a direct effect on the financial and operational stability of a company. If a company can accurately predict demand—and plan accordingly—the more efficient its supply chain will be and the more quickly a product can get into the hands of a consumer.
Take CPG companies, for example, who may be responsible for purchasing raw materials and components, to the warehousing and delivery of a final product. A lot can go wrong (or right for that matter) along the way, which could ultimately result in a loss of sales due to stock-outs, for instance. The most effective demand planners will understand the drivers that drive demand and utilize the resulting forecasts to accurately predict sales. This way, all teams, from supply and sales, can be in sync. At larger firms, demand planners should enable key executives to leverage financial forecasts.
Benefits of Highly Accurate Sales Forecasts
Let’s start by discussing a topic all businesses can get behind: growth. As sales rise, a company must scale to meet these increases in demand, which may continue long into the future. How, then, does a company scale its supply chain operations in order to get its products into the hands of customers efficiently? The best demand planning platforms help businesses:
- Run more efficient S&OP meetings with highly accurate consensus forecasts.
- Identify demand signals/demand patterns—and use advanced analytics and sophisticated forecasting models—to calculate accurate sales forecasts.
- Maximize sales and reduce working capital; increased customer service.
- Understand the ROI of competitive marketing and trade investments.
Total Demand Planning: Best Practices
Demand planning teams, which vary based on company size, must take into account every single aspect of supply chain to ensure all involved teams are prepared operationally to meet future demand. The demand planning process comes with a unique and often complicated set of challenges, many of which can be quite daunting for the teams that are altogether responsible for efficiently satisfying a hungry customer base. For businesses in the Consumer Packaged Goods (CPG) space, demand planners and other S&OP decision-makers must consider a number of factors.
Questions Every Demand Planner Should Ask
- How can we maintain and ultimately improve real-time efficiencies and service levels across our entire supply chain?
- Which vital planning processes, such as demand forecasting, can we execute (and ideally automate) with the right planning software and technology?
- How can internal and external data, as well as historical data, factor into demand and operations planning?
- Can Machine Learning and Artificial Intelligence (AI) help us accurately forecast future demand?
The best demand planners have the operational and statistical tools, creativity, and resources (the right software, data partnerships, e.g.) to forecast demand with incredibly high levels of accuracy—in order to meet consumers where they are on their purchasing journeys.
The best demand planning is partially automated and occurs when there is one source of truth: a 360-degree view of operations in real time.