For modern-day businesses, the survival ability is solely dependent on adaptability to a constantly changing environment. Businesses need data analysis to plan their business operation to optimize their inventory, manufacturing processes, and distribution processes. Today, businesses need agile analytics and planning solutions that help them understand customer needs and plan business processes according to the demand prediction obtained after data analysis. This article discusses the importance of demand planning in business planning. Read on.
What is Demand Planning?
Demand planning is the collection of methods and technologies that are used for forecasting future demand during the planning process. The aim of the process is to increase the flow of raw materials, processes, and services from production to the distribution of the final products to consumers. The process of planning helps the business planners in determining the profit potential. Demand planning indirectly sets the stage for finances, capacity, and stakeholder confidence. Its implementation enables the planners in identifying the closest possible demand forecast to the horizon to which the planning is being done.
How Does Demand Planning Work?
During the business planning process, planners need to understand that there are numerous factors at play that can affect demand in the future. They need to plan the processes according to the rise or fall in the demand in the future. The demand planning methodologies gather data on internal and external factors such as labor issues, weather conditions, past customer behavior, and other influences that may impact the demand in the future. After gathering all the data, advanced analytics is used to generate an accurate demand forecast and integrate it with the supply chain planning so that the inventory and other business processes can be aligned with the forecast and meet the customer demands.
Why Is Demand Planning Important?
In the modern scenario, markets across the globe are very volatile and can shift on a dime. Industries need to stay ahead of the markets rather than react to market changes. The planning needs to move at the pace of the changing markets. If the planners cannot adjust the plans according to the market needs, this can cost companies millions or even billions of dollars as bad planning leads to either stock-outs or surplus inventory, both of which are not good for company profits. Stock-outs will lead to unhappy customers and surplus inventory will leave warehouse space and capital blocked.
Ideally, business planners need to think ahead of the market and plan according to the future behavior of the market. They need to make decisions based on an accurate analysis of real-time market data combined with historical data which helps predict how the market may react in different circumstances. With accurate demand planning, it is easier for planners to forecast the future demand for products, and they can accurately plan the production processes, inventory level, and logistics for smooth workflow from the initial stages to the final stage of delivering the products to the customers. Advanced analytics solutions are making it possible to predict future demand easily and plan accordingly to ensure enhanced efficiency and productivity.
What Are the Elements of Demand Planning?
Let’s have a look at some of the important processes and elements of demand planning.
Trade Promotion ManagementThese are the marketing tactics that are mainly used by retail companies to generate in-store demand by announcing discounts, freebies, targeted promotions, and many other techniques. This technique is designed for brands to help them gain a competitive edge and stand out from their competition. Through coordinated promotion activated, it is easier for the brands to cultivate stronger connections with retailers.
Trade promotion planners plan collaboratively so that they can adjust promotional campaigns and products without any delays. It helps them easily align a trade promotion spending plan which involves end signals from customers and distributors across all time periods, geography, and products.
Product Portfolio ManagementThis is the process of managing every aspect of the product lifecycle, starting from new product development to product distribution. The main objective of product portfolio management is to provide a high-level view of the entire product portfolio and identify where the product lines intersect and depend on each other.
Portfolio management involves planning for new products and adding them to the existing list of products, understanding the impact of new products on the existing products, and how the sales of one product can impact the sales of another product. Those who are involved in portfolio management are also involved in scenario planning to ensure that they know the impact of each product line on other lines so that they can optimize the product groups and maximize the profitability across the product lines. When new products are launched, the planners must know the impact of that product on the global planning strategy, the cost of launching the product, and the revenue it will generate.
Statistical ForecastingIts role in demand planning uses historical data to generate forecasts related to the supply chain by using different advanced analytics and statistical algorithms. For business planning, it is critical to get a data-backed forecast so that there are no stock-outs or overstocks. This is essential to achieve high levels of customer satisfaction.
Statistical forecasting affects demand planning in multiple ways and makes it more effective. Planners can analyze numerous algorithms and determine which forecast is accurate after reviewing the accuracy of each model. For each product, planners can choose each model for the best accuracy and efficiency.
Key Steps of Demand Planning
Here are the key steps to implement this technique in your business for a streamlined flow of business processes and attain the best level of customer satisfaction.
Step 1: Track Your Inventory Demand planning starts by tracking your inventory and its performance. Incorporate inventory management software that helps track inventory levels, sales, orders, and shipments.
Step 2: Data Collection After implementing inventory tracking, you will need to collect data from your business order history and performance. You also need to collect external data about market trends, industry, and consumer behavior patterns.
Step 3: Organize Data Now when the data is extracted, it is time to organize data into datasets. There are several key metrics that you should look for in your data that include sales numbers by inventory turnover ratio, channel, and backorder rate. If you are running a seasonal business, look at the inventory performance during peak-season and off-season sales months.
Step 4: Choose Your Demand Forecasting Method Demand forecasting is the step of demand planning that can be done using quantitative and qualitative methods. Some of the demand forecasting methods are as follows.
Quantitative Methods: (i) Exponential Method
(ii) Regression Analysis
(iii) Econometric Forecasting
Qualitative Methods: (i) Delphi Method
(ii) Historical Analysis
(iii) Panel Consensus
Step 5: Demand Forecast By mixing the different methods given above, you can create a demand forecast. After creating your demand forecast, you will get a combination of information in the form of spreadsheets and trend charts.
Step 6: Plan your Processes Based on the Forecast Once you have your demand forecast, you can make decisions based on that forecast and plan your business processes, production, inventory, and logistics.
The Future of Demand Planning
As businesses are understanding the importance of demand planning, they are starting to realize that the traditional techniques of planning are not enough to keep up with the rapidly changing market scenarios. Modern-day businesses require advanced analytical solutions that will help them plan better and forecast accurately.
Artificial intelligence-based business planning solutions are making it possible to forecast demands accurately leading to optimum inventory management, supply chain management, and business planning. With more and more data being accumulated, AI and machine learning can become more accurate giving more insights and helping businesses plan their operation more efficiently.
Best Practices for Demand Planning
To ensure that you make accurate decisions regarding your businesses, it is important that proper analysis and along with using correct methodologies. As demand forecasting and planning play a crucial role in business planning, they must be done meticulously and with due diligence. Here are a few best practices that ensure that your demand planning is on the right track.
Use the Right Tool
Using the right tool is elemental for accurate data analytics. Use the right software to gather data and track performance. You need to use an end-to-end solution that not only helps in demand forecasting but also helps in other aspects of business planning such as supply chain management, sales planning, and production planning.
Data Accuracy
Data accuracy is another factor that needs to be addressed primarily. Forecasts are as accurate as the data fed to the analytical model. It is important to ensure that the data collected for analysis is correct to its best.
Prepare Ahead for Special Occasions
Special occasions such as holidays can cause a decline in demand for some products while causing surges in demand for other products. It is important for businesses to plan to handle such situations.
Create Data Analytics Models
If you have a set model for data analysis makes it easier to create an accurate plan. Analyze the steps for demand planning and identify the steps that are applicable to your business.
Set Goals for Planning
Setting goals can help planners organize and streamline the planning process. Goals can be cost reduction, inventory optimization, and warehouse space optimization.
How 3SC Helps?
3SC offers end-to-end business planning solutions that cater to the requirements of businesses at different stages of business planning. Our products such as Demand Curve helps business in demand consensus planning, production and capacity planning, inventory management, and raw materials planning. In addition to that, our product CarbonX helps map carbon emissions and plan the operation in a way that reduces the overall carbon footprint and helps them contribute towards sustainability.
FAQs
What is demand planning software?
It is software that helps analyze big amounts of data and helps predict future demand trends and plan the operation accordingly.
What is demand planning in the supply chain?
It is the process of planning inventory replenishment according to the forecasts obtained after the analysis of the historical data of the business.
Who needs demand planning?
It is required in industries where the demands are fluctuating according to different factors such as seasons, natural disasters, and geopolitical factors, it is important to plan the demand accurately to ensure there are no stock-outs or surplus inventory.
What are the 3 major activities of demand planning?
3 major activities of planning demand include collecting data, choosing the analytics method, and planning according to the forecast.
What are the 3 crucial elements of demand planning?
3 different elements of the process include trade promotion management, portfolio management, and statistical forecasting.
Where does demand planning fit within a business?
It can be beneficial for businesses to understand the demand trends in the future and hence plan future operations according to the demand trends.