Demand Planning: A Necessity or An Obligation?

Before expressing my opinion on whether Demand Planning is essential or not, it is crucial to establish a precise definition of the term, identify its constituent elements, and comprehend the entirety of the process.

Given that we are focusing on a particular aspect of the Supply Chain, let us begin by defining demand planning.

Demand planning is a supply chain management method that allows a company to forecast future demand and successfully tailor its output—whether products or services—to those estimates. It is the crux of an efficient supply chain, making it extremely crucial for the company.

The subsequent critical inquiry that emerges is: What is the mechanism by which demand planning operates?

The objective of demand planning is to establish and sustain a lean supply equilibrium, wherein store inventories consist of the minimum number of products required to meet demand, and no more. Striking that ideal equilibrium between adequacy and excess can present a unique challenge. In addition, while preserving this equilibrium is a primary objective of demand planning, the ongoing endeavor to influence demand via efficient promotion strategies is equally significant.

In order to ensure optimal demand planning, it is customary to employ demand forecasting methodologies that precisely identify patterns in demand. This practice yields supplementary advantages, including enhanced organizational efficiency and greater customer satisfaction.

Let us now explain why demand planning is so essential?

Demand planning is the foundation of an efficient supply chain, performing two critical roles – making it doubly crucial to business.

First, there is always the underlying need to secure the sale and ensure that the anticipated revenue is generated. However, shops cannot sell items they do not have in stock. And it doesn't take long for today's consumers to form an opinion about a firm and its ability to meet demand. Demand planning ensures that businesses have the proper amount of goods in the right place to avoid stock-outs and be ready for the next sale.

But safeguarding sales is no longer enough. It is also about making firms more efficient. Demand planning improves efficiency by allowing you to better manage your inventory space. Why should businesses invest in more physical space than necessary? Demand planning can assist firms in avoiding the risks of overstocking, such as increased inventory carrying costs and financial conditions that necessitate the use of product discounts or other temporary measures to alleviate overstocking by selling inventory as soon as possible.

Demand planning and forecasting are more important than ever, especially because so many external factors, such as weather disasters, economic trends, and global emergencies, can shape and reshape demand.

Now, let's discuss Elements of demand planning.

Product portfolio management:

Managing product demand effectively requires for an in-depth familiarity with product lifecycles. This is what product portfolio management is all about; it shows the whole history of a product, from its inception to its final retirement. Product portfolio management also reveals how changes in demand could influence "neighboring" items, which is useful because many product lines are interrelated.

Statistical forecasting:

Based on the traditional notion that past performance is often the most reliable indicator of future performance, statistical forecasting generates supply chain forecasts through the analysis of historical data using complex algorithms. Sophisticated mathematical principles underpin statistical forecasting methods, and the rigorous process necessitates precise data, including that derived from outliers, exclusions, or assumptions.

Demand sensing:

Demand sensing combines historical trend data with new data sources, including government data, infectious disease trends, and weather information, in order to identify disruptions and demand influences in near real time.

Trade promotion management:

In the retail jungle, survival requires capturing the attention of prospective consumers. To increase consumer demand, trade promotions and other marketing strategies utilize special events (such as in-store giveaways or price reductions). The objective of trade promotion management is to guarantee that these opportunities are executed effectively and provide the anticipated benefits.

Key steps of demand planning

The approach that organizations adopt towards the demand planning process is highly variable; however, a standard set of procedures is generally adhered to by businesses. These phases consist of:

• Organizing and preparing data.
• Making a preliminary forecast.
• Integrating market data.
• Reconciling bottom-up and top-down forecasts.
• Developing a final forecast.
• Monitor forecast performance.

So far, we have understood that Demand Planning involves forecasting customer demand for products or services, analyzing historical data, and collaborating with various departments to ensure accurate predictions. It plays a vital role in optimizing inventory levels, reducing costs, and enhancing customer satisfaction through timely deliveries.

Therefore, we can conclude that Demand planning is a necessity for businesses looking to optimize inventory levels, reduce costs, and improve customer satisfaction. Without proper demand planning, companies may face stock-outs, excess inventory, and missed sales opportunities.