What is Demand Planning?
Demand planning is the process of forecasting and managing a supply chain to meet the demand for products or services. Fintalent’s demand planning consultants identify four key steps:
1) Determine the needs of your company through brainstorming sessions and customer interviews.
2) Predict what consumers will buy based on current conditions, market forces, pricing considerations and overall business profiles. Make sure you’ve done your research on the market.
3) Gather data on product capacity, inventories, cost structures and distribution channels from across your organization including salespeople in their territories who can provide information in real time.
4) Plan how to fill that demand in advance by utilizing stocks or other resources such as warehouse space. This is known as re-stocking or “back-order” planning.
Demand planning is important to maximizing business revenue and profits and avoid potential losses by under-producing or over-producing in the case of excess inventory. Demand planning requires a good understanding of business operations, marketing analytics and supply chain management to predict demand accurately. An effective demand plan contains the following elements:
1) Product lines being offered
2) Available inventory levels and forecasted patterns of demand
3) Forecasted sales projections
4) Products that are complementary to the product or service that customers want to buy when they inquire about them.
5) An action plan to manage demand such as when certain products should be re-stocked and when excess inventory should be eliminated
6) How to replenish, re-stock or restock products to avoid losses due to low inventory
7) Clear guidelines on how to reinvest in new product lines and marketing efforts.
8) New products that are not selling should be eliminated from the plan
9) A contingency plan for unexpected occurrences such as natural disasters, political upheavals or economic meltdowns.
10) A bidding process for the necessary resources needed including purchasing supplies, renting additional warehouse space or contracting with a Transportation Management Company.
Having a stable supply chain for products and services is important to tracking your profits. When managing supply, inventory levels can be adjusted as supplies are needed based on orders received. The goal of demand planning is to develop forecasts so that they are correct and realistic, rather than based on “trying to make too many sales targets or sell inventory before it gets lost.”
Demand planning is a highly complex process that most companies simply cannot manage manually. It takes large amounts of time, money and manpower.
The goal of demand planning is forecasting the right amount of product that will be sold to meet the demand in the next month, quarter or year.
Steps in Supply Chain Process
The first step in the process is to maintain relationships with vendors and other key suppliers, so you know what is available for procurement and for production. A variety of sources may provide accurate information about what has been delivered, or placed on hold, or scheduled to be produced within a certain time period.
The second step involves forecasting demand for the company’s goods or services. Companies have different methods of “forecasting” demand based on what has happened historically, and they make decisions based on past trends in the overall economy, along with emerging market trends. If a company is doing this correctly, then they won’t end up with excess inventory that is worth less than it was when it was manufactured or purchased. “Forecasting” is the most important part of the process because supply chain costs must be calculated to accurately match actual sales. In general, if you have too much inventory, it is costing you more than it is worth.
The third step in the supply chain process is to manage the demand for your products and services. This involves determining what products will be needed to fill orders by drawing on information about customers’ needs as well as available inventory levels and forecasts of sales forecasts. If a product has a long lead time, how will it affect demand? Where will it be manufactured and how will it get to the customer? How many units are necessary to meet demand? If a product has a short lead time and there is excess capacity, then this decision should be made very carefully because you can’t afford to have any unnecessary inventory that’s not getting used.
The fourth stage in the supply chain process is the procurement of products. It involves purchasing products based on demand forecasts for your company’s goods and services. The key is to forecast demand correctly, so that you don’t over-purchase inventory (which needs to be sold) or under-purchase inventory (which can’t be sold through sales channels).
The fifth step in the supply chain process is simply making sure that what you have purchased gets to where it needs to go when it needs to get there. This process includes everything from picking, packing and shipping items to delivering products to customers or vendors. It’s important that you have the right inventory levels in the right places at the right time.
At any stage in this process, it could be useful for manufacturers or distributors to consider how they might increase sales at their existing customers or attract new customers to buy more products when they are being delivered. This is why it is important for them to know where their current customers are buying their products from, so that they can figure out where else to sell them.
Companies rely heavily on process and procedures to manage the supply chain. This is especially true for companies that have complex supply chains with multiple channels. However, regardless of your company’s size or complexity in managing supply chains, the key is to manage these processes effectively so you can maintain a competitive advantage.
A successful supply chain management strategy requires companies to be able to modify their approach based on current market conditions. Know everything that is going on in the market: what your competitors are doing, what new products are being introduced to the market, and where your distributors and customers are buying their inventory. If it is possible to predict when demand will increase or decrease, then transportation companies can adjust accordingly.
If you’re managing a large organization or have multiple business locations, perhaps in different countries, then it’s important for you to understand every aspect of your supply chain. It also helps if you have a good system that makes sure all aspects of your supply chain link together and provide complete visibility into all inventory levels. If this is something that seems difficult to do, then Fintalent has a pool of expert demand planning consultants to help with the process.