The success of a supply chain is often linked to its efficiency, which can be traced back to the ability of managers to conduct accurate forecasting when it comes revenue and inventory. Those two facets of a business are tied to a crucial process in the world of supply chain: demand planning.
Demand planning uses analytics that examine historical sales data, customer orders, shipments, current sales and market indicators to better predict demand patterns based on market changes, enabling firms to make smart decisions about inventory and production levels.
Good demand planning is highly accurate, based on data and enhances profitability. But the process can be tedious, time consuming and easy to mess up. One area of a supply chain, such as procurement, may improve its ability to forecast future demand, but logistics and manufacturing may lag behind, leading to higher levels of inventory and escalating costs.
Getting each player in the supply chain on board with demand planning is often difficult, but it’s far from the only hurdle. Examining the correct data is one of the biggest challenges, as the information must be run through a number of filters, such as high variance in the last six months, frequent zero demand periods, month-over-month demand history, frequent shortages and statistical forecasts.
Without proper demand planning, supply chains wind up dealing with production delays, inventory surpluses and strained relationships across the various disciplines that make up an organization. Avoiding such problems would call for professionals that possess two important skill sets:
A common way to achieve collaboration across functions is through the implementation of a centralized demand planner for all groups to report their respective data. The challenge for this centralized cross-functional analytics group is to understand the needs of the various departments and how consumer behaviors drive demand.
Modern supply chains are global and complex, often comprised of regional teams relaying information to demand planners and teams at the corporate level that are also gathering data from a global perspective. The two have to work together in order to plan globally while executing regionally.
Traditionally, supply chains are more reactive than proactive. In today’s market, the ability of your supply chain to adapt to demand changes is more complicated than responding to latent order data. The reactive model does not work for demand volatility, which is on the rise in the current market. Consumers’ wants and needs shift faster in the modern marketplace and supply chains that cannot shift with them will struggle to survive.
Successful supply chains are able to adapt by eliminating bias and building systems that can sense and respond to demand volatility. Such a system needs to be designed from the outside-in and include sensing channel demand, using optimization to actively shape demand and applying advanced analytics to drive an intelligent response, according to Lora Cecere, founder and CEO of Supply Chain Insights.
Here are some of the important to-dos in overhauling the demand planning process.