What Is Demand Planning and How Can it Improve Fulfilment?

What Is Demand Planning?

Demand planning is a supply chain management process that helps businesses predict demand for their products and services. This will enable them to prepare to meet their customers' needs. By tailoring their output to match their forecasted demand, businesses can strike a balance between running out of stock of popular products and overloading their inventory with surplus goods.

How Does Demand Planning Work?

Effective demand planning requires businesses to use demand forecasting to identify consumer trends, which inform their shipment schedules. While devising an efficient shipment schedule is critical to demand planning, effectively promoting high-volume products to influence demand is equally essential.

When orchestrated correctly, demand planning allows businesses to achieve supply equilibrium, maximising income through sales while minimising storage costs.

How Is Demand Planning Different from Demand Forecasting?

It is common to see demand planning and demand forecasting used interchangeably, but there is an essential distinction between these terms. 

While demand forecasting involves predicting demand by analysing customer data, demand planning also includes additional inventory management considerations, such as where goods should be shipped and stored.

Why Is Demand Planning Important?

Demand planning is becoming an increasingly important aspect of supply chain management. It allows businesses to optimise their order fulfilment process without wasting money on excessive storage.

In a competitive market, having enough stock to meet demand is crucial to avoid missing out on potential purchases or losing customers to other companies. Customers are unlikely to wait for your products to be back in stock when they can buy equivalents elsewhere. If your products are frequently out of stock, customers may stop browsing your online store altogether.

While keeping large inventories might seem like the solution, overstocking can significantly increase your storage costs, forcing you to hold onto excess stock or sell goods at discounted prices to clear your inventory. With demand planning, you can manage the steady flow of products into and out of your inventory, ensuring it never empties while avoiding overstock.

What are the Components of Demand Planning?

While predicting consumer behaviour is essential to demand planning, many more components need your attention for the process to impact your order fulfilment. The following section outlines the key components of a comprehensive demand planning process.

• Statistical Forecasting

As the name suggests, statistical forecasting involves analysing historical sales data to predict future purchases. This is typically achieved by employing advanced statistical algorithms and accurate data free from outliers or misleading sales figures. These include irregular sale spikes caused by anything from seasonal trends to more idiosyncratic influences, such as global events or social media. 

• Product Portfolio Management

Understanding the product lifecycle is crucial to ensure that in-demand products are not impeded by products that have outlived their viability. With product portfolio management, you can evaluate how each product line is impacted by its ‘neighbouring’ products, then use these insights to retire products from your catalogue. As many product lines are interdependent, it is essential to develop the right mix of products to encourage additional purchases. 

• Trade Promotion Management

Demand planning is as much about influencing demand as predicting it, which is why trade promotion management is another essential component to consider. By offering seasonal discounts or creating memorable events with price drops or giveaways, you can forge connections between your brand and your audience and earn loyal customers. Once you have established a consistent consumer base, forecasting and planning for future demand becomes much more manageable.

• Demand Sensing

Perhaps the most sophisticated component in demand planning is artificial intelligence-powered demand sensing. By combining historical sales data with new sources, including weather forecasts, geopolitical events, and the spread of infectious diseases, demand sensing uses AI to identify rising or falling demand in near-real-time.

What Is the Demand Planning Process?

Given the numerous components of the demand planning process, it should come as no surprise that it is intricate and requires significant oversight to ensure success. To conduct an effective demand planning process, you need to follow these steps:

1. Organise your data

Before you start any analysis, it is essential to collect and organise all the relevant data needed to provide an insightful forecast. This includes broader data, such as weather reports and geopolitical influences, which will be crucial later in the demand planning.

2. Make an initial forecast

Apply algorithms to your sales data to produce an initial demand forecast. While this should serve only as a starting point for the process, creating a comprehensive forecast as possible will aid your subsequent demand planning efforts.

3. Integrate market data

Conduct a secondary forecast that implements your broader market data. While this forecast will likely offer less insight into your business, it provides an essential point of comparison for the next step in the demand planning process.

4. Reconcile bottom-up and top-down forecasts

Combine the insights gained from your first and second forecasts to identify the middle ground between your granular initial estimates and the broader picture of your forecast.

5. Produce a final forecast

Using the combined insights, create final estimates to devise your demand planning schedule.

6. Monitor performance

As you implement your shipment schedule, it is essential to review your sales figures to see how they align with your forecast. While you cannot expect demand to reflect your predictions perfectly, you may need to introduce promotions or adjust your shipments should demand significantly deviate from your final forecast.

Best Practices for Demand Planning

While the demand planning process leverages various algorithms to generate forecasts, its success relies on careful management and execution. Any business that integrates demand planning into its supply chain should adhere to the following best practices:

• Comprehensive Data Collection

Detailed demand forecasts can only be generated from ample relevant data. While your sales data is vital, it should be combined with additional metrics reports, created using data mining and aggregation techniques.

• Coordinated Strategy

Without an organised approach to demand planning, it can be challenging to implement the desired changes to your supply chain. Ideally, the process should be overseen by someone with prior demand planning experience who can interpret the data and relay the necessary information to your manufacturers and order fulfilment team. With an expert, changes can be implemented smoothly and simultaneously. 

• Choosing the Right Software

The data analysis for forecasting is conducted using specialist demand planning software, known as enterprise resource planning (ERP) systems. Choosing the right ERP system is crucial to ensure it accurately captures the nuances of your sales data and provides reliable, transparent reports from which demand plans can be formulated.

What Is the Future of Demand Planning?

As more artificial intelligence and real-time inventory software are incorporated into demand planning, businesses can produce, implement, and monitor increasingly precise demand forecasts. Additionally, as cloud-based resource sharing becomes more widespread, demand planners will be able to instruct the relevant stages of the supply chain, enabling them to respond more promptly to changes. 

As the process becomes more sophisticated, businesses that have invested in demand planning will get ever closer to the equilibrium the process promises. This will allow these businesses to operate more efficiently and adapt their order fulfilment processes to respond to sudden changes in the marketplace.

How Can Whistl Help with the Demand Planning Process?

At Whistl, we have access to extensive data sets, analytical tools, inventory management software, and storage facilities. This means our clients can monitor demand for their products and those of their competitors in their industry. By partnering with Whistl, your business can leverage the expertise of our demand planning specialists to improve your supply chain efficiency, while entrusting other aspects of your order fulfilment to our dedicated teams to implement changes efficiently from manufacture to delivery.

To discuss how Whistl can facilitate demand planning in your supply chain or to learn more about demand planning and its application to your business, please get in touch with us today. A team member will be happy to explain our services.