Demand Planning: Processes in Supply Chain Management
Demand planning is a term most commonly heard in supply chain management. A tricky act to balance, it is demand planning that fine tunes the supply chain process. Get demand planning right and it means your business stays lean, delivers on service, and keeps customers satisfied.
So, what is demand planning?
For anyone who is unfamiliar with demand planning, it is the process of forecasting product or service demand so it can be produced and delivered to customers both effectively, and efficiently. It is part of a supply chain management process which allows an organisation to successfully project output and delivery.
Why is it important?
Demand planning is important to a business for many reasons. For example, say if a business cannot supply a product in demand by their customers because stock has run out, the business may lose out on potential revenue. Ultimately, by not meeting customer demand, a business not only loses out on custom, but can push your customers to look elsewhere. This can draw existing or new customers towards your competitors instead of investing in your brand, business, and product (or service).
Similarly, unused, or underused resources cause unnecessary costs for a business both in terms of physical storage or space, and in time spent on the product/service. With demand planning organisations can use projections to make proactive decisions about where to focus their efforts, and on the flipside, where not to. All that being said, it's also important demand planning can be agile and flexible enough to be responsive to consumer demands.
Demand planning involves multiple processes. Often these are specific niche needs based on the type of organisation, goals, market positioning and inventory requirements. There are two main processes to demand planning in supply chain management:
1. Product Portfolio Management
Product portfolio management covers the whole product life cycle, from inception to the end its life. Products are often interdependent from one another and so require different demand planning. Similarly, the effect that one new product will have on other products will also need to be addressed to understand the overall product portfolio. The management of this will lead to a much better idea of how to maximise market share.
2. Statistical Forecasting
Secondly is statistical forecasting. Using historical facts and figures, organisations can create fairly accurate forecasts for the supply chain. Then there is also promotion management. The aim of this is to connect a product or service with the customer in any way that’s possible. Usually this is achieved through, adverts, discounts, giveaways etc. Promotional and marketing events can be a big influence on demand.
Demand planning is a key aspect of ERP systems and can often be the reason an organisation decides to choose a certain ERP. It is a drastically important part of supply chain management and can make a huge difference when battling with competitors or making key savings.
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