Demand planning can sometimes feel like gazing into a crystal ball to predict the future. But it's a critical aspect of business. Executed well, demand planning can help enhance your business and position your company for growth. Done poorly, it can cost you.
With demand planning, business leaders look to stay in front of market shifts. Better, more insightful preparation allows businesses to make proactive decisions and respond positively to customer needs.
Like most corners of business, supply chain demand planning is going digital. Today, we'll look at demand planning best practices. You'll find out how digital applications can help strengthen the data and improve the decisions you make with your forecast. Here we go!
What Defines Demand Planning?
According to Michigan State University, demand planning is a supply chain management process of forecasting, or predicting, the demand for products to ensure you can deliver them on time to satisfy your customer base.
The key to demand planning is having accurate, complete data. And that's hard to do with a lot of manual and paperwork-heavy processes.
As you may know, technology can help you manage the demand and supply within your business. For example, there's enterprise resource planning (ERP).
ERP is a classic example of software with advanced planning features that help companies predict demand. This in turn allows businesses to optimize inventory levels in order to meet the customer's delivery expectations.
Why Use Demand Planning? To Meet Customer Expectations
You might describe demand planning as glorified prediction. The twofold end goal of business is customer satisfaction and thus profits.
If you work backward from there, you can see that understanding the peaks and valleys of demand can help you manage cash flow. Cash flow is the lifeblood of business. Therefore, you're looking to stay robust and push for healthy growth.
Demand planning helps you avoid tying up funds in inventory. Too much inventory reduces the opportunity to spend that capital on other areas that help grow the business, such as marketing or equipment upgrades.
Too much inventory ties up cash. On the other hand, understocking often leads to emergency, last-minute production scenarios.
Rush scenarios can be bad in two ways.
- You may end up paying more for last-minute material purchases or labor overtime.
- Also, if it causes you to be late on a delivery, it could sour the relationship with your customer.
Data Incorporation for Demand Planning
Demand planning involves skillfully combining several data sets. For example, you'll incorporate factors that include:
- Historical sales
- Current sales pipeline
- Sales opportunities queued in your customer relationship management (CRM) system
- Overall market conditions
- Geopolitical factors
Let's elaborate on each area of focus.
Historical Sales With Existing Customers
What (if anything) have you done with each customer, channel, or pipeline in the past? Using the classic thought experiment model called a Johari window, these are the "known knowns." What sales information do you have on your bread-and-butter business in the past and present that you can project into the future?
Current Sales Pipeline Data
This is based on feedback from all customers. That includes legacy customers, relatively new customers, and customers you've just started working with.
What information can the sales and business development team provide about the future of every customer? These are the "unknown knowns." These are your customers, so you know they'll place orders. What information can you see and use that will firm up this data set?
Noteworthy Opportunities From Your CRM
These are your unrealized sales and deals that might hit in the next 8 to 12 months. Sure, those deals aren't rock solid. But that information is important to account for. In other words, what should you plan into the forecast and budget for those "known unknowns"?
Overall Market Conditions
What are the overall trends of the global economy? Are we in a recession, a depression, or is it boom times? You know the specifics of your industry better than anyone. It goes without saying that the fashion industry has little to do with the heavy machinery industry. But you also know that most markets tend to work in cycles. So where is the overall market now, and where is it trending in the next eight to eighteen months? Adjust accordingly.
Geopolitical Factors That Might Affect the Supply Chain
What's going on in the world? Specifically, what data and intelligence do you have regarding the raw material markets you'll source from?
For example, is there a global pandemic? Are there new tariffs in place? Did a supplier go bankrupt? Does any of the data regarding your supplier on-time deliveries indicate trending issues?
Consider these combined data points. Do they indicate that disruption can, might, or is likely to occur in any supplier's ability to match your demand in the short term or long term?
If the answer to any of those questions is yes, perhaps it would be wise to locate a secondary source of supply. (Don't keep all your eggs in one basket!)
Demand Planning: Best Practices
We've already established that the key to demand planning is having accurate, complete data. So as you can imagine, the better the quality of your data is, the more accurate your demand planning exercise will be.
In essence, when you bring sound data to the table during demand planning, it increases the accuracy and dependability of both your production and buying forecasts.
Point-Of-Use Imaging Solutions to Improve Demand Planning on the Front End
One great way to improve your demand planning data quality is to merge your everyday processes with software that digitizes your documents. In short, get away from paperwork, and merge with the digital age.
First of all, one of the leaders in the imaging software space is a company called Vector. In essence, Vector helps logistics companies go paperless, which makes it a good example in terms of improving demand planning with better data.
What Does Digitized Workflow Software Do, Exactly?
A paperless office replaces the traditional filing cabinets and banker's boxes full of paper bills of lading, proofs of delivery, receipts, and invoices. Instead, all those documents are converted to digital format and stored in the cloud.
Because it's cloud-based, you won't have to rummage by hand to recover filed paperwork and then build an Excel spreadsheet by hand. Instead, you can access all your data with a simple search engine query. And this data synchronizes with your transportation management system (TMS), your distribution management system (DMS), your ERP, and any other demand planning software you're running.
Thus, it all starts at the point of use with the driver and their paperwork. But it's very easy. The only thing a driver has to do is point and scan with their phone's camera. Vector's software automatically captures, crops, and enhances all paperwork, rivaling the quality of the originals.
But it's important to note that this is much more than just a photograph. The Vector software converts the image into a working, digital document that functions in a living way.
This is perhaps best illustrated in Vector's automatic invoicing feature. The typical lag time between delivery, invoicing, and payment is reduced or eliminated, so you can get paid faster. With a click of a button, the software simply sends an invoice (with all supporting paperwork) as soon as a clean delivery is made.
The Demands of Demand Planning
Good data drives modern demand planning. The data-driven approach can help your business remain intuitive and agile.
This trend will likely only gain strength as demand planning becomes bolstered by artificial intelligence, machine learning, and blockchain. In addition, demand planning will increase frequency to the point where it may approach real-time practices.
But at the heart of the data-driven approach is the first principle of the digitized document. In other words, getting free of paper is first step to better demand planning, now and in the future. If there's an action item you can take away from this article, it's to perform further due diligence on Vector.
See where the future's going, and get ahead of the curve.
This post was written by Brian Deines. Brian believes that every day is a referendum on a brand’s relevance, and he’s excited to bring that kind of thinking to the world of modern manufacturing and logistics. He deploys a full-stack of business development, sales, and marketing tools built through years of work in the logistics, packaging, and tier-1 part supply industries serving a customer base comprised of Fortune 1000 OEMs.