You may have come across the term demand planning with regard to inventory management and/or supply chain.
That is because it’s a process that is valid across functions, and helps fulfil customer demand for goods without disrupting the supply chain, and with little excess inventory.
This can help you increase revenues and keep your customers satisfied while improving overall efficiency.
The demand planning process needs to be a continuous one – something that is an essential part of your business.
Thanks to technological advancements and the emergence of software like Tranquil, this is not just possible, but even easy.
It is necessary to analyze customer trends, historical sales data, and seasonal trends so that you can ensure that your business is capable of meeting customer demand very effectively.
For this, demand planning merges supply chain management, inventory management, and sales forecasting.
It makes use of data from inside and outside sources to forecast future demand.
This prediction can help you form your strategy for sales and operations, enabling you to plan how much to produce or purchase to be able to fulfil the demand.
While there are several aspects to demand management strategy, the following three are the most important:
This refers to the management of the entire product lifecycle – from product launch to its life-ending.
Product lines are often interdependent; it is important to understand the way new products can influence the demand for other items, to get a clear picture of the product range you need to enjoy the lion’s share of the market.
Statistical forecasts leverage historical data to generate supply chain forecasts with sophisticated algorithms.
Here it is critical to ensure model accuracy, understand conjectures, and pinpoint deviations and exclusions.
Seasonal trends can also be evaluated via statistical forecasts.
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One of the best ways to drive demand in the retail sector is through marketing events.
Trade promotions help brands to connect with their customers via promotions, giveaways, discounts, contests, etc.
Effective demand and supply planning drives profitability and boosts customer satisfaction as it helps businesses to attain the proper balance between fulfilling customer demand and adequate inventory.
This necessitates cross-organizational collaboration and is not an easy task.
As extra inventory ties up finances, and you run the risk of being stranded with dead or very low-value stock, it can have a significant impact on your business.
Or you may face severe disruptions in your supply chain, leading to a shortage of products, which could cause backorders or emergency purchases, which are always expensive.
Basically, with improper planning, you are likely to face delays and unhappy customers.
For predicting sales, businesses study both internal and external data; for this, first, a demand forecast has to be made.
These are all part of the inventory demand planning process.
Normally, demand is forecast for the near future – up to a maximum of 24 years; however, this depends on the industry as well as the product.
Businesses may need to make adjustments in the forecasts to reflect market conditions and customer trends.
The demand forecast forms the basis for the entire process of demand planning.
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The process of demand planning necessitates inputs from multiple departments like purchase, production, operations, finance, marketing, supply chain, and sales.
They also need to collaborate well with each other.
Business strategy planners and product portfolio managers have to consider lead times for production and raw materials.
Demand and inventory planning involves several business functions, and so the employees handling the related tasks may be spread across departments, or be a separate group altogether.
However, to achieve the best results, demand forecasting is most accurate and successful when linked closely to marketing and sales.
Demand planning is multifaceted and complex, and becomes more so with business growth.
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There are two broad approaches to demand planning – push and pull.
The push method assumes that people will come if you build something great – a philosophy that was used till very recently.
Businesses believed that to create demand it was enough to be innovative with products. So, they would manufacture products and wait for sales to happen.
But this strategy did not succeed always. Unexpected demands led to stockouts and missed opportunities for sales, or excess inventory piled up on shelves and warehouses, leading to expenses.
It was extremely difficult to strike a balance.
The modern method is the pull approach – here the business assesses consumer demand, and bases overall planning on that.
The main difficulty here is getting a correct forecast of consumer demand; with incorrect predictions, you may have the same negative effects of the push method.
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Today, to help overcome these problems, we have modern demand planning tools:
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Demand planning is a complicated process; understandably, best practices concentrate on greater co-operation and accuracy.
There are demand planners who design an initial plan version by leveraging descriptive analysis or historical data.
They make alterations as necessary, and have a team whose sole function is to make the plan, implement it, correct mistakes, and craft the execution plans.
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Thanks to improvements in demand planning software, businesses are able to be more precise with their predictions.
The software can be linked to POS data, and extract information from vendors, allowing businesses to include real-time data in their planning and analysis.
IoT or the Internet of Things is capable of enhancing demand planning by enabling companies to get the latest updates on inventory and raw material status.
It can also keep track of sales as they take place so that the management can immediately stock more of the products that are selling faster than initially anticipated.
This kind of visibility can help businesses to ensure optimal inventory levels and minimize the panic and costs that occur with overstocking and understocking.
Furthermore, modern demand planning software leverages artificial intelligence and machine learning and is capable of processing mountains of data at high speeds.
It can thus pick out patterns and trends that human effort may easily miss.
This can help demand planning executives to make adjustments on the go.
The most important thing you need to do is be diligent when it comes to purchasing demand planning software.
With dozens of ERP software solutions in the market, choosing the right one can prove daunting.
You need a reliable and capable tool that can handle forecasting, provide real-time reports, and is transparent.
Tranquil is a reputed ERP system with a robust inventory management module. It can automate difficult and cumbersome tasks like tracking your metrics, making forecasts with the help of statistical analysis, calculating the ideal inventory levels, and so on. This can help your team to concentrate on inferring the results, cooperating with other departments, and making the requisite adjustments. It is a user-friendly, intuitive software that helps to automate and streamline multiple functions in your business. Schedule a Demo with us.