Many operating decisions are based on how much demand there is for a given product and the ability for a company to profitably satisfy that demand. It is crucial to ensure the decision-making process happens prior to the point of sale so companies are in the best possible position to efficiently and effectively meet that demand.
This requires demand planners to collaborate with key stakeholders across the organization as well as outside the company with partners, suppliers, etc. to ensure there is strong alignment of supply with demand. In doing so, one of the goals of is to ensure the right levels of inventory, and align execution capacity to deliver the right products to the right customers.
Demand planning has long been the key driver in the supply chain and is an intricate discipline involving many factors to effectively anticipate and meet the needs of customers. When performed effectively, demand planning is a substantial contributor to both profit and customer satisfaction. On the flip side, poor planning can result in significant supply chain disruptions. Failing to keep up with demand typically results in dissatisfied customers and lost revenue.
Implementing solid demand planning practices offers a number of benefits. Here are just 4 of the many reasons why demand planning is a critical business practice.
1. Creates a Proactive Supply Chain
No company wants to be in a position where it’s scrambling to fulfill orders and racking up costs because it must expedite orders and pay employees overtime. Nor do companies want to experience the opposite problem, where moving inventory is a struggle. As the world accelerates and challenges continue to disrupt the supply chain, companies need to deploy effective planning strategies to help them stay ahead of new challenges. It’s time to stop reacting and become proactive to better respond as market conditions change.
Demand planning provides the opportunity to nip those problems in the bud before they become major headaches by improving visibility. Beyond reacting to the current reality, planners with greater visibility into future demand are able to stay prepared and quickly respond to changes and make adjustments to their supply chain operations.
2. Fosters Agility
Even with the help of cutting-edge technology and a solid S&OP (sales and operations planning) process, demand forecasts are rarely 100% accurate. If they were they’d be orders and not forecasts! Companies will always need to make on-the-fly adjustments to their supply chain due to unforeseen events— from ordering additional SKUs from suppliers or making other shipping arrangements to ensure the products reach customers on time. A solid demand plan allows planners to absorb the impact of unexpected fluctuations. Accurate demand information enables informed decisions about how to allocate resources and adjust operations in real-time (or as close to real time as possible), allowing teams to respond more quickly and effectively to changes in demand. Reaction times are quicker, and hiccups are usually minor.
Effective demand planning also increases agility by enhancing supply chain collaboration. Sharing demand forecasts with suppliers and other partners in the supply chain can help improve collaboration and reduce lead times, allowing the supply chain to respond more quickly to changes in demand.
3. Happier Customers
Happy customers are loyal customers. Yet in a world where same-day shipping has become the norm, expectations for near-instantaneous — and impeccable — service are at an all-time high. If you’re operating blind (that is, without a demand plan), it becomes impossible to keep up and maintain high levels of customer service. Stock outs and longer lead times frustrate customers. And ultimately, this has a negative effect on brand loyalty, something your competitors will be all too eager to exploit. Demand planning helps companies enhance product availability by providing better understanding of future demand – they can optimize their inventory levels and reduce the risk of stock-outs, ensuring that products are always available to customers.
Keeping the supply chain running smoothly is vital to customer satisfaction and retention rates. When organizations strive and succeed in providing customers with the products they need, when they need them, these efforts translate into improved satisfaction and stronger customer relationships. Making the most of demand planning to improve lead time, reduce stock-outs and enhance product availability will set you on the right path to improve customer service.
4. Reduce Operating Costs & Improve Margins
Demand planning ensures sales and operations processes are aligned and working in concert to satisfy customers’ needs. A natural by-product of that is increased efficiency. What’s more, using a demand plan helps ensure companies are not holding more inventory than they can sell at any given time. Optimizing inventory levels and minimizing redundant processes results in a positive effect on the bottom line in the form of reduced costs.
Companies can also benefit from optimized use of resources, as accurate demand forecasting means better matching production to customer demand, therefore reducing the need for expensive rush orders and minimizing the amount of waste generated in the production process.
When It’s Time To Embrace Solid Demand Planning Processes
In essence, demand planning enables companies to make deliberate, well-thought-out decisions about how to manage their supply chain. And since a smooth-running supply chain is the lifeblood of a business, it’s imperative that companies invest significant time and energy into properly implementing solid demand planning processes.
Given how massive an undertaking this is, however, it can be difficult to know where to begin. Fortunately, you don’t have to go it alone. Take a look at this demand planning guide to help you assess where your company is in the maturity journey and explore next steps to evolve your demand planning. You can learn more about demand planning software and discover how it can help you break down silos, automate processes and improve data accuracy, thus enabling more informed decisions and faster responses to market changes.
If you have any questions or feel ready for the next step, we encourage you to have a chat with us! Schedule a consultation with one of our experts today.