Demand Planning is an essential component of supply chain planning – and demand planning software plays a key role in improving and evolving the process. With this guide, we aim to provide you with insights for a deeper understanding of the key elements of demand planning, their importance in optimizing your organization's supply chain, and the key benefits of advanced software technology to help improve business performance.
We hope the information below will serve as a valuable resource to help you navigate the complexities of demand planning, advance your processes and optimize your supply chain.
If you can’t find the answers to your specific questions, we encourage you to reach out to our dedicated team! Our team of experts is available to assist you via live chat on this page or via email, and will be happy to provide personalized guidance tailored to your unique demand supply chain planning requirements.
What is Demand Planning in Supply Chain?
Demand planning is a strategic process that involves predicting (estimating and forecasting) customer demand for products or services, enabling companies to efficiently allocate resources, minimize costs, and enhance customer satisfaction.
As an essential element of supply chain planning, demand planning enables businesses to align their resources, production capacity, and inventory levels with anticipated market demand.
Demand has become increasingly volatile and complex. Businesses need to enhance their ability to sense, analyze, plan, and shape demand to effectively capitalize on new market opportunities in the face of shorter product life cycles, increased demand signals, and geopolitical and economic uncertainties. This evolution in demand planning has led to a broader definition that now encompasses alignment with multiple areas of the business, including marketing, sales, and commercial teams, and even external stakeholders.
How Does Demand Planning Work?
The goal of demand planning is to accurately anticipate demand for a given product and ensure that a company’s supply chain is able to meet that demand efficiently, while avoiding excess expenses.
A key step in the demand planning process is data collection. This involves gathering historical sales data, customer orders, market trends, and other relevant information that helps in understanding and analyzing demand patterns.
Statistical models and algorithms help demand planners predict future demand based on available data and market insights. Demand planners aim to constantly monitor consumer behaviors, shifts and trends, and take into consideration factors such as historical sales data, seasonality and other external influences to create accurate forecasts for each product, product line, or service. This ensures that the demand plan can be adjusted and that it remains agile and responsive to dynamic market conditions.
Read our blog to learn more about the practice of demand planning, and what the role of demand planners entails.
Why is Demand Planning Important in Supply Chain?
Demand planning plays a pivotal role in optimizing the supply chain, as it helps ensure companies can align their resources, reduce costs, improve customer satisfaction, and gain a competitive advantage in the market by effectively predicting and meeting customer demand.
In the past few years, supply chains have faced unprecedented challenges; significant swings in supply and demand, labor shortages, and input scarcities, among other factors like geopolitical conflicts and rising rising costs – making demand planning gain even greater importance within supply chain management.
Accurate demand forecasting is crucial to navigate uncertainties, mitigate risks, and optimize operations. Understanding customer demand patterns and aligning them with production, procurement, and distribution processes is essential to stay competitive and meet market expectations. A proactive approach to demand planning that leverages advanced technology and real-time data helps businesses quickly adapt to changing market conditions, identify emerging trends, and make timely adjustments to their strategies and operations.
Effective demand planning acts as a compass, guiding businesses through uncertainty and enabling them to make informed decisions in today's dynamic and fast-moving landscape. It empowers planners to build resilient supply chains, enhance customer satisfaction, and foster long-term growth in the face of ongoing challenges.
What is the Difference Between Demand Planning and Forecasting?
Demand forecasting is a critical component of the demand planning process. It involves analyzing data, market trends and other relevant factors to predict future demand, forming the basis for the overall demand plan. On the other hand, demand planning involves much more – it involves creating a strategy that takes the demand forecast and translates it into action, following key steps to ensure a company can supply customers with a given product or service when, where and how they want to buy it.
Understanding the difference between the concepts and distinct processes of demand planning and demand forecasting is important to help ensure supply chain professionals use the right terminology, communicate effectively, and align the two processes correctly. Accurate forecasts provide a foundation for effective planning, enabling organizations to optimize inventory, production, and distribution to meet customer demand.
We expand upon the definition of these two processes and their interrelation in our blog: What’s the difference between demand forecasting and demand planning?.
What are Some Examples of Demand Planning Best Practices?
As businesses evolve and experience increased levels of supply chain complexity, technology helps them advance planning processes to reach higher levels of maturity, enhance decision-making and optimize supply chain performance while building resilience in the face of unforeseen disruptions and market uncertainty.
Check out some real-world examples from companies that have leveled up their demand planning across different industries.
Cold Food & Beverage
The US’ largest ice manufacturer distributes ice to more than 80,000 grocery stores, convenience stores and other retail locations across the United States. Demand for ice around the country can swing significantly by location based on weather, season, and other factors. The company implemented an advanced supply chain planning software solution to automate demand planning and re-plan replenishment every day for the next day, without human intervention. That led to: 50% reduction in customer stock outs; greater than 20% increase in delivery productivity; and sales increase of 20%
The organization evolved its demand planning maturity by adding new data feeds, including point of sale data, weather forecasts, and Internet-connected sensors in iceboxes that update the system every 30 minutes with inventory data. This richer data means not only more efficient replenishment, but also more granular visibility into demand patterns to fine-tune forecasts and optimize their transportation planning.
Oil & Gas
A leading player in the oil and gas industry with daily deliveries to thousands of customer locations has successfully implemented best practices to revolutionize its demand planning process. Specializing in bulk gas storage and distribution, the company has transformed its operations by embracing cutting-edge technologies and leveraging machine learning algorithms to automate demand forecasting, replenishment planning, and transportation routing.
By harnessing the power of advanced supply chain planning tools, the company has seamlessly integrated diverse data sources into its demand planning system, which now incorporates real-time insights from IoT devices, weather forecasts, point-of-sale data, and customer sales history to drive its supply chain strategy. Through the strategic placement of IoT sensors on bulk storage units across various locations, the company can precisely measure inventory levels at each facility.
The advanced demand planning software utilizes automated pattern recognition to analyze data from multiple sources. Combining demand readings from storage units, syndicated weather data, and historical usage information, the system accurately predicts future demand patterns. This enhanced accuracy allows the organization to generate more precise customer orders, leading to improved efficiency in replenishment planning and optimized truck route deliveries.
A leading company in the green cleaning products industry successfully implemented best practices in demand planning, resulting in improved supply chain performance and business growth. The company faced challenges as it transitioned from a fast-growing start-up to a mature multinational corporation. Inefficient processes, including the use of manual Excel spreadsheets, hindered accurate forecasting and efficient supply chain management.
To address these challenges, the company recognized the importance of an integrated demand and supply plan and selected a scalable supply chain planning platform that enabled seamless collaboration among different teams. The solution improved visibility, streamlined data collection, and facilitated consensus forecasting, leading to increased accuracy and SKU rationalization. With optimized inventory management, the company reduced costs while maintaining high service levels.
The improved forecast accuracy, efficient supply chain performance, and enhanced inventory management enabled the company to drive business growth and gain market share. By implementing best practices in demand planning, the company reinforced its position as an industry leader, delivering sustainable and high-quality products.
What are the Benefits of Using Demand Planning Software?
The ever-changing nature of markets, unpredictable demand patterns, rapidly evolving product cycles, and the constant presence of global political and economic uncertainties significantly influence the planning process. These factors have a pervasive effect on every aspect of the business, spanning from sourcing raw materials to delivering final products. To effectively navigate these challenges, companies need to transcend traditional tools like spreadsheets, ERP systems, or in-house software developed that are limited to individual departments, and adopt advanced capabilities to detect, interpret, and influence demand, fostering a more holistic and integrated approach.
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Advanced demand planning software provides planners with powerful algorithms and statistical models to generate highly accurate demand forecasts. By analyzing historical data, market trends, and other relevant factors, the software can provide more reliable predictions, enabling companies to make informed decisions and to quickly sense and respond to changes in demand.
Advanced capabilities in demand planning software open the door to many new opportunities, including:
- Gain greater value from data: This includes factoring in demand sensing signals, unlocking valuable insights into demand drivers, and synchronizing planning activities end-to-end.
- Automate forecasts: Applying Artificial Intelligence (AI) and Machine Learning (ML) to data delivers powerful capabilities, such as optimization and identification of root causes. It also allows planners to create granular forecasts taking into account new risk factors, and uses predictive and prescriptive analytics to help drive optimal results. Learn more: The Practical Role of AI/ML in Supply Chain.
- Shape demand: Including modeling operational and financial implications to maximize profits, reduce risk and boost customer service.
- Extend collaboration across the end-to-end supply chain: Advanced software capabilities allow companies to link planning activities to the extended supply chain network and collaborate more effectively to yield greater results from the demand planning process.
What is Demand Shaping?
Demand shaping is a component of demand planning that involves strategic efforts and techniques to influence and shape customer demand for specific products and services, and to increase or decrease sales based on specific objectives.
Within the planning process, demand shaping comes into play during the decision-making phase. After generating demand forecasts, companies analyze the forecasted demand patterns and identify opportunities to shape or influence that demand to maximize profits. Demand shaping initiatives are designed to drive customer demand in a desired direction – altering customer behavior, preferences, and purchase patterns to align with a company’s business objectives and capabilities.
Some actions aimed at influencing demand include marketing and sales initiatives, pricing strategies like discounts and promotions, product positioning, changes to distribution and so on.
Demand shaping requires a deep understanding of customer behavior, market dynamics, and industry trends. Using advanced forecasting and analytics techniques, demand planners can harness data to anticipate and understand customer demand patterns enabling proactive decision-making to actively shape demand and better manage resources, improve customer satisfaction, and drive growth.
What is Demand Sensing?
Demand sensing is a complementary component of demand planning focused on enhancing the accuracy of forecasts and the effectiveness of the demand planning process.
As an integral part of comprehensive supply chain planning, demand sensing provides companies with real-time or near real-time data on customer demand signals, allowing them to capture and to adjust and respond to dynamic changes in demand patterns. This involves the continuous monitoring of various factors, such as point-of-sale (POS) data, social media trends, market dynamics, and other external indicators, to capture and respond to changes in customer demand patterns more accurately and quickly.
Demand sensing complements traditional demand planning by providing more up-to-date and granular insights into customer demand.
How Does Demand Planning Software Help Accelerate Your Digital Supply Chain Transformation?
Your company's ability to sense, analyze, and shape demand must move beyond foundational tools such as spreadsheets and homegrown software, and embrace advanced technology to supercharge your demand planning practices, effectively navigate today’s challenges, and drive business growth.
Our Pathways to Evolve provides comprehensive guides to support your supply chain maturity and digital transformation journey, helping you find any gaps in your strategy and determine next steps, at the pace that best aligns to your needs.
Explore our Demand Planning Pathways to Evolve with insightful blogs, infographics, and inspiring eBooks to help set your organization on the right foot to transformational outcomes.