Guide to the 3 Elements of Supply Chain Demand Planning

The retail landscape regularly shifts as consumer demands fluctuate and seasons change. Business owners can keep pace with evolving customer attitudes by effectively conducting supply chain demand planning.

By forecasting and analyzing trends, companies can be prepared to meet anticipated demands and efficiently manage their inventory.

What is Demand Planning?

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Demand planning is the supply chain process of forecasting customer demands for a good or service so it can be manufactured or procured to the satisfaction of shoppers.

To accurately forecast demand, businesses will typically examine various factors that may affect customer preferences, such as weather patterns and global events.

This process helps companies determine the right inventory and most opportune level of stock they must maintain to meet demand. Having optimal amounts of inventory is beneficial to a brand's financial health because it prevents instances of shortages and stockouts, as well as unnecessary spending on surplus stock.

3 Fundamental Elements of Demand Planning

The supply chain demand planning process encompasses 3 key elements.

1. Trade Promotion Management

Trade promotions are marketing methods often employed by retailers to increase demand for products. Some of the most common tactics are offering discounts, having giveaways, and hosting contests.

Retail stores will establish trade promotion management to control their promotional activities and to gain a competitive advantage.

It also provides insight into the brand's profit margin and spending, enabling managers to determine if their marketing tactics are effective in increasing customer sales and revenue.

2. Product Portfolio Management

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This is the practice of managing every stage of a product's lifecycle, beginning when it is newly introduced into the market to when it is withdrawn from store shelves. The purpose of product portfolio management is to oversee all the goods a business sells and to have clarity into market opportunities.

Product portfolio managers will often plan how new products can fit into a company's current catalog and whether the introduction of new goods will affect the sales of other goods.

They will also forecast how consumers from different demographics may engage with a new item and at what price they would likely purchase it.

3. Statistical Forecasting

Statistical forecasting uses historical sales data and algorithms to predict demand. With demand planning, it is crucial to have data-supported forecasts because it helps business owners make smarter buying decisions to avoid overstocking and understocking.

This method also helps retailers with identifying seasonality and how to prepare for upcoming events. For example, holidays may cause an influx of shoppers to make purchases and new weather patterns will increase demand for specific clothing items.

With statistical forecasting, brands will have better insight into what product and how much of it they need to stock, as well as what price they should sell it at.

Best Practices of Demand Planning

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Successful demand forecasting depends on accurate information, comprehensive analysis, and the right tools. Businesses can improve their demand forecasting by using these best practices.

Use Inventory Management Software

The latest inventory management software can help businesses streamline their demand planning process. The cloud-based tool will often have a real-time reporting feature that allows business users to access data regarding their sales, spending, and popular inventory items at any time.

This helps management quickly identify any shifts in demand, as well as their overall trends in sales, which they can use to make informed decisions about their procurement and inventory replenishment.

Define Processes

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Having a well-defined demand planning process will help business owners organize their information and make accurate forecasts. It also helps them have more visibility into how their forecasts are made and can make it easier to hold teams accountable.

Typically, a company's demand planning system will include these steps.

  • Prepare all data related to sales, products, and customers
  • Conduct initial forecasts
  • Use market intelligence, which is data or information about the company's market, such as trends and its competitors
  • Consider sales goals and review financial reports to create forecasts.
  • Refine the final forecast
  • Monitor business performance

Monitor and Improve

Management teams should regularly assess their demand planning process to ensure the necessary steps are being taken to predict demand and that accurate forecasts are being made. If necessary, adjustments should be made promptly to optimize demand planning.

For example, if managers find that their data mining procedures are time-consuming, they can look into implementing inventory management solutions that streamline data collection.

Businesses should also consider hiring demand-planning specialists or curate a team of employees who are knowledgeable about analyzing data and making forecasts. These teams can dedicate their time and skills to developing an effective forecasting process, establishing execution plans, and monitoring it for any errors.

Demand planning enables businesses to protect their bottom line and be prepared with the right inventory in case of sudden changes in market trends.