Demand Planning is the process of using forecasts to help highlight opportunities and threats; to tell us ahead of time what we expect sales of a product to be; and which markets or channels of distribution are likely to expand or contract. Demand Plans also help in establishing goals and providing alerts about products and markets that require close monitoring.
What Is Demand Planning and How Does It Work?
Demand Planning is the process and techniques used to create a Demand Plan. If the Demand Plan is the output, this is the process that uses various inputs, principles, methods, and models to generate it. In addition, sophisticated Demand Planning teams will include not only what may happen, but also what we can make happen as well. Planning demand for a product or service should look at the complete picture of demand and what can happen, what we want to happen, and what can we do to make it happen. Demand Planning may include:
- Demand Sensing: This is sensing demand signals, and then predicting demand. Demand signals include who is buying the product or service and how sales and marketing activities are influencing demand.
- Demand Translation: Translating demand from the market to each role within the organization.
- Demand Shaping: This is manipulating the demand of a product to achieve a desired goal. If the demand of a product is expected to be greater than supply, the manufacturer/customer may shape the demand by increasing its price and/or by cutting down the promotion.
- Demand Orchestration: This is determining the best solution or outcome among various choices, given the known parameters. It is actually the process of creating demand and influencing behavior but also concerns making trade-offs to improve forecasts, reduce costs, minimize risks, and increase sales and profit.
Demand Planners Are Storytellers Who Use Numbers As Their Language
“The great enemy of clear language is insincerity. When there is a gap between one’s real and one’s declared aims, one turns, as it were, instinctively to long words and exhausted idioms, like a cuttlefish squirting out ink.” - George Orwell.
In an organization it is important to describe what we create, how we create it, who creates it, and what we can do with it to help provide us with a competitive advantage. We don’t use words, but rather numbers when telling our story, and any findings must be presented clearly so as to be understood easily by the company. This is the job of a Demand Planner.
What Is A Demand Plan?
A Demand Plan is a projection of the future that combines the knowledge of the past with the best assessment of future need for a product or service. The Demand Plan, or sales forecast, details the anticipated sales (demand) a company will experience, regardless of actual ability to meet demand (hence it is often called the unconstrained forecast). Best practice is to build a Demand Plan through a structured Forecasting Process to develop a Consensus Forecast. This will include a Baseline-Demand Forecast along with other inputs and variables to a Demand Plan that is jointly agreed upon by different functions of the organization. When embarking on this process, all stakeholders should understand the fundamentals of a Demand Plan, and understand its value and limitations:
- Demand Plans are rarely precise.
- Demand Plans can be accurate and should include probability and/or an estimate of error.
- Demand Plans are more precise and accurate for families or product groups of items.
- Demand Plans are more precise and accurate for shorter periods of time.
Problems companies face vary according to industry and country, but the priorities are the same - balance supply and demand; lower inventory and stock-outs; reduce shrinkages and obsolescence; and improve customer service. Accurate and timely forecasts and Demand Plans are critical to all these. Demand Planning and forecasting have an exciting future and create amazing opportunities inside any organization. They can help provide synergies to many other functions and is uniquely qualified to help a company paint a fuller picture of what is to come.
How Demand Planning Helps Other Functions
As a specialized business function, a centralized Demand Planning and forecasting process helps manage assumptions from multiple inputs such as financial plans, market plans, sales plans, and industry information more effectively. A trained Demand Planning team has the ability and position to challenge other functions’ assumptions and apply statistical proofs. They have a better understanding of data, different levels of hierarchy forecasts, forecast error, and the drivers and statistics that will help minimize bias. Ultimately, a strong Demand Planning and forecasting team has the ability for everyone in the organization to plan better, more efficiently, and keep pace with the business of tomorrow.