Businesses are constantly pulled between supply and demand. But this seemingly simple concept can be difficult to navigate effectively.
How do you meet demand and not overstock your inventory? That’s where a process called demand planning comes in. It’s a way to boost profits and keep overhead costs down.
What Is Demand Planning?
Demand planning is a cross-functional process that businesses use to meet customer demand while avoiding supply chain or inventory management disruptions. Demand planning is not a one-time process but rather is practiced continuously to respond to the market. This is accomplished by analyzing a company’s sales, customer trends, historical sales and seasonal data.
You must use both internal and external research to determine the demand forecast for your product. Demand can be impacted by labor force changes, economic shifts, severe weather, natural disasters, global crises and more. It’s not easy to estimate demand, but the more factors you consider, the more accurate your demand forecasting will be.
Once that is done, you can adjust sales and production planning to manufacture just the amount needed. Ideally, you’ll have sufficient inventory to meet your customer’s needs without a surplus. That’s beneficial for your business’ supply chain management and inventory management.
Project management software gives you the flexibility to adapt quickly to changes in supply and demand. ProjectManager is a cloud-based software that delivers real-time data to help you make more insightful demand management decisions. Our interactive Gantt chart project view allows you to filter data to get the information you need and then lets you easily adjust your schedule to meet fluctuations in supply and demand. Try ProjectManager free today.
Why Is Demand Planning Important?
Demand planning can increase the profitability of your company, boost customer satisfaction and build efficiency in your production planning, inventory management and supply chain operations. While striking a balance between supply and demand is not easy, the rewards are substantial.
On one hand we have inventory costs. Having to stock excess inventory is expensive, and that’s money you could use more effectively elsewhere in the business. There’s also warehouse costs, as well as the fact that there’s no guarantee the product will remain valuable. That’s a lot of loss to deal with.
The other side of the coin is poor production planning, which can leave you unable to respond to demand—all because you didn’t have adequate demand forecasting to analyze sales and customer needs. Now it’s going to cost you as you struggle to fill orders.
Either way, you lose money due to poor demand management. Taking the time to engage in demand planning can help you mitigate those risks.
Key Elements of Demand Planning
Demand planning is a complex procedure, but not impossible. Here are some of the elements that work together to help you balance demand with supply:
- Data Collection: Gather data from both internal and external sources, which puts demand in context.
- Statistical Forecasting: Look over your sales, inventory levels and other operational data to get a full picture of your capacity.
- Modeling: Feed your collected data into models such as algorithms and artificial intelligence that can predict the future demand for your product.
- Collaboration: Work with your suppliers, manufacturers, salesforce and other stakeholders in your supply chain to collect information that can impact demand.
These considerations let you make a demand forecast, which is an informed prediction of the demand you expect. That leads even further to the next step, which is creating a demand plan.
Demand Planning Process
The demand plan is an outline of the amount, type and location of inventory you need to meet your customer’s demand. All demand plans roughly follow these seven steps:
- Assemble Your Team: Put together a coordinated and effective cross-functional team with clearly defined roles and responsibilities.
- Define Internal Data: Find agreement on which sales data, inventory turnover, lead times, etc., are relevant for forecasting future demand.
- Add External Data: Use the information you gathered on recent performance, delivery timelines, purchasing habits, etc., to round out your plan.
- Make a Statistical Demand Forecast: Collaborate to decide what type of forecasting model fits your company and develop it.
- Review and Refine: Take your demand forecast to stakeholders and have them review and analyze the work, adding any new data to see if the predictions still hold. Then, refine your data as needed.
- Check Your Inventory: Determine the inventory levels you need to meet your demand forecast, including a bit extra as a buffer. Identify vendors who will help you meet this demand and ensure they can deliver on your timeline.
- Track Results: Use key performance indicators (KPIs) to measure the effectiveness of your demand plan. Make adjustments as needed.
Tools That Help With Your Demand Plan
The heart of your demand plan is the forecasting models you use. Here are some of the general demand forecasting models that can help you achieve greater accuracy when demand planning:
- Qualitative: This is a subjective approach using market research and opinions of industry experts. Favored when there is no hard or historical data available.
- Quantitative: Make these demand forecasts by looking at measurable, method-based, analytical historical data.
- Casual Methods: Here, you look at relationships between data, and try to understand what caused either an uptick or downturn in sales.
- Benchmarking: To benchmark, you use a standard measurement to compare metrics across industry and competitors.
- Contingency Planning: Do this to assess how sudden market changes or business disruptions might impact your demand planning.
- Scenarios: Create various scenarios that consider possible risk factors and their impact on your targets.
- Participatory Planning: Finally, take into account the people who will be affected by the demand planning.
Best Practices in Demand Planning
There are a few things you can do to make sure your demand plan is the best it can be. The first is to define the balance between your statistical modeling and collaborative forecasting. This creates accountability and leads to more continuous improvement in your company.
When you’re not forecasting, demand sensing and shaping can be helpful. You shape demand to change how demand occurs, and demand sensing involves you catching data further downstream to reduce information latency. Use these to increase your accuracy when determining the most profitable mix of what you’re selling balanced by demand.
Finally, an important practice is measuring your forecast at the product, location and customer level. This facilitates continuous improvement and boosts accountability. The best way to measure improvement over time is while reviewing sales and operation planning.
How ProjectManager Simplifies Demand Management
To make better decisions as you measure and act with demand planning, you need project management software. ProjectManager is a cloud-based software that gives you accurate insights, connects teams and lets you manage several projects at once.
Let Your Teams Work Their Way
For demand planning to work, you need to work with cross-functional teams across your company. Different departments prefer different tools, which is why ProjectManager has multiple project views. Managers tend to prefer our robust Gantt charts, but marketing and sales might want to use a task list or kanban board. Whatever view they use, the data is instantly updated and shared across the whole platform, keeping everyone on the same page.
Manage Multiple Projects with Ease
Measuring metrics can be difficult, and even more so if you’re trying to track several demand plans. ProjectManager has product portfolio management tools that let you scale with your production. Use our roadmap to get a full view of all the projects you’re managing. From this vantage point, you can see how resources can be shared across all your work, which helps achieve efficiency.
Track Improvements on Dashboards
Dashboards are a great way to get an instant status report. ProjectManager’s dashboard is fully functional from the get-go and collects real-time data. There’s also a portfolio dashboard that captures metrics across all your demand plans with live data. Use them to make better decisions and continuously add improvements to your demand planning.
ProjectManager is award-winning software that organizes your work and delivers efficiencies. With features to help you plan, monitor and report on your work, collecting key metrics, ProjectManager is the only software you’ll need to balance demand to supply and keep your production moving forward. Try ProjectManager today for free.