In an ideal world, you would always have resources available to produce and deliver inventory to every customer. But keeping a limitless supply of inventory on hand is expensive, and it wastes resources. In reality, you need to strike a fine balance between controlling costs and streamlining operations and meeting customer demand and expectations. Demand management is one way to balance these often conflicting priorities.
What is Demand Management?
Demand management is essentially a strategy to help you allocate your resources to meet customer demands while minimizing waste. It involves forecasting, planning, and managing customer demand so you can meet customer needs efficiently while remaining profitable.
For example, a pharmaceutical company manufacturing flu vaccinations expects an uptick in demand in September and October as medical professionals recommend them to patients. If you run this company, you can plan your manufacturing and distribution schedules around this demand spike to meet customer demand without carrying excess inventory.
Demand management is different from demand planning in supply chain management, demand generation, and capacity management:
- Demand Planning: Is a process for predicting how much inventory you thing customers will want based on data, trends, and forecasting.
- Demand Generation: Is a strategy to attract more customer interest in your products and involves sales and marketing.
- Capacity Management: Is the process of making sure you have the resources available to meet demand, including your manufacturing team, warehouse staff, logistics vendors, etc.
Although you have no control over your customers, you can use demand management to influence their behavior when your resources are stretched thin. For example, if you’re seeing an unexpected spike in demand and don’t have the inventory to meet these needs, you might limit customer purchases or raise prices to dissuade some people from buying.
The Goals of Demand Management
The overarching goal for a solid demand-side management strategy is to perfectly balance your available resources with customer demand. Otherwise, you may feel like you’re always struggling to keep up with customer orders. Forecasting and demand management can also help you meet these objectives:
- Improved Customer Satisfaction: Having products available for fast order fulfillment can improve customer satisfaction and inspire brand loyalty. You gain customer trust and become a reliable vendor.
- Optimized Inventory Management: Managing demand helps you maintain ideal inventory levels for fulfilling customer orders without paying to store or return excess product. You also reduce the risk of stockouts, which may drive customers to your competitors. Track inventory management KPIs to inform your demand management strategy.
- Enhanced Visibility: Because demand management hinges on data from multiple sources, you get better supply chain visibility, which helps you operate more efficiently.
- Increased Forecast Accuracy: Analyzing real-time data with forecasting methods such as predictive analysis makes your predictions more accurate.
- Increased Profitability: Demand management helps you cut operational costs by enhancing efficiency. It also reduces markdowns and other costs associated with mismanaged inventory.
- Greater Agility: Demand management helps you anticipate and plan for market changes and demand fluctuations.
The Demand Management Process
Now that you know why you need demand management, let’s focus on the how. Follow these steps to create a demand management strategy.
1. Modeling
Start your demand management strategy by assessing historical sales and other data, market trends, and customer behavior information to identify demand patterns. Analyze more data for better insights.
For example, assessing the past 12 months of historical data might show you seasonal patterns. Using data from the past 5 years will let you identify seasonal trends versus one-time demand anomalies.
Incorporate industry data into your modeling efforts. Understanding competitor performance, emerging trends, and industry signals will help you identify factors that might impact demand. For example, if a state governor starts offering tax incentives for electric cars, demand could rise unexpectedly.
2. Forecasting
Use different forecasting models, including statistical analysis and predictive analytics, to estimate future customer demand. With all the AI-powered demand planning and forecasting software on the market, you’re not stuck doing this manually through spreadsheets.
The importance of forecasting in supply chain management becomes clear when you’re using these insights to plan your operations.
3. Demand Planning
Demand planning in supply chain management influences every part of your operations, so make sure you’re using good data. With your models and demand forecasts in hand, start organizing your production and delivery resources around expected customer needs.
For example, you might run special sales and promotions to increase demand during expected times of low demand. You would likely increase manufacturing personnel and hours ahead of a high-demand period.
4. Supply Planning
Once you have your inventory on hand, you need to distribute it to meet customer needs. Coordinate with supply chain partners so you have the right resources available all year. Use your forecasts to tailor procurement strategies, production schedules, and inventory levels around expected demand.
Identify potential supply chain risks and disruptions at this stage and make contingency plans. For example, the pharmaceutical company manufacturing flu shots knows that peak demand often coincides with hurricane season. If you were the operations manager, you would want a Plan B in place in case a vendor were shut down by a hurricane.
5. Execution
This is the stage in which you implement your plans from ordering raw materials to filling orders. But the planning doesn’t stop here. As you implement your demand management strategy, use technology such as warehouse management systems and IoT powered tracking and management to collect real-time data.
Use forecast accuracy metrics to compare actual supply and demand to your estimates. This will help you see where you need to change your demand management process so you can improve your accuracy in the future.
Overcoming SCM Challenges With Surgere
The global shift in the business landscape is great for company owners and customers, but it has made supply chain management much more complex. Demand management in supply chain operations helps you tailor your resources to meet customer demand without stressing your operations.
Instead of trying to stretch your resources thin to meet demand spikes, you can plan ahead. Surgere’s powerful demand planning software offers 99.9% data accuracy on your inventory, sales, and supply-chain data. These powerful insights will give you more realistic models and forecasts to better manage demand throughout the year.
Contact us today to learn more.
