Demand planning is a critical function in supply chain management that ensures a company can meet customer demand while minimizing excess inventory and operational inefficiencies. The process involves several key steps, each of which contributes to generating an accurate and actionable forecast. Here’s a breakdown of the five essential steps in the demand planning process.
- Review KPIs and Adjust Future Assumptions
The first step in demand planning is to review your key performance indicators (KPIs) and adjust future assumptions accordingly. KPIs such as forecast accuracy, inventory levels, service levels, and sales performance provide valuable insights into how well your demand planning process is functioning.
- Analyze Historical Performance: Evaluate past forecast accuracy and identify areas where the forecasts deviated from actual demand. Understanding these discrepancies helps refine future forecasting models.
- Adjust Assumptions: Based on the insights gained from your KPIs, adjust your assumptions for future demand. This might include changes in market conditions, new product launches, promotions, or shifts in customer behavior.
- Gather Data, Review, and Cleanse Sales Data
Accurate demand planning relies heavily on high-quality data. The next step involves gathering relevant data and ensuring its accuracy.
- Data Collection: Collect data from various sources, including historical sales data, market trends, customer orders, and any relevant external factors.
- Data Review: Scrutinize the data for any inconsistencies, outliers, or missing information. Inaccurate or incomplete data can lead to faulty forecasts.
- Data Cleansing: Cleanse the data by correcting errors, removing outliers that do not reflect typical demand, and filling in any gaps. This process ensures that the data you use in your forecasts is reliable and reflective of actual market conditions.
- Run Statistical Forecast & Generate Unconstrained Base Forecast
Once your data is clean and ready, the next step is to run a statistical forecast to generate an unconstrained base forecast.
- Statistical Forecasting: Utilize statistical models such as moving averages, exponential smoothing, or regression analysis to predict future demand based on historical data. These models help to identify patterns and trends that inform your base forecast.
- Unconstrained Base Forecast: Generate an unconstrained forecast that represents the expected demand without considering any limitations or constraints. This forecast serves as the foundation for further adjustments and collaboration.
- Collaborate with Customers, Sales Team, and Marketing
Demand planning is not just a numbers game—it’s also about collaboration. Engaging with key stakeholders helps refine the base forecast and ensures that it aligns with market realities.
- Customer Collaboration: Engage with key customers to gain insights into their future needs and expectations. This can include direct communication, surveys, or analyzing their order patterns.
- Sales Team Input: The sales team often has the most direct contact with customers and can provide valuable insights into upcoming deals, promotions, or changes in customer demand.
- Marketing Collaboration: Work with the marketing team to incorporate any planned promotions, campaigns, or new product launches into the forecast. Marketing activities can significantly influence demand and should be factored into the final forecast.
- Generate Consensus Forecast
The final step in the demand planning process is to generate a consensus forecast that incorporates inputs from all stakeholders.
- Align Stakeholder Inputs: Bring together the unconstrained base forecast and the insights gained from collaboration with customers, sales, and marketing teams. This ensures that the forecast reflects a comprehensive view of expected demand.
- Consensus Building: Facilitate discussions among stakeholders to agree on the final forecast. This consensus forecast should be realistic, achievable, and aligned with the company’s overall strategy.
- Continuous Review: Demand planning is an ongoing process. Regularly review the consensus forecast against actual demand, and adjust as necessary to improve accuracy over time.
Conclusion
Effective demand planning is essential for maintaining a balance between meeting customer demand and optimizing inventory levels. By following this five-step process – reviewing KPIs, cleansing data, running statistical forecasts, collaborating with stakeholders, and generating a consensus forecast – companies can create more accurate demand forecasts and improve their overall supply chain efficiency. Regular review and refinement of the process will ensure that your demand planning remains responsive to changing market conditions and business needs.
