Demand Planning – A Vital Step of Supply Chain Planning

1. Demand Planning – A Vital Step of Supply Chain Planning Demand planning is a process of predicting or forecasting the demand for a product to make sure that the product is delivered to customers when ordered. The basic objective of demand planning is to have sufficient inventory to meet customer needs without having a surplus or insufficient stock. Demand planning forecast the demand for a product or service to ensure that it is efficiently delivered to the satisfaction of customers. Demand planning is a complex process that starts with the preparation of a statistical forecast of the amount of inventory that is required. It is done with the help of a planning team comprising members of the sales and marketing departments as well as operational departments such as finance, production, and procurement. Key Steps of Demand Planning Demand planning is a complex task comprising of multi-step process and can get more complicated with the growing size and scope of the company. The major steps for successful demand planning include: Define roles and responsibilities of every member of the team - Companies should make sure that every member of the demand planning team has defined roles and responsibilities. For Instance, purchasing and supply chain group representatives should ensure that the company acquires sufficient inventory at the right time to meet the demand forecast made by the finance team.

2. Define relevant internal data - The employees of different teams involved in demand planning should have a consensus on data that should be included to develop an accurate forecast. The relevant data should include sales data, out-of-stock rates, inventory turnover, production times, lead times, obsolete inventory, and other key inventory metrics. A company should also check about the timing of price changes, marketing campaigns, and promotions from their sales team that could affect demand. A company can also collect information about new launches and competitive offerings from the product team that may affect the accuracy of the forecast. External Data - For effective demand planning external data like a delivery timeline of suppliers and distributors and recent performance, or recent purchasing habit of key customers is vital. Other external data includes overall economic conditions that may affect sales and lead to changes in the market for a specific product. Select a forecasting model - The Company should collectively select the forecasting model that will prove ideal for their business and then should start working on it. It can be a company-wide forecast or the company can create a forecast by product line, or for specific customers or regions. Challenge the demand forecast -Company should review and analyze the demand forecast with all stakeholders and include the recent data to check whether it has a substantial impact on predictions. Any incorrect information should be questioned and unlikely outliers should be removed that may distort the overall forecast. It is the right time for the company to check that its demand forecast aligns with its financial forecasts.

3. Check their process and inventory - The Company should determine the right amount of inventory required to fulfill the predicted demand and should also include a buffer of safety stock. The company then should pick the right vendors to meet the predicted demand and check with them to ensure that they will deliver the products on their required timeline. The company should also check with transportation vendors to make sure that they will efficiently handle the volume and meet their schedule for transporting goods between locations. Measure effectiveness of demand planning - At last company should identify key performance indicators that allow them to measure the effectiveness of their demand planning and set targets. They should track sales forecast, accuracy, fill rates, inventory, order fulfillment lead time, and cost of goods sold and they should review performance against these targets.