Demand Planning: What It Is and Why It's Important
Learn about demand planning and its importance in supply chain management. Optimize inventory, reduce costs, and meet customer demands.
Keep up with changing demand and easily scale delivery with Circuit for Teams.
Imagine you run a clothing store, and you're planning on stocking up on festive scarves for the upcoming holiday season.
You want to make sure you have enough inventory to meet customer demands. But you also want to avoid overstocking and wasting valuable resources.
This is where demand planning can help.
Demand planning is the process of forecasting consumer demand for a particular product or service.
By analyzing trends, data, and market metrics, your business can estimate the inventory it will need to meet customer demand. It can also identify the timing and location of that demand.
In this article, we'll dive deeper into what demand planning is and why it's important. We'll explore the best practices used by demand planners, as well as real-world examples of demand planning strategies.
Let’s get started!
- Demand planning is the process of predicting future customer demand. It involves using this data to make informed decisions about production and inventory levels.
- Effective demand planning can help your business improve profitability. It also helps maintain optimal inventory levels and enhance supply chain efficiency.
- Best practices for demand planning include investing in technology and automation. Businesses should also establish cross-functional teams and use advanced analytics and AI.
- Successful demand planning implementation can be seen in real-world examples. These include Walmart and the Company Bakery.
What is demand planning?
Demand planning is like using a crystal ball to predict what customers will want in the future. Businesses can look at factors like market conditions to estimate how much of a product or service they'll need on hand.
This is important because it helps businesses avoid running out of stock (which makes customers unhappy). It also prevents having too much inventory (which wastes resources).
In logistics and supply chains, demand planning is important for figuring out the best way to get products to customers. You can use it to determine optimal inventory levels, transportation routes, and more.
Consider the example of a trucking company. They would use the forecasting model to determine the exact number of vehicles needed to transport goods between two locations.
The company would analyze factors like customer demand, delivery schedules, and road conditions. This will allow them to estimate how much cargo needs to be transported and how often.
This information helps the company optimize its routes, fix pricing, and improve efficiency.
The importance of demand planning
Demand planning is crucial for your business to succeed in today's competitive market.
Here are some of the key reasons to help you understand why demand planning is important:
Forecasting customer demand can help your business produce and stock the right products at the right time.
This helps your company avoid the costs associated with overproduction. It also helps prevent stockouts, which can significantly impact your bottom line.
Demand planning also plays a crucial role in enhancing customer satisfaction and loyalty, which in turn directly impacts the profitability of your business.
By accurately forecasting customer demand, you can make sure that the right products are available when and where customers need them.
This reduces the likelihood of customers seeking alternative options due to unavailability or long lead times, thereby minimizing the risk of losing potential sales.
Satisfied customers are more likely to become repeat customers and recommend your business to others, driving revenue growth and increasing profitability.
By aligning your production, inventory, and distribution processes with customer demand through effective demand planning, you can create a positive customer experience that fosters loyalty and contributes to long-term financial success.
Optimal inventory levels
Demand planning allows you to forecast customer demand and maintain optimal inventory levels.
Analyzing sales data and market trends helps businesses determine the right amount of inventory to maintain.
Maintaining correct inventory levels is vital for several reasons.
First, it helps reduce waste by minimizing the amount of unsold or expired inventory.
Second, it improves cash flow by decreasing the amount of capital tied up in excess inventory.
Finally, it increases efficiency by helping you divide resources better, avoiding production delays.
You can use Circuit for Teams to minimize failed deliveries, which might directly affect your inventory levels since they won’t need to be returned to your warehouse. This can help you keep inventory levels in check and, ultimately, earn more money.
Enhanced supply chain efficiency
Effective demand planning can significantly impact supply chain efficiency.
Aligning production plans with customer demand lets your business reduce lead times, improve on-time delivery, and enhance customer satisfaction.
All of these factors contribute to a more efficient and effective supply chain.
Imagine you're running a business that sells trendy new gadgets online, and you've been getting a lot of buzz lately. Your customers can't wait to get their hands on your latest product, and you're determined to deliver it to them as quickly as possible.
However, you're worried that unexpected supply chain disruptions could derail your plans.
Maybe your supplier runs out of a critical component, or a major storm shuts down a shipping port. Any of these problems could delay your product launch, frustrate your customers, and hurt your business.
That's where demand planning comes in. By accurately forecasting customer demand and anticipating potential supply chain disruptions, you can take proactive steps to mitigate risks and keep your business on track.
You can make sure you have enough inventory in hand, identify alternative sources of supply, and adjust your production and delivery schedules as needed.
Best practices in demand planning
Businesses should follow certain best practices to maximize demand planning benefits.
Let’s take a closer look at some of these:
Invest in technology and automation
Demand planning can be a complex process that involves analyzing large amounts of data and making accurate forecasts.
Investing in technology can help your business streamline the process and improve efficiency. One way to do this is by investing in demand planning software.
You can use demand planning software to gather and analyze sales data and market trends.
This can generate accurate demand forecasts, considering factors like the product life cycle.
Your company can also use technology to improve collaboration across departments and stakeholders.
Demand planning software can enable teams to share and collaborate on plans in real time. It also reduces miscommunication and errors.
Moreover, technology and automation tools can help your business identify potential supply chain disruptions. It allows you to take proactive steps to address such issues.
Suppose a supplier experiences a delay in delivery. Demand planning software can help businesses identify the impact on their inventory levels. It allows them to adjust their production planning accordingly.
And if you run a company where the lead time from supply to delivery is short, a delay in supply will affect your customers.
If your business needs to make a schedule change or update for a shipment, it's important to make sure that all stakeholders are aware of the change. This can be challenging, especially if you have a large team or if you're working with multiple partners.
One easy way to keep everyone informed and updated is by using Circuit for Teams. Our tool allows customers to track the entire shipment journey and provides real-time updates on any changes or delays.
Establish cross-functional teams
Demand planning needs collaboration across departments, including sales, marketing, and logistics.
Establishing cross-functional teams keeps all stakeholders involved in the planning process. It allows people to make decisions with a holistic view of the business.
Sales and marketing teams can give valuable insights into customer behavior and preferences.
Involving them in the demand planning process helps your business improve the accuracy of its demand forecasts.
Similarly, involving logistics teams in the supply planning process can help your business identify potential bottlenecks and optimize the supply chain.
Utilize advanced analytics and artificial intelligence
Demand planning involves analyzing large amounts of internal and external data. This data can help forecast customer demand and plan production schedules.
Advanced analytics and artificial intelligence can help you process this data more accurately.
Leveraging these powerful tools helps your business improve several demand planning processes. These range from forecasting customer demand to optimizing operations planning.
Studying customer behavior patterns and trends helps you better determine demand. This lets you adjust your production plans, leading to fewer wasted raw materials and resources.
But it's not just about predicting demand. Advanced analytics and statistical forecasting can also help your business optimize supply chain management.
These technologies give real-time insights into inventory levels. They also give information about production and procurement capacity and supply chain constraints.
This allows you to make decisions that streamline inventory management and reduce costs.
Continuously monitor and adjust plans
Demand planning is not a one-time event but an ongoing process.
Customer needs and behaviors are constantly changing, and you must adapt to stay ahead of the competition.
That's why tracking and adjusting your demand and supply chain planning is crucial.
Continuous monitoring also helps your business identify emerging trends and adjust its plans.
Suppose there is an unexpected surge in demand for a particular product.
Your business can tweak its production plans to meet the demand and capitalize on the opportunity.
Monitoring and adjusting plans means you can stay ahead of the curve and optimize your operations.
This will help meet customer demand in a rapidly changing market.
Are you ready to be inspired by real-life examples of how demand planning helps businesses achieve their goals?
In this section, we'll dive into two case studies that show the benefits of demand planning.
Walmart is one of the world's largest retailers, with over 10,500 stores across the globe.
In recent years, the company has invested heavily in demand planning and analytics to improve its supply chain efficiency.
Walmart uses artificial intelligence to predict when people will buy certain products.
They also identify what they will buy and whether they will pick up the merchandise or have it delivered.
According to John Furner, president and CEO of Walmart’s US operations, adding the collected data has helped the company adjust to customers’ increased eCommerce usage.
The company also uses AI and machine learning techniques to predict which products to use as substitutes when items are out of stock.
The lesson from Walmart's demand planning is the importance of investing in technology, which helps the company make accurate predictions about evolving customer preferences and product availability.
Let’s now look at an example of a much smaller business. Company Bakery is a successful sourdough bread wholesale supplier in Edinburgh. Before the COVID-19 pandemic, it only catered to restaurants, cafes, and bars.
But the pandemic challenged its entire business model. Public eateries closed down, and sales plummeted.
That’s when the owner, Ben, looked for demand from a new source: at-home customers.
He started working out how to offer a direct-to-consumer option to sell his bread to social-distancing customers.
He also wanted to reach out to those wanting bread delivered to their homes.
The biggest challenge he faced was handling multiple deliveries to diverse addresses.
Company Bakery went from being a B2B bread wholesaler to managing roughly 4,000 monthly deliveries. This meant an average of 142 daily stops.
Ben turned to Circuit for Teams to help manage route planning and never looked back.
He found the software “intuitive and easier to use,” saying it allowed him to start making deliveries immediately.
Ben simply downloaded the customer data from Shopify, made any changes as necessary to the customer addresses in the Excel file, and imported that file into Circuit for Teams.
If he needed to share extra information with the driver, he added it to the notes section attached to each stop.
The biggest takeaway from this case study is that demand planning is an ongoing process.
You must continue to optimize business operations to meet new kinds of market demand.
You can also take advantage of technology to respond to natural disasters or global pandemics.
Final thoughts on demand planning
And that’s a wrap on our journey through the world of demand planning!
By now, you should understand the importance of demand management and planning in achieving success.
To create an effective demand planning strategy, businesses should consider investing in technology.
They should also establish cross-functional teams and leverage advanced algorithms and artificial intelligence.
Your company must track and adjust its sales forecasting plans to remain aligned with customer demand.
The future of demand planning will likely involve the use of advanced technologies. Tools like machine learning and demand sensing will become popular, further improving efficiency.
At Circuit for Teams, we understand the importance of demand planning.
Our route planning and optimization software can assist businesses of all sizes. We can help you streamline operations and keep up with demand fluctuations.
Whether you're a small business looking to scale or a large enterprise looking to improve efficiency, Circuit for Teams can help.
Sign up for a free trial to stay ahead of the competition.