How Demand Planning has been Effective in Supply Chain Management During the COVID-19 Pandemic
• Effect of the COVID-19 pandemic on major companies
• How improper supply chain affects sales
• Demand planning software for supply chain management
• Demand planning challenges
• Recommendations for effective demand planning
The COVID-19 pandemic has caused tremendous fluctuations in sales and has affected almost every industry. Manufacturers and retailers have faced problems balancing their supply chain due to lockdowns and travel restrictions in various parts of the world. Major companies like Volkswagen, General Motors, Fiat Chrysler, and Ford have suspended their production in many factories. Likewise, Zara, Nike, Prada, and Apple have shut down some of their retail stores due to lockdown restrictions in various cities. As a result, the demand for such products dropped significantly, resulting in revenue loss.
On the contrary, demand for some products such as sanitizers, face masks, liquid hand washes, and personal protective equipment (PPE) has increased drastically. It has been difficult for supply chains to keep up with consumer demand. Likewise, with the trending news of lockdowns in many areas, consumers have started to panic-buy essential products. As a result, goods such as canned food, noodles, chips, paper products, and pain killers were in high demand at the start of the pandemic.
Most businesses have experienced an imbalance in supply chain due to drastic changes in demand. Demand planning is the key needed to overcome all these challenges. Amidst the pandemic, companies are looking for a sophisticated way to plan for future sales in efforts of meeting demand. Utilizing demand forecasting and planning software to predict sales is one solution for effective supply chain management.
Many businesses have opted for demand planning systems over the past few years. According to Gartner’s survey, 45% of companies have already adapted demand forecasting tools, and 43% plan to use the latest technology forecasting tool in future years, i.e., AI-powered demand forecasting software.
What is demand planning software?
Demand planning is a process that uses historical sales data and relevant business information to generate short-term and long-term estimates of future demand. Demand planning software drives the demand planning process. Demand forecasting software also considers pricing discounts, marketing promotions, market intelligence, and other factors to generate accurate forecasts.
What is demand planning in supply chain?
Demand planning helps businesses make informed decisions and plan operations to meet consumer demand. It’s considered the starting point of the supply chain process that optimizes other procedures such as raw material planning and purchasing, manufacturing, inbound logistics, and revenue management.
Businesses have adapted to demand management software to avoid loss caused by the misalignment of supply and demand. Using forecasts, companies can make important decisions regarding purchasing raw materials, production planning, cash flow, risk assessment, and inventory planning. If the estimates are accurate, companies can prevent stock-outs and overstocks, improve production time, increase efficiency in planning and operations, and improve consumer experience.
Elements of demand planning
The demand planning process includes the following elements.
1. Data collection – data is collected by identifying consumer trends, seasonality, historical sales, and other factors that affect demand
2. Statistical analysis –trends and patterns are analyzed using inventory and sales data
3. Data modeling –data is analyzed and arranged to make sales projections
4. Collaboration with other teams –salespeople, manufacturers, suppliers, and other people involved in the supply chain collaborate in order to obtain information. The information includes events, promotions, marketing activities, etc.
Why is demand planning essential in supply chain management?
Following are the benefits of using demand planning software for your business
• Improves supplier relations
• Better allocates resources
• Improves distribution planning
• Prevents overstocks and stock-outs
• Optimizes inventory levels
Demand planning challenges (COVID-19 crisis)
• Traditional statistic models are incapable of forecasting new demand patterns
• Analyzing consumer behavior
• Evaluating external influences based on government measures, e.g., lockdowns and travel restrictions
• Projecting other essential factors such as availability of supply and raw materials
Recommendations for effective demand planning
• Change forecasting models
Many demand planning systems generate forecasts using statistical time-series models. These models consider only the previous data to make predictions. As a result, this method works well only if there's stable demand. It’s essential to turn off traditional forecasting methods and implement machine algorithms to generate accurate forecasts.
• Identify and build future demand models
Identify shifts in the market that influence future demand. Structural changes in the market include GDP developments, price surges, investment activities, and market shares. Likewise, set up predictive demand models that include disease and lockdown information. Analyze the parameters to build effective demand models.
• Understand demand patterns and supply chain fluctuations
Understand consumer behavior and the anticipated demand. Moreover, identify available capacity in the supply chain to fulfill consumer demand.
• Interact with consumers
Communicate with customers to become aware of their expectations about market improvements. Establish joint planning with key customers to avoid product shortages
• Modernize S&OP processes
Set up cross-functional teams and define their roles clearly. Maintain a team of data analysts and demand planners to make forecasts and optimize business processes. Conduct S&OP meetings to monitor supply chain operations.
Businesses need to be aware of the effects on demand that changes in the market have. If sales are planned based on guesses or inaccurate predictions, it might hinder overall business operations and profitability. This can be a major loss for the company. Thus, companies need to adapt to modern demand planning techniques in order to optimize their supply chains.
Optimizing your supply chain process during difficult times like the COVID-19 pandemic is essential. If you’re looking for demand planning solutions for your business, get in touch with the Avercast team today!