What is Demand Planning Software and Its Role in Supply Chain Management?
Market unpredictability can have a heavy impact on your business. A recent example is the COVID-19 pandemic. Due to the pandemic, businesses across the globe have experienced major fluctuation in their sales numbers. For a business to manage sales better, they’ll need to think ahead. One way to do this is by implementing demand planning software. This type of software helps by using all relevant factors, that could potentially influence the business, to predict your future sales.
Demand forecasting plays a significant role in supply chain management. It drives all decisions related to business operations. Demand planning tools assist businesses in making inventory decisions. It helps to ensure products are delivered to customers at the right time in the right place.
Demand planning and forecasting are much more than just estimating numbers.
Take a deep dive into what demand planning is and explore its key elements.
What is demand planning?
Demand planning is the process of predicting the demand for products in supply chain management. Demand planning aims to meet consumer requirements by having sufficient inventory levels and preventing excess stock. Parameters such as sales history, trends, upcoming events/holidays, economic shifts, and seasonality are analyzed to determine future sales.
With demand planning software, businesses can predict future sales accurately and plan their strategies ahead of time. Using insights from demand planning tools, companies follow upcoming trends and make strategic decisions regarding marketing, advertising, and sales well in advance.
Elements of demand planning
Following are the major elements you should consider in order to obtain accurate forecasts.
• Product history
Historical data requirement is the basic need for any forecasting method. By analyzing what and how much you sold in previous years, you can predict the sales for the upcoming years. Past data isn’t enough to get an accurate forecast. It is essential to select the correct period and relevant records to gain effective forecasts. If the past data does not correlate to the upcoming demand, you might get incorrect predictions. This could also happen if you don’t have enough historical data to generate a forecast, so having a sufficient amount of previous data is essential.
• Internal trends
Internal trends can be derived from historical data where sales patterns of different products can be observed. Sales patterns often include spikes and plateaus. You might consider optimizing your strategies in an effort to increase sales.
For instance, raincoat-manufacturing company may have less sales in the summer, but their sales boom during the winter season. Companies need to study seasonal sales patterns to plan more productively.
It is essential to select a suitable forecasting model depending on sales patterns. If you choose the wrong pattern, the accuracy of your predictions might be affected, resulting in an incorrect amount of inventory. Inaccurate predictions can lead to overstocks or stock-outs, and you could lose valuable customers.
• External trends
External trends, such as economic, legal, cultural, political, or technological changes, impact businesses more than internal trends. Due to these external factors, companies may fail to achieve their strategic and financial goals.
Demand planners need to consider these parameters when generating forecasts. They should identify the external conditions that might affect the product sales and prices.
• Events and promotions
Events and promotions have a substantial impact on product sales. Product promotions and advertising can increase your sales. That being said, it is a good idea to implement these tactics while generating forecasts. You can input all additional data and manually adjust the forecast using a streamlined process.
Aspects of demand planning
Following are the processes involved in demand planning
• Statistical forecasting
In statistical forecasting, advanced algorithms use historical data to generate supply chain forecasts. Keeping a record of historical data is essential if you want to create effective forecasts. These forecasts can prevent stock-outs and overstocks. Over time demand planners can determine which forecasting algorithms result in the most accurate estimates.
Using statistical forecasting, you can identify seasonal shifts and implement sales strategies accordingly. For instance, there is a significant demand for products in December for Christmas, so retailers should be prepared for this market shift. What if the upcoming winter isn’t as cold as anticipated? There won’t be significant coat sales. Demand planners need to consider multiple factors while making predictions. Numerous statistical simulations are to be run in demand planning software to identify the impact of discounts, advertisements and attach rates on sales.
• Product portfolio management
Product portfolio management is the process of determining the lifecycle of a product. It also involves understanding how newly launched products impact existing products and their sales. It is crucial to study product interconnection in order to increase market share.
When a company launches a new product, they need to understand how the new launch will influence global planning strategies, overall product cost, and estimated profits. Demand planners need to be aware of each product line that affects another product line in an effort to optimize the product mix required to increase productivity. Planners can conduct a real-time granular forecasting model to identify demand and pricing differences of new products in different geographical locations.
• Trade promotion management
Trade promotions are marketing activities that impact sales through discounts, promotions, and giveaways. The primary goal of trade promotions is to stand out from the crowd and connect brands to customers. It is mainly used in the retail industry.
Trade promotion planners identify how each promotional activity can affect sales. They then collaborate with marketers and other teams to adjust promotions and campaigns to maximize customer reach. They align the profit and loss data with promotional spending to gain insights into financial returns from trade promotions.
Importance of demand planning for effective supply chain management
• Allocation of resources
• Streamlined inventory
• Better supplier relations
• Customer satisfaction
• Generate sales strategies
Due to continuous market uncertainties, many industries are adjusting forecasting tools to survive sales fluctuations. If you own a business and are looking for a hi-tech tool to manage your future demand, contact Avercast today! Avercast has decades of experience in designing the best software for forecasting future demand.