FAQs (Frequently Asked Questions) On Demand Planning
Following are some of the frequently asked questions (FAQs) on Demand Planning that we have encountered in our speeches, workshops, seminars, and other forums. Feel free to ask more questions if your particular question is not answered below.
Why we are qualified to write this list of FAQs on Demand Planning?
VERY FEW PEOPLE KNOW SUPPLY CHAINS LIKE WE DO - retail, beverages, food, milk, dairy, meat, livestock, explosives, chemicals, cotton, rice, graphite, solar power, natural gas, crude oil, fertilizers, electronics, packaging, glass manufacturing, machine parts, automobiles, industrial goods, mining, etc are just some of the industries where boards and executives have benefited from our proprietary knowledge of the supply chains.
Click on our project methodology above to see how Demand Planning is an integral step in each and every project that we have undertaken in the last three decades.
Since when no one had heard of supply chain, our co-founder Vivek Sood has been considered one of the most authoritative professionals in the field when it comes to the subject of supply chain analytics in Australia, Asia, North America, South America and Europe.
He has written four seminal books about restructuring supply chains to gain massive advantage in business. He also regularly delivers keynote speeches at business schools and conferences such as University of Technology Sydney, Supply Chain Asia, Asian Bankers Forum, APEC Business Advisory Council.
He has been quoted in the authoritative business press and over 100 academic papers written by supply chain researchers around the world. Vivek and his team have examined thousands of supply chains during their projects over the last three decades and helped hundreds of executives build safe, cost effective and sustainable supply chains and careers.
FAQs (Frequently Asked Questions)on Demand Planning
Three terms - demand management, demand planning and demand forecasting - are frequently used interchangeably; are they the same, or is there a Noteworthy difference Among them?
Even though they are frequently used interchangeably, there is a considerable amount of difference among them.
Demand Forecasting is a subset of demand planning, which is a subset of demand management.
Starting from the narrowest set of activities, demand forecasting is exactly as the name implies. It encompasses a set of activities and processes used to forecast the demand for a company's product at a future point in time. We will cover what is forecasted in this activity, why and how in the rest of these FAQs.
Demand planning broadens the scope of demand related activities to consider the supply situation and plan for meeting a certain amount of demand for each product at each service location.
Of course in many companies demand planning only happens at an aggregate level, and in many others the demand related activities never go beyond the rudimentary demand forecasting. But, that merely reflects the sophistication of their supply chain processes, or their deliberate business strategy.
Demand management broadens the scope even more to include PLOC - planning, leading, organising and control of demand in the company. The most significant distinction is that now you are also attempting to shape the demand - ramp it up, or down, using every lever at your disposal - in response to shifting supply situation so that waste is minimised and profits are optimised. Clearly you will have to work closely with the sales and marketing teams in order to achieve success.
What is the purpose of the demand forecasting, planning or management?
The intention of purpose is more or less the same - whether you are forecasting demand, planning demand or managing demand, and whether you do it on an aggregate level or at a more granular level - by product family, by channel, by brands, by location, or by products.
You want to create a good enough understanding of future demand so that you can fulfil that demand to the best of your ability while maximising your profits in the short term and the long term.
All markets are subject to their vagaries, volatility and uncertainty, and and as a result all demand is always uncertain till the purchase is made.
At the same time, to create a production plan and manufacture goods as per that plan, or to create a purchase plan, and buy goods as per that plan, you need a minimum level of certainty.
Confidence is, after all, basis for all action. Your demand forecast, or demand plan, is the source of that confidence for action in Production and Procurement.
Every demand forecast and plan needs to flex rhythmically with the changing markets.
What is demand shaping, and what are the levers used for demand shaping?
Demand shaping is a the activity of shifting demand or ramping the demand up, or down in response to the supply situation.
Even though the situations where you will have to engage in demand shaping are relatively rare, because supply shaping is a lot easier lever to pull, it is worthwhile understanding demand shaping.
When would you engage in Demand Shaping?
Mostly, the rare occasions when you meet intractable supply, and/or when the gap between the demand and supply cannot be bridged by supply shaping alone.
Why would you do Demand Shaping?
Imagine there is supply disruption due to a blockage in Suez canal or some similar disaster. Suddenly there is shortage of products. How would you go about making sure that the customers are not breaking down the gates of your factory in search of the products they need. Naturally, you will have to find ways of ramping down the demand.
Also, there are other times when you have to ramp up the demand due sudden and intractable supply glut - such as a bumper crop of arrival of a ship or a new source of supply.
Ramping up and down of demand is not the only activity in demand shaping. You might also conduct operations to move the demand forward or backwards in time, or shift it from one place to another depending on where the supply is situated and whether you can shift the supply or not.
What are the Levers for demand Shaping?
Obviously price is most important lever for demand shaping. Only when properly used does it reveal the true price elasticity of demand.
But Price is not the only lever for shaping demand. Other levers can be as subtle as changing the taste and preferences of the customers via public relations and communications, or as crude as rationing and quotas put in place by the firms or authorities. In between these two extreme positions there are infinite number of such levers including opening new channels, and, the exact lever used will depend on the situation and key participants in the market.
Needless to say that you will need to work very close with the sales and marketing teams in order to strategise and execute demand shaping operations.
What are the benefits of Better demand Management or planning?
Alongside supply management, it is one of the two foundation pillars of supply chain management. Improved demand management provides countless benefits, almost all of them tantamount to the benefits of good supply chain management, including:
- Better demand management encourages corporations to be proactive. It helps avoid last-minute, costly surprises.
- Lower costs of inventory: Excess stock is costly and cumbersome to get rid of easily.
- Reduction in stock-outs and missed sales: when you lose a sale, you might also lose a customer for life.
- Reduced waste: All the eight wastes of supply chain management - of material, time, talent, transportation, inventory, effort, machine, quality - are rooted in poor planning and management. Almost all of them can be reduced somewhat by better demand management.
- Better customer service - happier customers: No matter what industry you are in, if you are better in demand management than your competitors, your customers are going to love you.
- Reduction in expedited shipping: Better planning allows you to order material and product in good time minimising expediting costs.
- Improved negotiations with the customers and suppliers: All customers and suppliers love companies that plan their operations well enough to avoid nasty surprises and confusion.
What are the various steps in demand management, planning or forecasting?
Every business is different, and every business tries to adapt and create a demand administration approach to suit its needs. Frequently they get close to an acceptable demand management process that 'satisfices' its needs. (For distinction between 'satisficing', optimising, and maximising, and the importance of optimisation for supply chain management read our blogs on these topics).
Almost every demand handling process includes some form of forecasting. It is not always necessarily a statistical forecasting process. In many companies, it is as simple as asking the opinion of sales reps and recording it as demand forecasts. In other companies, a history of 36 months sales figures is statistically analysed using a set of algorithms to derive a demand forecast based on secular trends, seasonality and historical base rates. There are several different kind of statistical algorithms used for demand forecasting.
Statistical forecasts may be further tempered with market intelligence derived from the personal knowledge of the sales staff or marketing gurus running the advertising campaigns.
In some companies that is extent of demand management. Get a usable sales forecast and feed it into the budgets and S&OP.
In other companies, demand forecasts are matched against the supply forecasts and demand is planned to smooth out the overall supply chain across time and locations.
In its most sophisticated form, demand shaping might enter the picture - either regularly, or in exception circumstances - to optimise the performance of the overall supply chain. That is when the company is carrying out practically all the steps of a demand management process. Not every company needs to do this all the time.
What are various algorithms for demand forecasting, and what roles does Artificial Intelligence and Machine Language plays in these algorithms?
Qualitative demand forecasting might entail formal techniques such as Delphi Technique or informal polling of internal and external experts, but quantitative demand forecasting is always based in advanced statistical techniques.
Almost all the techniques are variations of time series and regression analyses, some with added twists to accommodate peculiarities of a particular situation.
None of these algorithms is universal in nature so you will have to find the right algorithm to suit your historical demand pattern and anticipated demand profile. Even then do not anticipate demand forecasts to be perfect, or accurate.
In fact the most important part of the statistical forecasting process is the forecast error calculated by the algorithm, which can be used to methodically calculate the safety stock appropriate for the demand profile.
The role of AI and ML in demand forecasting is better discussed in the FAQs (Frequently Asked Questions) On Use Of Artificial Intelligence (AI) In Supply Chain Management.
What are the various tools and IT systems available for demand forecasting, demand planning and demand management?
Demand planning tools have been available since mid 1980's and many of the rudimentary demand forecasting algorithms have been also incorporated in the more common ERP systems to forestall move towards decision support systems (DSS).
There are more than a dozen excellent demand management systems in the market place and at moment we do not favour any one of them over rest of their competitors. Each of them has its own strengths and issues, which we are closely familiar with.
In addition, there are dozens of rudimentary forecasting systems being sold in the marketplace to companies who do not care to spend enormous sums of money on more esoteric DSS.
Are the expensive Decision Support Systems for demand management worth the money? What is the best way of finding the most suitable DSS for demand planning?
Only you can decide whether Demand Management DSS are worth your money in the case of your company. I have to also declare that I am biased about this question because in 1998-99, when I left Booz Allen and Hamilton, I spent nearly an entire year working for and "selling" a demand management system to large corporations.
I learned a lot about the supply chain systems, their users and competitors and the entire eco-system. But, most of all I interacted with hundreds of potential buyers and their companies where I observed them at close quarters.
I will answer your question with a simple observation that if these systems were not worth the big dollars you pay for them, they would have gone out of business by now. It is up to you to find the right system for your company, pay the right price, deploy it optimally, and get the best benefit out of it. If you do not internal capability to do this, then it is always worthwhile to get external experts to help you.
The best way of finding the most suitable DSS for demand planning is to conduct a rigorous fact based selection process. We outline this process in our book Outsourcing 3.0. You can explore the website of this book to find out more about our perspective on this issue.
What are the basic and advanced skills that today's demand planners require?
Akin to the rest of the SCM, Demand planning is undergoing radical change with an emphasis on digital technologies. Deep learning systems - AI and ML - have started to make inroads into demand management heuristics.
The IoT based control systems using deep learning and automation technologies with use of big data, blockchain, robotics, and 3D printing will soon become the norm in smart supply chains of the future.
Demand planning of the future will be 24/7 always-ready, dynamic, and responsively pro-active - a bit like automatic noise cancellation in high end headphones.
On one hand, all this change will reduce the need for human intervention and decision making in day-to-day demand management. On the other hand, it will require more advanced skills in selecting, deploying and trouble shooting just the right demand management system.
Does that mean that regular Business-As-Usual jobs in demand management will become simpler, while High Level Business Transformation jobs in demand management will become more complex?
Like the rest of the supply chain, with coming automation there will be need for fewer people in supply chain planning and control. Many of these out-of-work business-as-usual (BAU) supply chain personnel will try to transition into business transformation experts - some with success.
The bar for a successful business transformation expert in demand management, as well as rest of the SCM, will keep getting higher. And, ability to discern a good expert from an out-of-work BAU expert will become more difficult.
Read our blogs on the difference between BAU and BT personnel for more information.
What is meant by Product Portfolio Management, or Product Master Data Management? Is it part of demand management?
A company might have thousands of SKUs - stock keeping units, or products. From time to time new products are introduced, old products are retired and some products are superseded. while each product (or product family) might have its own product manager, but overall the entire portfolio of products needs to be keep current and accurate.
In some companies this activity is part of demand management, while in others it might reside with sales, or inventory management, or even customer service or an independent unit.
Our firm view is that, while it does not matter where it resides, the responsible party must be clearly made accountable for this activity because the state product master data in many companies leaves a lot to be desired.
What is meant by Trade Promotion Management? Is it part of the market intelligence? What else forms port of market intelligence?
Statistical forecasts need to be tempered with specialist knowledge of the market participants and people pulling the demand shaping levers in real time.
Trade promotion or marketing events will influence demand, by design and by chance. But that is not the only lever of demand shaping. Every marketing level Price, Product, Placement, Process, etc. will shape the demand.
And, market intelligence includes information on factors beyond demand shaping activity - e.g. competitor activity, weather and other act of God, industry trends, cultural and political events that affect the demand.
Is demand fulfilment part of demand management?
Demand fulfillment is generally a separate activity from demand management and falls within the realms of fulfilment management or replenishment planning or some similar activity.
What is the role of Real-Time Monitoring in the selection of Software For demand planning?
Today's supply chain system is a complex engine of web of technology, processes and workforce. And at its apex point, a never-ending flow of data acts as the fuel.
In this situation, the real-time monitoring plays a key role by providing usability for the most recent data. It gives accurate insight into things like quality and performance while revealing crisis areas. This visibility helps take the business to its next level of evolution.
What is the role of collaboration and knowledge sharing networks in demand Management?
Collaboration is so important for demand management, and overall supply chain management, that there is entire CPFR (Collaborative Planning Forecasting and Replenishment) methodology based on collaboration between the silos within a company, and collaboration between various players in a single supply chain. There are many sources of more information on CPFR so I will not elaborate on its benefits and methodology.
However, it is not necessary to use any set methodology in order to collaborate and make your forecasts and supply chain more reliable. Our book The 5-STAR Business Network is based on the expanding role of collaboration in supply chain management, and the benefits companies derive from such collaboration.
Knowledge Sharing Networks:
Knowledge-sharing is one of the activities that form part of collaboration across the supply chains. Organised networks are the outcomes of integrations across BI, advanced supply chain analytics, tracking-tracing applications with quality management. The intention is to create platforms that facilitate supply chain connectivity and knowledge sharing.
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Notes on FAQs
Clearly, any such list of frequently asked questions (FAQs) about supply chain can never be fully exhaustive. Neither is anyone, including us, the final authority and arbitrator on this or any other topic.
You will have your own opinions on many of these topics, and will have many other questions.
We throw open the comments section to you for your opinions and questions. We will try to address all of these, and the best ones will attract a reward in the form of one of our books, or publications.