Table of Contents
What is Demand Planning?
Demand planning means to preparations for future demand that determine how much production is needed and how much financial capacity are required to satisfy customer demand. The objective of demand planning team is to incorporate all various demand and ensure company can meet it without incurring extra expenses.Demand planning requires up-to-date information about market dynamics, current trends and customer behavior, it relies heavily on marketing and past history sale data. The demand for product to ensure they can be delivered and satisfy customers. The objective is to balance between having sufficient inventory levels to meet customer needs without having a surplus.
Why do we need of Demand Planning?
The need for demand planning varies based on various factors, including sales data, upcoming events, festivals, occasions, and the latest fashion trends.1. Sale Data :- Companies can discover patterns and trends in customer demand by analyzing sales data or past historical data. This information helps to take decisions in production, inventory, and distribution.
2. Upcoming Events: Upcoming events like sports, tradeshow. Demand can be analyzed to ensure that they have the right products in stock to meet customer demand and avoid stockouts or overstocking.
3. Festivals and Occasions: In Occasions like marriage, birthday and holiday, demand can see increase in garments, ornaments, and gifts while festivals see an increase in demand for sweets.
4. Latest Fashion Trends: As trends can change rapidly, requiring companies to quickly adjust their production and inventory levels of apparel companies.
Benefits of Demand Planning
1. Customer Satisfaction: - accurate demand planning helps to satisfy customer demand by maintaining their inventory level, maintaining inventory level relies on accuracy of demand planning. If an organization fails to keep up inventory level which leads to dissatisfied customer.2. Profitable business- with the help of demand planning, company can maintain market leader by customer satisfaction. This can lead growth in company revenue.
3. Eliminate waste:- due to effective demand planning, company will be able to produce required product and can be eliminate unnecessary product in stock. This will reduce waste products and better operations.
4. Better Price: - Accurate demand planning specify quantity number, this will helps company to negotiate with vendor price as well as volume.
5. Organization Proactive:- Fashion changes so fast, market can shift and demand plan needs to move at the speed of changing market. Demand planners can make organization proactive so that it can avoid last minute changes in demand plan which lead to easily meet the customer satisfaction.
Demand Planning Method
There are two philosophies that have been applied to demand planning: push and pull.Companies took the approach that creating innovative products would create demand for them, so they created products, made them available to customers, and waited for sales to increase. In practice, the success of this strategy was unexpected. Sometimes supply exceeded demand and shelves were bare, meaning a company missed sales opportunities. Other times, inventory is left unsold on shelves or in warehouses, increasing costs and affecting cash flow. Companies rarely strike the right balance, even with markdowns and sales.
Today, most demand planning processes use a Pull philosophy. It starts with measuring customer demand and using that information to guide the rest of operational planning. The main challenge of the Pull approach is to generate accurate forecasts of customer demand. Incorrect forecasts result in the same problems as the Push method: missed revenue opportunities and high costs.
Elements of Demand Planning
The elements of demand planning processes are
1. Statistical Analysis of current inventory and past sale history data.2. Data collection of upcoming event, consumer buying behavior and festival data.
3. Collaboration with sales team and suppliers regarding collecting information on promotion and events.
4. Seasonal product has major impact on demand planning is to predict future stock level.
Incorporate in following demand planning strategy.
1. Replenishment Planning :- due to accuracy of demand planning will lead to inventory is to right product, right place, right quantity, right price and right time.2. Assortment Planning to addresses how many items to carry in a category, what type of items and in what sizes/flavors/packages, and how much space to give to each item.
3. Space Planning :- with the help of demand planning, Space can be reserved for most demanded product in the outlet for the particular month.
4. Trade Promotion Planning: - demand planning will guide us where need of promotion scheme in which location so that it can focus on generating in-store demand through discounts, giveaways, in-store promotions, and other similar techniques.
5. Product Planning : - demand planning will specify that which product has to improve or to maintain a high-level view of the entire portfolio and reveal where product lines are interconnected and interdependent.
6. Statistical Forecasting : - demand planning addresses is to review historical data for avoiding stock-outs or overstocks position and ensure customer satisfaction.
Read More:- Space Planning in Retail
Required Skill for Demand Planner.
Demand Planner required excellent analytical skill including statistical data analysis and modeling. Also demand planner has good communication skill to interact with various department of the organization for reporting and presentation purpose.Demand planners should be familiar with automation tools such as MS Excel, Data Visualization Tools (PowerBI Tableu), Demand Planning Software and Supply Chain Software in which can take benefit of software for improving demand planning.
Example of Demand Planning
An example of demand planning can be seen in the fashion industry. A clothing company would use demand planning to determine the quantity of clothing items to produce for manufacturing or purchase from suppliers, and stock in their warehouse to stores. The retailer would consider several factors when making these decisions, including:Sales data: The retailer would analyze their past sales data to determine the demand for different types of clothing items, such as t-shirts, pants, denim, and jackets. This data would help to take decisions on how many of each item to produce or purchase.
Upcoming events and occasions: The retailer would consider any upcoming events or occasions, such as holidays or seasonal changes, that may affect demand for certain types of clothing. For example, demand for winter coats may increase leading up to the winter months. Another example, demand for party wearing may increase for occasion of marriage or birthday.
Latest fashion trends: The retailer would also keep an eye on the latest fashion trends, as these can impact demand for certain clothing items. For example, if a particular style of pants is becoming popular, the retailer would want to ensure they have enough assortment of that style in stock to meet customer demand.
Competition: The retailer would also consider the actions of their competitors, as this can affect demand for certain types of clothing. For example, if a competitor is offering a discount on t-shirts, demand for t-shirts from the retailer may decrease as customers opt for the discounted items instead.
Based on this information, the retailer would use demand planning to make decisions about how many of each type of clothing item to produce or purchase, and how much to stock in their stores. By doing so, they aim to meet customer demand while avoiding overstocking and waste.
Role of Demand Planner
Under the responsibility of Supply Chain Manager, the objective of demand planner is to drive balance between customer demands and organization inventory level. In other words, we can say to maximize the company revenue with minimum incurring extra expenses.
The following are various department of organization team which has to maintain relationship to predict demand forecasting drivers.
1. Finance Team :- To collect Annual Operating Plan number (AOP) of Organization which has to drive in Financial year to achieve organization targets.
2. Marketing Team :- To analysis current market trend and understand future promotion scheme / offers and geographically event program. So that can be added in demand planning.
3. Sourcing & Merchandising Team :- Communicate required material for the particular period in terms of OTB (Open to Buy) OTBIF.
4. MIS team :- To collect all information regarding historical data, seasonality, market trend, budget numbers.
5. Supply / Dispatch team :- Communicate material inventory strategies (Fast & Slow moving product, new arrival & substitutes material.)
6. Warehouse Team :- To share material arrival plan for reserving space at warehouse.
7. After collecting all information and analyze quantity and finance forecast. Tune forecast driver and inventory plan according to demand and market trend. Refine the final forecast.
8. Monitoring of performance based on real time analysis.
Takeaway
Demand planning is a crucial aspect of supply chain management that helps companies ensure they have the right products available in the right quantities at the right time to meet customer demand. It involves forecasting demand based on various factors, such as sales data, upcoming events, latest fashion trends, and competitor activities. By implementing an effective demand planning strategy, companies can reduce waste, improve efficiency, and better meet customer demand.Read More
FAQ
The demand planning process involves several steps, including data gathering, data analysis, forecasting, consensus building, and monitoring and adjusting plans. This process aims to estimate future demand for products or services, develop strategies to meet that demand, and ensure that plans are aligned with overall business goals.
The elements of demand planning include data gathering and analysis, forecasting, consensus building, scenario planning, and performance monitoring. These elements are used to develop an accurate estimate of future demand for products or services, create a plan to meet that demand, and continually track and adjust performance to achieve business goals.
An example of demand planning is using historical sales data and market trends to forecast future demand for a product or service. This can involve analyzing past sales performance, competitor activity, and consumer behavior to determine the appropriate inventory levels, pricing strategies, and marketing campaigns to meet customer demand and maximize sales opportunities.
Demand planning methods include statistical forecasting, collaborative planning, and market-driven planning. Statistical forecasting uses historical sales data and mathematical algorithms to predict future demand. Collaborative planning involves input from various stakeholders to develop a consensus forecast. Market-driven planning uses market insights to drive demand planning decisions.
Demand planning is the process of estimating future demand for products or services and developing plans to meet that demand, while forecasting is the act of predicting future demand based on historical data or market trends. Demand planning goes beyond forecasting by incorporating input from various stakeholders, developing strategies to meet demand, and tracking performance against planned goals.
