What is Supply Chain Demand Planning?
Every business with a physical product needs to balance producing, storing and shipping their materials. Without a plan, it's too easy to over- or under-produce products – which can lead to lost revenue and damages to customer relationships.
Demand planning helps businesses walk the fine line between meeting customer needs and staying lean. Here we explore supply chain demand planning and how it works.
Breakdown of demand planning
Demand planning is an exercise combining internal and external information to build a model offering businesses an understanding of how many materials to produce, where they'll be needed and when. The idea is to generate a reliable target so the business can plan its supply chain logistics.
Importance of demand planning
Material sourcing, manufacturing schedules, inventory management, replenishment and customer retention are all guesswork without a forecast. This could lead to:
- Under-producing inventory, leading to dissatisfied customers
- Over-producing inventory resulting in unnecessary manufacturing costs and potentially wasted product
- Over-spending on warehousing space and labor for unused materials
- Supply sourcing issues from partners
A successful demand forecast results in leaner business practices and supply chain operations without sacrificing customer satisfaction.
Input and variables
By incorporating as many inputs and variables into a demand plan as possible, businesses achieve a clearer picture of what's to come. This includes:
- Internal input may include manufacturing, product lifecycles (e.g., if a new product will disrupt demand of older products), labor and storage resources.
- Customer input will tell you who is buying your goods, how much they're purchasing and where the materials are going.
- Supplier input covers material availability and potential interruptions to supply.
- Other factors include seasonal fluctuations (e.g., holidays or peak seasons), weather patterns, product promotions and marketing, the economy, market conditions and more.
Taking all the data into consideration, a business will determine which products it needs to produce, when they need to manufacture items, how many need to be produced, where materials need to go (be it to customers or storage) and how to get them there. It's important to note that forecasts can become outdated depending on the variables. Markets, customers and circumstances change, and forecasts from demand planning should shift too.
Crunching the data
Businesses use historical customer data to learn about material movement and resource requirements. But looking behind isn't always enough to predict what's ahead. For example, market, economy and weather conditions can change radically in a year.
Demand planning can be done manually after gathering and processing as much data as the business can collect. Or, a business can use artificial intelligence (AI) designed for crunching these numbers and variables. This is often a good way to analyze external factors like weather patterns. When investing in a sophisticated predictive tool such as AI, businesses may also gain the benefit of real-time updates to their forecast – keeping their supply chain in lock step as circumstances change.
Demand planning and shipping
Shipping invoices offer a lot of useful information for demand planning. Your purchasing trends, shipment locations and other details provide valuable data points to help with forecasting. A third-party logistics (3PL) partner like Worldwide Express has dedicated resources and teams to help shippers identify customer trends based on shipment activity. For businesses without dedicated resources to perform demand planning, a partner can greatly reduce the strain it puts on an organization to gather and process data into meaningful insights.