The Importance of Demand Planning
14 November 2017
Demand planning is a supply chain management process that is all about predicting what’s coming. It’s a way of viewing the future not as an unknown, but instead getting the inside scoop on what is likely, probably, realistic, and not. It’s about trying to get accuracy out of hunches and guesstimates. In the modern supply chain, where margins are tighter than ever, it’s essential to get right. Get it right and you’re quids in. Get it wrong and the repercussions can be enormous and costly. At its heart it is all about enhancing profitability. Like the very best boy scout, it’s all about preparedness.
Overcoming the Problem
However, supply chains, by the very nature, often fall foul of being reactionary rather than proactive. Demand planning requires the latter. Yet it often doesn’t come naturally to us, particularly if we haven’t experienced a catastrophe first hand when it’s gone wrong. This problem is compounded because those of us who have experienced the catastrophes and failings are building in contingencies based on the past when supply chains have seismically changed in how they operate.
These contingencies that once made sense, and are founded on real fears, aren’t the same contingencies we need now, today. Instead, in an effort to plan we often find ourselves creating new barriers and obstacles that slow things down, create room for error, and create wastage – all of which affect the overall profitability. Often it’s about stockpiling additional inventory on the ‘what if’ unknowns of the future. This made sense based on the events of the past, and indeed no doubt helped the business out of a hole one or two times for good measure.
Then we add in another layer of compounding further up the chain. Here fears rise over discontinued parts or unavailability of raw materials. All these are problems that feed in to a larger catastrophe building. Responsiveness needed these contingencies building in at every step in the chain. It applies to inventory, cash flow, and every element of the business – stash it away to be prepared.
This approach has worked, it’s saved skins, it may even have saved the business – but it’s not fit for purpose today. Instead, these very approaches which worked in the past can be actively working against what we need in terms of demand planning in the here and now.
Modern Demand Planning
Whilst it’s true that these approaches are now hampering our success, and specifically our profit margins, it’s not a case of casting out demand planning full stop. This would be akin to throwing out the baby with the bathwater. You need demand planning more than ever, but you need a different approach.
Somehow you need to blend this comprehensive risk management approach - which has served so well in the past - with the insight and systems we have available to us now. This means utilising forecasting and demand technology to seamlessly feed in to a just-in-time approach. The two might appear to vie for attention, but in fact it makes sense to combine them.
There are multiple ways in which you can do this depending on the nature of your position and role within the supply chain. But before any demand planning approach can be implemented what you need to harness is insight: insight into what’s going on, what you’re capable of, and what your customer is up to – now and in the future. There’s no excuse for not having this insight nowadays. There’s technology and software available which allows you to drill down in to the microcosm of demand and discover and predict its driving factors.
From here, instead of stockpiling inventory which is at risk of becoming obsolete, costs money in storage space, and is prone to damage or wastage; you begin a process of careful collaboration with suppliers and vendors to ensure your contingency is there – just not on your turf. The key is to give yourself more options without limiting supply. Using the data you have available to you, you can plan what’s coming and how you can meet demand without squirreling away a hoard of nuts which will have gone off by the time you need them, if at all.
Given that every element of manufacturing is now capable of turning on a pin, this shouldn’t realistically be a problem. Responsiveness is, or should be, a given with the partners you collaborate with.
This approach does mean that we’re heading more towards supply chain operation being based more on actual demand, rather than forecasting, but it doesn’t mean we’re shunning forecasting altogether.
Demand Planning for the Future
If we are to base our demand planning on actual demand rather than forecasts, or at least to use our forecasts to back up our strategy rather than drive it, how do we do this?
The only way this type of demand-driven demand planning is possible is by making it a perpetual circle process. It should be a continuous feedback loop whereby production (and inventory) is based on actual demand. This will feed through from customer orders through to production, the flow of materials, and ultimately all the differing cogs of the supply chain. It’s not a destination but rather a continual process and flow of goods/services and information.
Rather than leaving you unprepared this actually gives you a competitive edge in the modern marketplace. You’ll always be striving towards increased profitability and maximisation of your margins. You learn and adapt rather than stagnating with the systems of old which don’t serve you so well any more.
At its heart we’re seeing some key trends therefore emerge. These include: the use of cloud technology for collaboration and sharing of key information; artificial intelligence (AI) to create smart learning and adaptations concerning demand; digitalisation throughout the chain; increased visibility across the entire chain; real-time action and processes; measurements and smart data; and technology solutions.
Demand planning may not resemble the task it once did, but it’s no less important. Argenta in partnership with Paul Trudgian are supply chain specialists. We understand the strategic approach to supply chain management, and we believe in its importance.
See how we are involved in supply chain process improvement and if you want to discuss your supply chain, get in touch
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