Demand Management: A Beginner's Guide

As a business owner, you know the significance of monitoring customer demand.

After all, this demand shows you the optimal inventory level for your shelves and warehouses.

Yet, the unpredictability of customer demand complicates this tracking process.

Yesterday, customers might have wanted cheap and easy services, but today they might prefer eco-friendly options.

With global economic and cultural changes, people's tastes keep shifting.

That's why accurately guessing and handling what customers want is crucial.

Demand management aids companies like yours in accurately forecasting demand. It also helps to align your supply more effectively with anticipated demand.

We'll clarify what demand management entails and guide you on enhancing it.

Understanding Demand Management

Demand management is a method businesses use to predict how much they'll need to sell certain products or services and figure out how to meet that need.

The aim is to improve the experience for both customers and businesses by identifying any gaps in demand and addressing them.

Demand management involves a variety of business tasks. They range from marketing and supply chain management to inventory planning and customer service.

For instance, a manufacturing company might use demand management as it helps to figure out how much raw material it will need in the upcoming quarter.

You may need to make minor adjustments to adapt to fluctuations in demand.

Here's an example to illustrate.

Imagine you operate a gifting delivery service, and your supplier notifies you they can't provide many Mother's Day cards this year.

That poses a significant issue since Mother's Day weekend is approaching, and you now have reduced inventory.

Yet, you can address this challenge by making minor adjustments across various tasks:

• Inventory planning. Hold back on displaying many Mother's Day cards for now and save them for the busy Mother's Day weekend.
• Marketing. Launch advertisements and distribute flyers encouraging customers to consider gifting flowers this Mother's Day. This can help boost demand for a product you currently have in stock.
• Supply chain management. Reach out to alternative suppliers for both gift cards and flowers. These are expected to be your top-selling items this weekend.

The impact of good demand management

Effective demand management tactics can lead to cost savings, decreased workloads, enhanced customer experiences, and streamlined workflows.

Here's how it works:

• Cost-effectiveness. Purchasing excess inventory leads to unnecessary expenses. Additionally, unsold items may deteriorate or become damaged, resulting in financial losses.
• Storage optimization. In retail, space equates to money. Storing excessive goods incurs higher warehouse costs while underutilizing storage space wastes resources.
• Enhanced customer satisfaction. Meeting customer demands promptly fosters loyalty and attracts new clientele. That bolsters the brand's reputation and profitability.
• Improved supply chain efficiency. Anticipating demand enables proactive order placement and timely stock replenishment. It prevents last-minute rushes and ensures smoother operations.

Navigating the Demand Management Process

Demand management is about making the most of current stock and ensuring timely buying or selling. It also involves using marketing to change how customers buy things.

If you have too much of something, persuade customers to buy more of it. If you have too little of something, offer discounts on other products to boost their sales.

Here's what the demand management process involves:

1. Predicting

Predicting involves looking at past information to guess what future demand might be.

This is done using the predictive analysis technique.

It aims to assist companies in creating effective business plans and utilizing resources wisely.

There are three key stages in forecasting:

1. Setting goals. For instance, let's say you want to figure out how much demand to expect for your products during the holiday season. Forecasting can help answer important questions, such as which products customers are most likely to buy.
2. Gathering data. This involves collecting information from various sources. Those sources might be customer preferences, current market trends, past sales records, and seasonal changes. Relying on the most accurate data available can result in precise forecasts.
3. Analyzing data. This step involves examining raw data to identify patterns, address inquiries, and conclude. It gives managers a range of potential scenarios to base their inventory orders and marketing strategies on. For example, if the data indicates a surge in sneaker popularity, your shoe store could create a special display just for sneakers. It might also want to decrease the space allocated for dress shoes.

2. Planning for Demand

Demand planning involves organizing production, marketing, distribution, and sales strategies according to anticipated demand.

The primary goal of supply planning is to align supply with predicted demand, ensuring a timely balance.

This is essential for companies to generate revenue at opportune moments.

Within the realm of a manufacturing company, let's explore the various components of the demand planning process.

• Sales and Operations Planning. This component focuses on aligning supply with market demand. It often involves many departments, such as procurement, manufacturing, marketing, and sales. They collaborate to devise a production plan based on demand forecasts. This plan considers factors like resource limitations and workforce availability.
• Material Planning. This involves assessing available raw materials and components, identifying required ones, and strategizing to get them. Material planning is crucial in supply chain management as it impacts sales, distribution, and production.
• Production Planning. This phase delves into the specifics of the manufacturing process. It includes the types and quantities of products to produce and the use of machinery and facilities. It plays a pivotal role in supply planning and order fulfillment.

3. Analyzing Demand

Companies use demand analysis as a research method to understand customer demand for particular goods or services.

It usually happens before introducing a new product or entering a new market.  The demand analysis gives business managers insights into the feasibility of entering a target market and achieving anticipated profits.

For example, imagine a European power tool company considering expansion into North America.

They might use demand analysis to identify the regions with the strongest demand.

Additionally, they'll assess if their products suit the new market and if competitors offer superior alternatives.

They'll use this analysis to decide how to best use their resources, plan production, set prices, and advertise effectively.

The demand analysis process consists of four main components:

1. Assessing customer satisfaction. It involves determining how happy customers are with a product or service and identifying areas for enhancement.
2. Developing a pricing approach. That has to do with understanding customer preferences and demand patterns. This understanding helps to adjust product or service prices accordingly.
3. Predicting sales. It is about estimating future sales and adjusting resource allocation to maximize revenue.
4. Establishing production guidelines. It means recognizing discrepancies between demand and supply, revising procurement strategies, and ensuring a consistent supply of raw materials.

Varieties of Demand Prediction

There are various methods for conducting demand forecasting, and the forecast may vary based on the method used.

So, employing many forecasting techniques is advisable to achieve a more precise and comprehensive prediction of future sales.

Here are four common types of demand forecasting:

• Short-term demand forecasting. This predicts demand in the next three to 12 months using real-time sales data. It helps plan inventory and adjust projections for specific events like Black Friday sales.
• Long-term demand forecasting. This shapes your business growth model for the future, based on sales data, market research, and business goals. It helps plan revenue and profit margins for the coming years.
• Macro-level external demand forecasting. It’s crucial to consider external market forces when creating sales projections. Market trends, such as exchange rate variability or new technology, can impact your goals. A macro-level external demand projection aids in reaching your goals while factoring in these elements.
• Micro-level forecasting. This predicts future demand by analyzing a specific industry or customer behavior segment. For example, if your company sells down jackets, you might adjust inventory levels during particularly cold weather.

Enhancing Your Demand Management Process

Effective demand management plays a pivotal role in your supply chain operations.

For instance, decisions informed by demand management can influence the quantity of raw materials your supplier needs to get for you.

Moreover, a robust demand forecast for the upcoming months can dictate product quantities.

Hence, ensuring accuracy and involving input from various stakeholders across the supply chain are critical aspects of your demand management systems.

This involves engaging service providers, the sales team, the marketing team, and your delivery team.

Now, let's delve into some methods to enhance your demand management process.

Use new sources of data for forecasting

Broadening your data sources can enhance demand estimation and provide a competitive edge.

While historical data is vital, supplementing it with fresh sources is essential.

Unique challenges and solutions exist at every supply chain stage, and incorporating this critical data can optimize forecasting.

Common primary data for demand management comprises:

• Sales records
• Order specifics
• Competitor insights
• Shipment details
• Procurement records
• Supplier information
• Distribution network data

New data sources may encompass contextual information. Examples of such contextual data include:

• Occurrences like special events or holidays, impacting market conditions.
• Seasonal shifts in market behavior, influenced by weather changes, festivities, and sports events.
• Cyclical events such as political occurrences and elections, affecting market dynamics.
• Competitor product details and ongoing business strategies.
• Data lacking established history, like market shifts due to the COVID-19 pandemic.

Leveraging new data sources can enhance forecasting accuracy.

Allow stakeholders to review forecasts

Demand management isn't always precise.

Hence, involving key stakeholders in reviewing demand management forecasts is crucial.

This fosters internal confidence in the forecasts.

Collaborating with various stakeholders across the supply chain aids in refining forecasts.

For instance, the sales team may lack access to data available to the manufacturer, which can influence forecasts.

Enabling stakeholders to review and enhance forecasts can enhance the accuracy of your demand management process.

Suggestions, objections, and extra input can further refine forecasting accuracy and cut errors.

During the review process, ensure that the demand forecast aligns with both short-term and long-term goals, as well as strategic objectives.

Verify Supply Against Projected Forecasts

Forecasts produced by demand management teams are equally vital for the supply side.

Demand forecasts also help to arrange buffer stocks and avoid stock outages by expeditiously placing purchase orders.

Use this data to select suppliers and schedule deliveries to align with customers' schedules.

Additionally, demand forecasts aid in preventing stock shortages and organizing buffer stocks by placing procurement orders promptly.

This approach ensures optimal inventory levels, avoiding both excess and insufficient stock.

Get Precise Performance Data for Demand Analysis

Performance data assesses the performance of specific products, indicating how they fare in the market.

This information facilitates crucial adjustments to product features or functionalities.

Data can help in reshaping your sales or marketing approach. It will help to boost sales and enhance customer satisfaction and loyalty throughout a product's lifecycle.

For instance, a product manager overseeing the development of a specific product can use performance data to diagnose the reasons for its underperformance.

This enables them to put in place design alterations or adjust sales strategies to ensure the product appeals to customers.

Precise performance metrics enable you to assess the effectiveness of decisions guided by demand forecasts.

Performance analytics further allow you to adapt strategies in real-time, if desired outcomes are not achieved.

Looking to manage product deliveries yourself? eLogii can help

Having reliable data on your future demand helps in planning business expansion. It also minimizes the risk of backorders and subpar customer service.

Given the ever-changing consumer landscape, precise forecasts are essential for informed decision-making in your business.

Alongside production, transportation plays a big role in demand management.

How will you handle delivering your products to customers? How can you manage a surge in delivery demand effectively?

Thankfully, eLogii can enhance your delivery and business operations.

Our routing software enables you to generate and assign routes for many drivers efficiently.

Additionally, it optimizes delivery routes for the shortest distances between stops.

This minimizes drivers' time on the road, enabling them to complete more deliveries daily.

eLogii also facilitates proof of delivery collection and automatic delivery notifications to customers.