Top Trends in Demand Planning

Demand Sensing

Demand Sensing is a forecasting method that leverages new mathematical techniques and near real-time information to create an accurate forecast of demand, based on the current realities of the supply chain rather than past sales.

Evolving customer behavior and rising market volatility have underscored the opportunity to sense and react in near real-time to changes to changes in the demand supply network. 

Demand Sensing enables to incorporate downstream data with minimal latency to understand what is being sold, who is buying the product, and the impact of demand‐shaping programs. 

These three demand elements are then translated into requirements to craft a profitable demand response through internal processes for demand translation.

Why use Demand Sensing?

Better forecasts translate directly into better business decisions, which can affect many Key Performance Indicators (KPI) closely monitored by management:

Supply Chain KPI's:

Perfect Order: Improve customer service by producing the right product mix matched to actual demand

Production Efficiency: Stabilize production schedules and avoid emergency changeovers to meet unexpected surges in demand

Logistics: Reduce transportation costs by avoiding transshipment and expensive emergency shipments; and reduce warehouse costs with lower inventory levels

Financial KPI's:

Revenue and Profit Margins: react to upswings in demand to capture additional revenue and increase profit margins by avoiding costly supply chain inefficiencies due to demand uncertainty

Cash-to-Cash Cycle Time: Free up cash flow and achieve higher return on invested capital by reducing inventory levels

Rising popularity of bottom-up forecasting

Today, the retail industry operates over multiple channels, which demands inventory positioning in numerous locations. As a result, retailers must focus on bottom-up forecasting to meet the demand through various channels.

Using such approach helps them fulfill orders from both e-commerce and traditional retail channels for a wide array of assortments. It enables the retailers to meet customer demand more quickly and deliver goods through the customers’ choice of channel. When the need arises, such approach can also allow retailers to balance inventory between stores and distribution centers through high-frequency inter-depot transfers.

By forecasting at a store level, both stock position and future customer demand can be used to determine replenishment requirements. Having future visibility of demand and replenishment requirements by week or day is essential for maximizing sales potential and avoiding lost sales, especially for promotional or seasonal lines where sales from one week to the next can vary dramatically.

By planning demand at a store level, there is no need to forecast at distribution centers, nor estimate purchase order requirements. Distribution Replenishment Planning (DRP) can be used to roll up store level replenishment requirements to the DC or warehouse level, thereby removing assumptions and aligning stocking, replenishment and purchasing through an integrated planning methodology.

To summaries, a bottom up retail demand planning strategy creates opportunities to: 

• employ true DRP
• optimize service levels and costs
• adapt operational plans to different future scenarios
• manage seasonal, erratic and promotional demand patterns, and
• provide more flexibility in managing to each stores’ own sales patterns.

Fresh view towards long-tail items

Most the slow-moving or long-tailed items sell because they are in the inventory. Ensuring service levels is the key to mastering demand forecasting for slow-moving items.

Unlike forecasting a single demand number, forecasting the long tail is modeling the probabilities of future demand – by analyzing a wide variety of demand inputs, flows and parameters, not as a single number aggregated forecast, but instead identifying the probability of a range of possible outcomes at a very granular level.

Probabilistic Forecasting (also called stochastic) can deliver superior results for slow movers versus what traditional algorithmic techniques can achieve.

Probabilistic forecasting understands there is inherent uncertainty in future demand, whether the SKU is a fast or slow mover. Variability is part of the calculation, and the granularity of the baseline demand is as detailed as possible—by individual sales order line, daily by item and ship-to location. 

It focuses on underlying demand patterns and causes, and by identifying the range of possible outcomes, planning manager can leverage stock policies and inventory optimization to deliver service and mitigate risk.

Other effective planning methods

Advanced Planning and Scheduling (APS)

Advanced planning and scheduling software (APS) offers various benefits and capabilities such as capacity planning, “what-if” scenarios, and demand planning, quickly optimize production and reduce cost within your supply chain.

Having an Advanced Planning and Scheduling implemented alongside an ERP also helps in:         

    

A.     Fast ROI and Increased Long Term Profits – Often, Advanced Planning and Scheduling software is relatively low cost in comparison to how quickly users are likely to see a result. It Improves the delivery performance and helps in inventory and cost reduction.

B.     Increased Visibility – Having the ability to color code, set alerts and dialog boxes as well as see the information on multiple screens will increase the users’ knowledge of the manufacturing environment and requirements. The planning tools can also repair the schedule depending on the start and finish time of set tasks without a new one having to be generated.

C.      Make your Manufacturing Leaner – Lean manufacturing is about reducing waste in your manufacturing process, wherever this may be. It could be wasted materials, excess materials in storage or it could be wasted time or unnecessary processes that slow down the manufacturing process and do not add value to your supply chain. Using APS software helps to reduce waste throughout the whole company – from materials to time.