Typically all organizations regardless of their niche, type and industry manage demand. Demand management also includes both governmental and nonprofit organizations.
For example, when a company releases a product advertisement, its goal is generating customer demand for its supply. It essentially tries to get clients to demand the service or product. This article will help you learn more about demand management.
Meaning Of Demand Management
Demand management is the process of predicting demand for your products or services. It helps the company to plan for its output and capacity in order to prevent gaps in its demand and supply.
The process of demand management begins by comprehensively analyzing the current requirements of the company. You also have to look at past customer behavior and historical sales records.
The research also entails product analysis, purchase orders, service specifications, business plans, and promotional activity. The other source of demand could be supply chain sources. It encompasses raw materials requirements for manufacturing goods. The others are components for product sourcing and repair and maintenance spare parts.
This implies that demand management helps in synthesizing a broad range of business activities. This ranges from supply chain management to sales forecasting to supplier relationship management. It helps in streamlining the various operations of the organization.
Key Components Of The Demand Management Process
Demand planning encompasses multiple activities, processes, and functions. Understanding these core components will help you know why it is important in any organization.
1. Create A Database For Demand Management
The initial step of demand management is to identify the available database and create a system to gather and store information in the database. The data set typically includes current estimates, current orders, previous demand forecasts, and the shipment history. To know the type of data to collect, you also need to understand the demand forecasting methods that you will use.
2. Gather Data From The Sales Department
Technically speaking, this is a component of the data gathering process. However, the nature of these sales data makes it a distinct element from most of the supply chain data.
3. Manipulating And Analyzing Data
Once a database is in place, the organization can start to manipulate and analyze the info in order to discover actionable intelligence. Examples of the analysis techniques include monitoring changes over particular time frames, drill-downs, comparisons, and filtering.
4. Develop Method For Creating Demand Forecasts
Simple demand forecasting may be geared towards point estimation. Accurate forecasting results from a collaborative effort between teams and managers from various departments. All members play a critical role in the implementation of forecast value addition that enhances the quality of demand estimates.
Demand management requires an ongoing evaluation and improvement system. The best way to work on this is demand management software that has automatic alerts and reporting.
Types Of Demand Forecasting
1. Passive Demand Forecasting
Stable organizations that have conservative growth rates use this type of demand forecasting. These estimates are simple and are based on historical data and have a few assumptions.
2. Active Demand Forecasting
This forecasting is appropriate for businesses that are looking to diversify and scale with aggressive growth strategies. It can be through sales and marketing activities, competitors analysis, product development, or supply chain development.
3. Short Term Forecasting
As the name suggests, this forecasting will predict management in the short term. This is a period that is normally less than twelve months. It focuses on the identification of seasonal demand patterns based on metrics like monthly inventory movement and sales volumes. It helps enterprises to make more tactical decisions in sourcing, manufacturing, and distribution of goods.
4. Long Term Demand Forecasting
Long-term forecasting aims at predicting demand over a long period that can run for up to 48 months for some businesses. It helps managers to make significant changes in their business plans, business processes, capital expenditure, and sales and marketing strategies.
5. Macro-Level External Demand Forecasting
This demand management forecasting focuses on the external market movements at macroeconomic levels. Demand managers normally have the strategic objective in their mind while evaluating the external demand factors. Examples are expansion to newer markets, the creation of a new product line, and targeting new client segments.
Internal Demand Forecasting
The forecasting looks at the internal operations of the organization. It includes its finances, manufacturing processes, product development, and sales division. The approach relies on the internal corporate data of the organization like net profit margin, cash flow, cost of goods sold estimates, and annual sales forecasts.
Methods Of Demand Management Forecasting
There is no single approach for forecasting demand that is seen to be the best. It typically depends on the situations and goals that the specific method requires. However, the main categories are quantitative and qualitative demand forecasting.
The main techniques under qualitative demand management forecasting include the Delphi method, market research, and sales force composite. Under quantitative demand management forecasting, you will get trend projection and econometric. It is crucial to read about each of these demand management methods in order to get a better understanding of the same.
4 Best Practices Of Demand Forecasting
Demand management & forecasting tends to be imperfect science. However, here are some of the practices that will enhance its level of accuracy.
1. Establishing An Iterative Process
A consistent and repeatable process that compares the actual market outcomes with the previous forecasts improves the level of accuracy of demand forecasting. You should typically repeat this process on a monthly basis. This helps in identifying deviations and also minimizing future errors.
2. Measuring The Correct Data Points
Measuring all things within the organization does more harm than good. That is why you should concentrate on measuring the most relevant data points to the business goal of your organization. These include competitor sale data, orders, shipments, stock out frequency, and point of sale data.
3. Leveraging Sales Data
Businesses that have multiple sales channels aggregate and gather data for every sales channel for each product within the inventory of a single data set. You should do this for all the SKUs. It will help in identifying the channels that have the highest ROI for each product and also the individual shipping requirements.
4. Gathering Real Time Data
The organization should invest in automated demand management forecasting solutions that offer real-time visibility of procurement data, raw materials, inventory, and sales visibility. This will help it to get accurate demand forecasts. The automated platforms will also help in forecasting demand on an annual, monthly, and weekly basis with minimal or no human intervention.
There is so much that you can learn from this ultimate guide to demand management. It helps you to make more accurate forecasting in your business processes. The marketing and sales teams of the organization interact with the clients most of the time. However, the demand management process consolidates these interactions and the other activities of the business. This helps the entity to leverage and understand important demand insights during the production process.