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When does it make sense to deploy a demand signal repository?

A demand signal repository can aggregate sales data to help business users make better short-term demand planning decisions. But is a DSR right for your needs?

For decades, manufacturers -- especially in the consumer products industry -- had to rely on forecasting as the...

best method to predict demand. They could not gather enough reliable data at the right time to create build plans that accurately reflected demand.

But that picture is starting to change thanks to several technologies. The demand signal repository (DSR) is one of the concepts that can change that picture.

A DSR collects sales data and cleans it up so that business users can access and query the data for inventory insights. A DSR works on the short- or near-term window of demand and is not designed for annual product forecasts or revenue planning. The repository should be used to address the window within (or close to) lead time, working from the freshest information available.

Though manufacturers in the consumer products industry mostly rely on POS and/or current orders (either replenishment or new orders) for DSR data, they are also exploring ways to sift through Web and mobile data based on shopper interest as a potential indicator of future purchases. Often called demand sensing, this is part art and part science. This temporal data requires other data streams and skills.

DSRs also contain information on current inventory, which is distributed across the channel and should be netted out to create the current demand signal. In the past, a clear inventory picture was hard to get, even within the enterprise, and was often inaccurate from retailers. As retailers adopt RFID for a more current and accurate picture of inventory, this will provide another source of reliable data. Suppliers and distributors are using more real-time fulfillment/warehouse systems that can give a fairly accurate picture of inventory. With all this data, suppliers are in the best position to see inventory across all their channels, warehouses, and other suppliers to determine if they have enough on hand or need to create a build plan.

When does it make sense to deploy a demand signal repository?

The supplier is generally the one on the hook for customer service assurance, as well as losses from unused inventory, obsolescence and markdowns. Thus, it has been most common for suppliers to implement DSRs. Figuring out if your organization needs one becomes a question of a few major factors:

  1. What is the cost of my inventory today -- carrying costs, margin erosion and write-offs? If it is high I need a new game plan.
  2. How good is my customer service? Can I respond to the dynamics of my market? If my performance is not as good as it should be, I need to focus on demand signals.
  3. Do I have highly variable demand in that short-term window? The usual solution is inventory. But alas, we can be so wrong on that inventory position. More analysis of demand can help.
  4. Do I have adequate lead time? Companies with longer lead-time protection, such as build-to-order manufacturers are probably not good candidates for DSRs because the market will tolerate adequate lead time to build and deliver products without much inventory buffer. Conversely, the consumer products industries, especially soft goods and food, with rapid order turns, short lead times, and generally higher inventory buffers report value from DSR projects.

DSRs are not a substitute for other demand techniques, but they can fill in the near-term gap between forecasts. DSR demand reports can be the best data to bring to a sales and operations planning meeting since they should show a more focused picture of real life. Subsequently, this data should be synchronized with other plans to ensure harmony and longer term accuracy. Don't make the mistake of letting the demand signal repository get out of sync with other processes. Otherwise, the benefits will not materialize.

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This was last published in March 2015

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What are the challenges associated with setting up an effective demand signal repository?