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What's the true definition of demand management?

The demand management market can be difficult to navigate because of the over-abundance of terms for technology and processes. What do companies really need to know about the various categories of demand management?

There are numerous technologies and business processes that have the word "demand" in them: demand planning, demand...

management, demand signal repositories. Marketers tend to obfuscate the technology landscape by using words that help vendors differentiate what they have developed from other technologies -- and this has happened in the demand management space.

A definition of demand management can start to clarify the conversation. Demand management, in a supply chain sense, is an over-arching, cross-functional process that ranges from market sensing and sizing, understanding customers, forecasting and influencing demand (sometimes called demand shaping, which includes pricing and promotions), to supplier forecasting to demand capture to analytics.

Demand management is not just forecasting --  it refers to the overall demand processes and technologies. Depending on what kind of business you have -- B2B or serving consumers -- your demand management data and processes may differ.

The market generally breaks things out by retailers that look at categories, brands, locations and products vs. manufacturing, which may look at product families, channels, products and their components, and often aftermarket requirements, as well. Each group's vocabulary is different and they confront many unique problems, so their systems are a bit different.

Let's look at these two markets and define the components.

Retail/consumer-facing

Demand management for retailers  today involves understanding consumers' needs and buying habits, as well as budgeting and forecasting merchandise sales. Modules can be standalone or part of a suite, and may be differently grouped depending on the retail category (grocery vs. general merchandise vs. auto parts) or the solution provider and their area of focus. Here are some examples:

Consumer analytics. Includes demographics and can analyze customers' past spending as well as sentiment. Recent technology developments use crowdsourcing, social sentiment and game technology.

Pricing and promotion. Tracks initial pricing, promotions and discounting.

Merchandise assortment and allocation. Starts with budgeting -- a management function -- which determines the spend by category (housewares, men's business, men's casual, toys and so on). Buyers then plan by brand and SKU to support sales/budget targets. Assortment planning defines and forecasts how much of a style, color, size and so on should be purchased by SKU.

Inventory and replenishment. Most retailers look at their product as either replenishment items (groceries, jeans, underwear, soaps) or one-time buys that tend to be fashion- or trend-based. Buying and inventory management differ a great deal based on these approaches.

Supplier/manufacturer/wholesaler

Demand management for manufacturing focuses on creating a demand forecast for both the channel customer as well as production and suppliers. The focus is on products and their costs. Planning here can look at various levels of product aggregation -- product families, components, attach rates and so on. There can be several forecasts – revenue, plans for customers and channel, risk and scenario plans used internally, and supplier forecasts. Organizations may set one-number forecasting as a goal, but in practice, an organization rarely has just one forecast.

There are additional modules that set manufacturers apart from retailers.

Sales and operation planning (S&OP) is another module that engages a cross-functional view of the business to review forecasts, production, pricing and marketing plans, as well as inventory investments. S&OP can also look at strategic questions -- the launch of a new product line, discontinuation of a product, or longer term investments, for example.

Collaborative demand management

For both retailers and manufacturers, the collaborative intersection between the customer and supplier requires a strong interactive demand management process with the sharing of insights, forecast, promotional and future product plans.

Collaborative forecasting involves long-term and short-term product forecasts and inventory planning between customer and supplier. What makes the forecasts collaborative is that the customer also takes input from the supplier and they try to decide together on the best plan. Today we cluster these applications in a collaborative solution, which is often hosted by a supply-chain-neutral network provider. Large retailers often host their own (such as Walmart's Retail Link), but many retailers and manufacturers will use collaborative demand-supply networks. EDI technology may be the tool of choice and include forecasts, commitments and actual orders after a forecast is agreed upon.

Demand sensing. Often called near-term planning, demand sensing deals at a more tactical level -- closer to actual execution, rather than forecasting. Forecasting is based on a hypothesis of how customers will behave in the future. Demand sensing deals with the here and now. Its real focus is the demand signal -- the orders -- and how to respond to them. The system houses a demand signal repository, which contains a multi-echelon view of orders and inventory. The system nets out demand vs. supply, assuring safety stock rules are followed, and then creates a response plan for fulfillment. More advanced approaches also provide a signal to transportation so shippers and carriers can ready themselves for optimized execution as well.

Trade promotion management. Trade promotions are shared investments between suppliers and retailers. This involves critical budgetary, inventory and pricing decisions that both parties must plan and execute well.

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This was last published in January 2015

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