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The modern supply chain holds demand planning challenges galore. And that means you need better strategies.
Omnichannel e-commerce -- customers' desire to buy online and pick up their products in physical stores, for example -- is driving the need for organizations to rethink how they're doing demand planning and inventory, said Mike Griswold, vice president at Gartner.
Here are some top demand planning strategies to help enterprises get customers the goods they want, when and where they want them.
1. Bring demand signals together
To accurately forecast demand, companies need to understand how many widgets they're going to sell across multiple sales channels, Griswold said.
"I need to know how much I'm going to sell in the store. I need to know how much I'm going to sell online," he said. "And then I need to bring these demand signals together so that for a particular widget, I know the demand for this planning window."
Enterprises are trying to do that through technology -- for example, an application that looks at the point of sale data from the cash register, data from online sales, data from a catalog business and call center data, Griswold said.
"Technology is really the way that we're bringing all of these demand signals together to get that one view of how much of a particular widget a company is going to sell," he said. "Once [an organization] knows how much it's going to sell, it can figure out when it needs to get the right amount of inventory -- and from where -- to support the sales plan."
2. Create a holistic understanding
Using supplier lead time strategically is critical for successful demand planning.
Demand planners have to understand what the rest of the organization is doing so that they're not unprepared and have either the wrong kind of inventory or insufficient inventory, said Marisa Brown, senior principle research lead for supply chain management at American Productivity and Quality Center, a nonprofit benchmarking and best practices research organization in Houston.
As an example, demand planners must be aware of upcoming social media campaigns and sales promotions, she said. Production should understand what sales and marketing are planning.
"They can then work with their suppliers to make sure they've placed the requests for these raw materials sufficiently in advance … to produce [their products] in time," Brown said.
3. Foster internal communication
Statistics are a critical component of forecasting -- but they're not everything.
Demand planning is not a compartmentalized component within the company. It's an integrated and detailed set of actions that connect multiple activities and push the business toward a profitable outcome, said Justin Bateh, a supply chain expert and professor at the School of Business at Florida State College at Jacksonville, in an email.
While it's true that the algorithms offer a solid base from which other insight is drawn, gathering information from other sources helps create a true demand signal, Bateh said. Communication is key.
That starts with a culture of internal communication and making it an integral part of the process, Bateh said.
"If everyone doesn't operate within the same mindset, then no one will enforce this notion," he said.
Cross-team weekly meetings, daily emails and other forms of information sharing are all important to achieving a culture of collaboration and communication, he said.
4. Team up with customers
Many important supply chain strategies rest on communication -- including communication with external supply chain stakeholders.
Closer collaboration with customers, including asking them to share their ordering plans, can help an organization lower its inventory carrying costs, Brown said.
"If you know what your customers are going to need, then you don't have to have as much inventory sitting on the shelf," she said.
In a B2B environment, organizations should work with their customers to understand their forecasts, she said. Organizations should consider what trends customers are monitoring, and what business direction they plan on taking.
This kind of collaboration is more possible in a B2B environment where an individual customer represents a much larger share of sales. In a business-to-consumer environment, companies must stay in tune with the macro trends, Brown said.
"For example, if you're in food and beverage, there's [the healthy eating trend] and understanding some of the implications of that," she said.
5. Partner with suppliers
A list of top demand planning strategies would not be complete without discussing supplier relationships.
Suppliers can offer valuable insights into their requirements and capabilities, such as determining short- or long-term requirements for certain products, developing forecasts and providing key information about their inventory levels and capacities, Brown said.
Collaborating with key suppliers should definitely be one of your top demand planning strategies, said Simon Simonian, vice president of systems and technology at Argo Tea, a tea manufacturer and retailer in Chicago.
Simonian sees the issues from both the supplier and customer perspective. His advice to all the players boils down to sharing forecasts and changes -- plans for large orders, materials shortages and so on.
Ideally, suppliers have an information exchange in place for companies to share ordering plans and other relevant information. Companies can share this information through a phone call, email or spreadsheet, Simonian said.
"But to make [communication] more effective, it's always better to rely on EDI standards," he said.
6. Understand forecasting
Forecasting is an important part of demand planning and companies can tackle it in a way that meets their unique needs. To name just two examples, new technology and demand-driven strategies both affect forecasting methods. However, it can be helpful to revisit the basics.
The forecasting process is at the heart of demand planning and typically consists of two parts, Simonian said. The first part is the pure forecasting. That typically involves taking certain parameters, such as past sales and projected growth, and letting the system generate a forecast for a certain amount of time.
"We have our own homegrown system that basically takes the performance of our SKUs -- the longer the better, typically -- and applies linear algorithms to come up with a 12-month forecast," Simonian said.
The second part is material resource planning (MRP), he said.
"That's taking a forecast, saying, 'OK, what [materials] do you have on hand? What do you have incoming? What do you have outgoing?' Then coming up with a recommended requisition," he added.
MRP helps you create an actual action and purchasing plan based on the forecast -- that's critical, Simonian said.
7. Provide demand planning training
The demand planning process is a complicated, multi-faceted system, Bateh said. There are several contributions made from all over the company. With so many parts working together in this cross-functional dynamic, it's vital that companies keep their employees well-versed and trained on the importance of their input.
"The information they contribute helps achieve the overall outcome, and they need to be aware of how important they are in achieving this kind of success," Bateh said. "Companies must take advantage of company training activities and opportunities to keep everyone afloat."