Original Article: https://safetyculture.com/topics/demand-management/

What is Demand Management?

Demand management is a crucial process that businesses use to ensure they meet customer demands. It involves planning, controlling, and regulating the product demands or services to maintain the right supply level and meet customer requirements. Effective demand management helps companies improve their overall efficiency and profitability.

Benefits of Demand Management

Managing your company’s demand can save money and make your operations run smoothly. Effective demand management offers the following benefits:.

  • Simpler product and service delivery – Confidence in the company’s ability to deliver products and services is enhanced; product rollouts are made simpler.
  • Creates a solid foundation – This practice helps in developing merchandising, budgeting, and logistics procedures.
  • Easy monitoring of transactions – It’s easy to check supplier transactions for growth or decline and track all associated costs.
  • Stronger customer relationships – Maintaining long-term customer relationships is easier with fair pricing and applicable discounts.
  • Supply chain support – Demand management procedures, such as robust modeling, forecasting, and demand and supply planning, help operations run more smoothly.

Functions

Three areas of concentration in demand management are improved customer care, more accurate forecasting, and reduced expenses. Some of the main functions of demand management include:

  • Improve customer service – Increasing client satisfaction and improving service by understanding customer needs and behaviors.
  • Greater accuracy in forecasting – Predictive analytics initiatives help business leaders make better decisions and enhance supply chain management.
  • Reducing costs – Forecasting optimization improves inventory planning and, as a result, minimizes safety stock requirements.
  • Enhancing existing goods and mastering new product launches – Create new goods that are customer-friendly and modify them based on suggestions.
  • More efficient planning – Minimize surpluses by maintaining the right balance of demand to supply and avoiding data inaccuracies.

Different Components and Processes

Each demand management approach has features that allow you to find and focus on your customer’s demands. These components include:

Modeling

Demand planning teams must gather data from other departments regarding sales and demand drivers, such as innovation and social media. Modeling develops the relationships between various demand drivers and the company’s sales.

Forecasting

Demand forecasting uses predictive analytics to predict future demand for services or products—forecasts of anticipated sales and revenue help supply decisions based on past performance.

Demand Planning

The demand planning stage attempts to forecast product or service demand to ensure that you can satisfy clients. It  aims to find that delicate balance between adequate inventory levels to fulfill orders without accumulating an inventory surplus.

Supply Planning

Supply or inventory management is responsible for supply planning, which is the portion of demand management concerned with supply. The objective is to identify and address the most pressing difficulties while developing plans that span multiple tiers and simulating potential responses to minimize inventory and customer care costs.

Predicting Customer Demands

Demand management aims to deliver the correct product or service to the customer at the right time and quantity. With this, businesses must anticipate consumer behavior and understand what drives demand. Companies can predict customer demands in several ways, including:

  • Minimum Order Quantity (MOQ) – Companies often require customers’ minimum order quantity to make production economically feasible. The MOQ is the smallest amount of a product that a company is willing to manufacture.
  • Cross-docking – This involves bringing together products from different suppliers before distributing them to retailers at a central location. It helps reduce inventory levels, transportation costs, and lead times.
  • Bulk Shipment – Bulk shipment is the transportation of large quantities of goods at once. It’s often possible to reduce transportation costs per unit using bulk shipments.
  • Vendor-Managed Inventory (VMI) – In VMI, the supplier manages the inventory at the customer’s site. VMI can improve inventory management and reduce costs by reducing the need for safety stock and minimizing stockouts.
  • Economic Order Quantity (EOQ) – EOQ is the quantity of a product that minimizes the total cost of ordering and holding inventory. The EOQ model considers the trade-off between ordering and maintaining inventory costs.

Use Cases

Different industries can use and benefit from demand management in different ways. Here are some sectors and examples of how they use demand management:

  • Automotive Manufacturing – Automotive firms struggle to anticipate and react to shifting customer needs. Manufacturers that use demand management have faith in their suppliers’ financial stability and ability to react to changes in demand.
  • Hospitality – In the hospitality business, Hotel Demand Management (HDM) takes a comprehensive approach to marketing, finance, distribution, and revenue. Managing demand improves existing customer connections and assists teams in strategically utilizing distribution channels to reach targeted client groups.
  • Public Utilities – Utilities employ demand-side management techniques to meet government requirements while assisting customers in saving money.

What are the Types of Activity within Demand Management?

Demand management involves various activities such as demand capacity, demand chain, demand communication, demand modeling, demand shaping, demand sensing, and demand prioritizing. Learn more about each:

Demand Capacity

Capacity planning is vital since it has a direct influence on cost centers. Operating costs are affected when demand and supply are out of sync; therefore, coordination is critical to maintaining alignment.

Demand Chain

The demand chain is concerned with receiving products or services as and when required, often known as pull. In the online economy, the demand chain-based e-fulfillment approach compresses time. It is pull-oriented from the client, relying on real-time event monitoring, inventory planning, and information for forecasting and planning.

Demand Communication

In the collaborative demand management system, you share forecast demand with all stakeholders, departments, and teams that will be affected by it.

Demand Modeling

Demand modeling involves forecasting demands starting at the bottom. This process separates external and internal factors and the demand stream to determine how each influences purchases.

Demand Shaping

Demand shaping is a supply chain management technique in which a firm uses price cuts, incentives, and other approaches to encourage clients to buy specific goods.

Demand Sensing

Demand sensing is a game-changer in high-demand e-commerce situations.  Mathematical methods that predict how a product or service will affect market demand may increase demand sensing.

Demand Prioritizing

Identifying and prioritizing initiatives are the basis of demand management. You can do this by looking at potential risk factors, organizational capacity, financial value, and consequences.

Best Practices in Managing Demands

There are some global practices that companies can put in place to increase the accuracy of their demand planning and make better decisions about their inventory.

  • Leader involvement – When senior executives embrace a demand management culture, the entire organization’s operations become tied to product availability. The culture now has a single responsibility: to improve supply chain efficiency.
  • Clear action goals – The organization’s goals should be clear to everyone involved in demand management. Achieving the objectives requires putting them into action and holding those accountable.
  • Reasonable timeframes – The timeframe for implementing demand management should be realistic so getting buy-in from all stakeholders is essential before setting a deadline for implementation.
  • Effective approach – Successful demand management requires the right mix of people, processes, and technology.
  • Reliable statistical forecasting – Every good strategy has statistical modeling in it. The prediction model should be proven accurate, precise, and reliable and must keep up with the company’s evolution.

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Challenges of Demand Management

Business executives must change to adapt to the changing demands of customers. Other challenges include:

  • Distanced customers – Distanced customers are those who are not able to physically visit the store. You need to balance sales and work with retailers to predict when, where, and how much to promote. A co-planning relationship with customers, especially those who make up most of your business, can help reduce demand volatility.
  • Lack of Point-of-Sale (POS) data – Using POS data can help companies have a better understanding of customer demand. This information can help with co-planning efforts with suppliers and customers. This data can also help predict upcoming shifts in demand, which will keep consumers happy.
  • Single-source supply – Many manufacturers still depend on one supplier for components or materials. It can be risky because if the supplier fails, the manufacturer may not be able to meet customer demand.

How Do You Handle Demand Management?

By implementing integrated, analytics-based processes, demand management becomes much more effective. Companies that are successful in this area use predictive analytics, market intelligence, and top-tier technologies to reach their revenue growth goals.

Effective demand management requires more than forecasting and incorporates demand sensing and shaping techniques. By regularly analyzing Key Performance Indicators (KPIs) and other metrics, demand managers can make ongoing adjustments to shape future demand.

Lastly, data sharing allows you to gain a high level of Supply Chain Visibility (SCV), which is another demand management approach. With SCV, schedulers and planners receive alerts when order fulfillment issues or low inventory levels could jeopardize meeting customer demands.