Effective demand planning is a key driver of operational efficiency and profitability for any business selling pretty much anything today. However, businesses with enterprise resource planning (ERP) or supply chain management (SCM) systems in place may not see the need for dedicated or integrated demand planning/forecasting software tools as well. Here’s why you need an intelligent demand planning solution.
Demand planning is a key supply chain management process by which a company attempts to more accurately predict or forecast future customer demand in order to adjust company production to align with that demand. Demand planning is a major element of a company’s vital S&OP (Sales and Operations Planning) process, and generally includes:
Benefits of effective demand planning include:
Even with existing ERP or SCM systems in place, integrating or adding a specialized demand planning solution typically provides numerous advantages, particularly as demand patterns become increasingly unpredictable in today’s volatile market.
ERP and SCM systems are generally not specialized for forecasting demand. Enterprise resource planning systems in particular need to “be all things to all people” and often fall short where demand planning capabilities are concerned, since ERPs need to help manage all business-related internal processes, including areas like finance and HR. ERP systems may offer basic inventory tracking and order management functions, but they usually don’t include advanced demand forecasting tools. Where they do offer limited planning functionality, most ERP systems rely heavily on historical sales data or predictable models, and can’t account for more nuanced factors such as seasonal variations, market trends, promotions, sudden spikes in demand, or changes in consumer behavior.
Similarly, supply chain management systems primarily focus on managing the movement of materials, components, and goods/services from suppliers to customers. Generally, SCM systems prioritize functionalities for inbound and outbound logistics, transportation, and inventory management. While some SCM systems offer demand forecasting functionality as part of their suite, these tools are usually basic and do not have the flexibility to provide highly accurate demand predictions. In short, the main purpose of SCM systems is to manage the supply chain, not to predict demand, which is an entirely separate function that requires more sophisticated and dedicated software tools. Adding the right demand planning solution to an existing ERP or SCM system can bridge the functionality gap and result in more accurate forecasts and better decision making.
The benefits of using an intelligent demand planning software solution in addition to or integrated with an ERP or SCM system are many, but here are some of the primary wins.
Demand planning software is specifically designed to predict future demand based on historical data, market trends, current data, seasonality, and other factors that can affect sales. Unlike ERP and SCM systems, which, if they have any demand planning functionality at all, may be reactive in nature, demand planning software utilizes both historical and real-time data, combined with intelligent “learning” functionality, advanced algorithms, statistical models, and/or AI to be predictive in nature. This helps businesses better prepare for future demand fluctuations rather than merely reacting to them, reducing the risks and associated costs of over- or understocking.
Advanced demand planning tools also allow businesses to theoretically model various scenarios, taking into account varying inputs and factors such as market changes, promotions, or potential disruptions. This enables companies to better plan for different demand fluctuations, providing a level of flexibility that basic ERP and SCM systems often lack.
This all leads to significant cost savings and improved efficiency in both the short and long term. The ability to forecast demand more accurately reduces the need for expedited shipping/logistics, maintaining excess inventory, last-minute procurement, and emergency workforce hires, all of which incur additional, non-budgeted costs.
Better demand planning software solutions include collaborative features that allow departments such as sales, marketing, and operations visibility into the process, so all team leaders can share insights and align their strategies. Collaboration improves performance and can often shed light on issues that insular team leads may not be aware of. Intelligent solutions help enable integrated business planning.
Inventory optimization is a complex task that requires the ability to balance supply with demand at multiple stages of the supply chain. When demand planning solutions provide more accurate forecasting, inventory management teams can spend fewer resources dealing with issues like overstocking, which leads to higher storage/logistics costs and potential inventory obsolescence (depending on your products and goods), or stockouts, which lead to lost revenue, customer dissatisfaction, and a poor business reputation.
Additionally, when combined with an ERP or SCM that is capable of tracking real-time inventory levels, businesses can implement automated inventory replenishment processes to maintain stock at optimal levels, further ensuring inventory levels are aligned with actual demand (and reducing overall costs).
Demand planning software can play a critical role in optimizing the sourcing/procurement process. While some ERP and SCM systems may be capable of tracking inventory and informing sourcing/procurement activities, they are often limited in terms of predicting future needs. Without effective and intelligent demand planning, sourcing/procurement managers might place orders based on past consumption rather than informed future demand, resulting in decisions that are either too early (leading to excess stock) or too late (resulting in stockouts). Either can have far-reaching impacts up and down the entire supply chain.
This is where the rubber meets the road, as they say. Accurate demand forecasting, enabled by intelligent solutions, ultimately leads to a better customer experience, since your business is more likely to have the right products and services available exactly when customers want them. Demand planning software can anticipate spikes in demand, such as those caused by emergency promotions, seasonal trends, and other unpredictable outside influences, and ensure that inventory levels are adjusted accordingly. This helps avoid disruptions in the supply chain and ensure that customers are not disappointed by out-of-stock situations or delayed deliveries.
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