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Green Beacon Solutions

5 Steps for Improving Demand Planning and Forecasting

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In Green Beacon's blog last November we suggested "Strategies for Improving Inventory Management in Distribution/Wholesaling". This month, we'll discuss the reasons why and the methods for improving demand planning forecasting.

Your top customer calls once again because the distributor stock levels are too low for an important promotion that is running at retail stores.  This is the last straw.  You must do something about your demand planning processes before you lose any more sales.

Demand planning is often thought of as some type of voo-doo magic that sometimes works and sometimes doesn't for the supply chain.  In fact, demand planning is extremely effective when you understand how best to apply the numerous variables and algorithms for specific situations.  Major distributors of goods in all industries leverage demand planning best practices with phenomenal results.

Ideally, demand planning will work as an active part of your enterprise resource planning (ERP) system in order to forecast purchase and stock requirements and predict customer buying habits so that inventory levels are optimized while meeting customer demands.  There are several types of inputs required including:

* Historical sales trends - using a two to five year period is ideal for most systems in order to analyze sales activities.

* Manufacturer forecasts - knowing what your supplier trends have been and will be help in the analysis.

* Seasonal factors - carefully review all products for seasonal activity.  Also note if there are other factors besides the season that could be affecting the trend.  For example could a semi-annual sale trigger a jump in sales?

* Constraints or business rules - does your business always purchase at certain levels to maximize a discount or reduce freight expenses?  Are there limitations in warehouse space to consider?

Once the inputs are available, it is now time to put your demand planning system to work.  The following are five key techniques to use in order to maximize your results:

1. Include customers in your analysis - by also receiving customer planning and forecasting information you can reduce forecast errors and have a more predicable demand model.  Ideally you would like monthly or weekly inputs regarding customer stock planning and know in advance about promotional opportunities.

2. Include suppliers in your analysis - often manufacturers and suppliers have additional insights and information about product availability and new products is valuable data.

3. Apply demand sensing and shaping techniques - this relatively new approach examines demand from a more holistic viewpoint, grouping items into segments with common demand requirements.  The shaping process can have influence on downstream supply chain activities and help to balance your stock for the best ROI.

4. Frequent measurement and quality reviews - once you have your demand algorithms in place, it's time to change them.  There is a constant flow of activities that can influence your results, so it is important to routinely review and compare your demand predictors against reality and then tune your processes accordingly.

5. Consider external influences - the economy, raw material availability and other factors should be utilized to help with the tuning process.

Your demand planning system can be an extremely helpful tool to help you lower your stock while maximizing item availability.  Instead of being concerned about voo-doo magic, is it time for you to leverage some real world results?

2 Responses to “5 Steps for Improving Demand Planning and Forecasting”

  1. Harry Call says:

    The Blog is referring to demand sensing and shaping.

    An example of this is to use Consumer Behavior Clustering of shipment destinations (stores addresses) or (Zip Codes).

    You could then applying demographics information to create clusters to better understand the customer.There are software products that index the changes of sales at a destination against demographics and recommend clusters.
    You then use that index in your forecasting, new product development guidance and assortment planning.

    Hope this helps.

  2. What exactly is “Demand Shaping”? I’ve seen this term a lot, but never seen a concise explanation as to what it actually means?

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