Demand management Infographic: a guide to expecting the unexpected!
Demand management is all about keeping customers happy. However, while no business wants to let its customers down, there are always financial constraints in place. Consequently, building huge stock piles of inventory to satisfy potential customer demand which may (or may not) materialise, is simply not an option. So how should you anticipate, validate and prepare for future demand?
What is demand management?
To satisfy demand, inventory is a necessary evil. However, when you consider the impact of demand volatility, fluctuating supply chain costs and the need to maintain a healthy level of working capital, determining exactly how much capital should be invested in inventory is a difficult question. Effective demand management is all about balancing this risk in order to maximise customer satisfaction while minimised inventory cost.
What’s driving your decisions around demand?
Customers rarely buy exactly what you think they will purchase. If you expect a customer to place a huge order and the demand never materialises, invaluable working capital could become locked up in excess stock. Likewise, if you decide not to invest inventory and the customer does actually commit to the order, fulfilling the demand in time could be a real challenge.
In reality, you cannot please everyone- at least not without leaving your businesses bankrupt. Consequently, to remain responsive to demand supply chain teams must have a robust process in place to anticipate, validate and then fulfil future demand.
Ultimately, when it comes to demand management, 5 key questions should drive all decision making:
1) What products do your customers want?
2) How many units do they want?
3) How soon do they want to receive the order?
4) How likely are they to commit to the order?
5) How much are you willing to risk?
How can you make more rational decisions around anticipated demand?
The starting point for any demand management process is the forecast. Using several years of demand history and the most appropriate forecasting method, effective demand forecasting tools can help businesses to identify trends in the data and thus gain an idea of what future demand might look like.
The question is, to what extent can you rely on this insight?
Historic demand can only tell you so much about the future. After all, from the impact of new customers to the influence of weather on sales, there is an infinite number of factors that can influence demand!
Demand management is about more than just using historic sales to build a forecast. Demand management is about taking a robust forecast and enriching the data to make informed supply chain decisions!