07 February, 2023

Demand planning for supply chain management

Guesswork plays no part in today’s business world. Every decision that’s made, every action that’s put into place is based on verifiable needs, and this verification comes from precise data. When manufacturers order raw materials for the products they make, they do so with a knowledge of the quantity they’ll need to complete their orders. And when retailers get items from their suppliers, they do so using models that tell them the number they’re expected to sell. In other words, they plan.

Unforeseen circumstances aside, this planning eliminates the chances of being left with unwanted inventory – overstocking – or finding out too late that there isn’t enough of it – stockouts. If the latter happens, the ramifications could be damaging. When orders can’t be filled, reputations are put on the line and customers could go somewhere else. A retailer that sells on Amazon could even have its ranking lowered if it can’t fill orders. On the other hand, being stuck with too much inventory is a wasteful use of resources, including financial.

Companies get the data they need for this planning from software that oversees and manages their supply chain. When it comes to getting the right inventory levels, this information is used to make predictions about upcoming needs — that’s demand forecasting; and when actions are taken on these predictions, we have demand planning. These are the areas that we’re going to look at today. And we’re going to look at them with an emphasis on how the combination of these two impacts the supply chain and overall profitability of the company.

 

Demand planning overview

As outlined above, demand planning is about taking the expectations for future inventory needs gleaned from forecasting, and acting on them. In other words, if forecasting predicts that x number of a particular product is going to be needed, planning will issue the sales orders for them.

To parse that out and explain it more, forecasting gathers data from the company’s historical sales, consumer buying patterns, and market trends, and then combines that with variables like weather conditions, shipping issues, and lead times to get an accurate picture of future needs: which items they should order, the amounts they should order, and when they should order.

Demand planning, then, is putting this forecasting into operation. It’s putting in the sales orders for the right items in the right quantities to prevent overstocking and stockouts; it’s making sure there’s enough space in the storage area for them; it’s making sure there are enough cardboard boxes in the shipping department to get them out the door; it’s making sure every section of the supply chain is ready and can process orders with as little downtime as possible and with the least amount of waste.

When demand planning is done right, the supply chain is humming. Inventory is at optimum levels and orders can be filled in good time, efficiently, with the least amount of expenditure.

 

Components of demand planning

1. Analyzing sales data across multiple channels and locations

Analyzing the sales history across sales channels tops the list. However, when you sell on multiple online platforms and have your physical stores at various locations, gathering and analyzing all the sales data can take time and effort. And it’s also not productive to do it manually, as you have other important things like your business expansion and customer satisfaction that need your attention.

Cin7 Omni’s inventory and order management software connects your online and offline sales channels, enabling you to access all the sales data at your fingertips. You can view the sales history of each customer from every sales channel on Cin7 Omni’s homepage dashboard. Thus, you can understand the customer’s purchasing behavior, buying pattern, best-selling products, and slow movers and target the customers with relevant products.

2. Calculating inventory turnover ratio

The inventory turnover ratio indicates how efficiently your company uses its inventory and your overall business performance. With Cin7 Omni’s insight tools and precise inventory and sales data reports, you can accurately measure Cost of Goods Sold (COGS) and inventory turnover ratio. You can intervene earlier if you find any excess inventory or lag in your sales and put things back on track the earliest. You can also derive competitive price offerings to stand out from the competition to meet existing customers’ demands and attract new customers.

3. Independent Demand

The demand here refers to the end product. For manufacturers, this means finished pieces; for retailers it means the items shipped out to customers. Knowing the quantity of end product needed is the first step in demand planning.

4. Dependent Demand

This is about the components that make up the finished, or end, product. Basically for a manufacturer, the planners have to make sure they have all the bits and pieces and raw materials needed to put whatever it is they’re producing together, and they need them in the right quantities to satisfy the independent demand.

Cin7 Omni’s inventory and production management software is a useful tool for dependent demand planning. It can generate a detailed Bill of Materials (BOM), which is an itemization of the raw materials needed to put particular goods together and the quantities they’re needed in to fill a particular order. It can also produce weekly reports on both materials used and the progress production is making, statements which allow you to check that your demand planning is on target. As a bonus, the digital system can even instruct the machinery on the shop floor to start up, and it can do this as soon as it detects that there’s a predetermined minimal amount of orders in the works, a predetermined level set by you.

5. Monitoring the production process

If you’re a manufacturer, monitoring the raw materials, tracking the finished goods, and keeping the production time down is mandatory to run a successful business and meet the customers’ demands on time.

6. Monitoring, tracking, and managing inventory

Stocking the right inventory levels across your sales channels is mandatory to meet the customer’s needs on time. Besides stocking right, having optimal inventory control is crucial — preventing inventory from turning obsolete, maintaining goods at optimal conditions, and ensuring no discrepancies are all a part of managing inventory.

With Cin7 Omni’s inventory management software, you can readily conduct regular stock takes to ensure your stock is in optimal condition. You can also assign a batch or serial number to track the goods and dispatch the old stock first. Thus, you can minimize the risk of your inventory turning obsolete and sell goods on time at better profits. The right inventory at the right levels at the right place at the right conditions ensures a smooth supply chain.

The software also supports product bundling, enabling you to bundle relevant products and sell them at a competitive price. To top it all, you can rely on Cin7 Omni for managing your returns as well.

7. Internal processes demand

Here, we’re talking about demand planners making sure there’s no hitch in the supply chain. It’s about ensuring there’s enough space in the warehouse or storage area to place items for those projected orders as they come in from the suppliers. It’s about ensuring that everything is in place to move items from the warehouse to the end consumer — the right equipment, the right level of packing materials, the right shipping services. And it’s about having enough spare parts on hand to cope with machine breakdowns along with enough staff to keep everything flowing smoothly.

8. Managing product portfolios

Demand planning requires businesses to understand their products and lifecycles from introduction to phase-out. Product portfolio management is a part of demand planning that involves maintaining the entire portfolio of products you sell. Products are often interconnected, and the sale of one product affects the sales of another. Maintaining a product portfolio is helpful, especially when you add new products to your portfolio, as it helps you understand how the new product impacts the sale of existing products.

9. Analyzing current trends

Besides internal factors, external factors like weather, health, or economic crises impact business performance. Thus, apart from analyzing sales data and other internal factors, considering these external factors are also vital. Having a dedicated team to acquire external data on current events like health crises or natural disasters will help your business to promptly adapt to market volatility and prevent possible supply chain disruptions. A transparent system like Cin7 Omni will help you stay connected with your suppliers and track your goods during uncertain times. Therefore, you can efficiently manage the supply chain and ensure the timely delivery of products to your customers.

10. Managing trade promotions

While marketing and promotions may seem tangential to demand planning, arranging for advertising, discounts, and giveaways is an actionable part of the sales cycle and so should be included. The same goes for trade shows. In effect, this is because publicity attracts interest and helps sell the products and goods a company offers.

Cin7 Omni can be a great help in this area. It can set up discounts and set start and end dates of a particular promotion, and it can apply those promotions to whatever of your products you choose.

 

Demand planning and supply chain management

Demand planning affects supply chains in the following ways:

It streamlines inventory management.

  • It puts relevant sales strategies in place.
  • It makes sure all resources are used efficiently.
  • It encourages companies to negotiate with suppliers for better deals.
  • It results in high levels of customer satisfaction.

Wrapping up

Having the right amount of everything in place in the right quantities when it’s needed is at the heart of a well-run business, and why getting demand planning right is so crucial.

Cin7 Omni is a great way of maintaining flow from one stage of the process to another. It has features that can make supply chain management hassle free, and the data it produces can be put towards forecasting and, as a result, better demand planning.

To find out more, click here to schedule a demo with one of our experts today.

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