How Demand Planning Can Improve the Supply Chain

If you'd use one word to sum up today’s online market, you’d most likely use the word volatile. Although it doesn’t seem that way, the market is, in fact, experiencing changes on a regular basis. But why is that? 

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Well, for starters, consumer behaviour and purchasing habits are influenced by numerous factors every day. 

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Whether that’s the geo-political situation in the world, a new market trend or a social media influencer, it’s safe to say that modern consumers are bombarded with information that influences how they make purchases online from every direction.

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 For retail and eCommerce businesses, that means that their demand planning endeavours just got a lot more complicated than they have to be. 

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Normally, you’d take a look at your company’s historical data and previous sales to determine which products sell better than others. That information would help you prepare for future demand and ensure your supply chain is up to the task. 

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Nevertheless, planning for both supply and demand is still quite relevant in the retail industry, and just because it’s more challenging, it doesn’t mean business owners must give up on it. But what exactly is this demand planning, and how does it help businesses? Let’s take a look.

What is Demand Planning?

Simply put, demand planning is a process of using the company’s historical data and predictive analytics to forecast demand for certain products or services. 

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This way, eCommerce and retail stores can ensure smooth operations, continuous sales and make the most value out of their supply chains by preparing for the upcoming demand accordingly.

Why is Demand Planning Important?

As you may already know, the online market is overcrowded and very competitive. Every business owner wants to find a competitive advantage that will give them the upper hand. Simply doing something different or better than your competitors isn’t enough to cut it most of the time. 

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This is why everyone is trying to predict how consumers will behave and how that behaviour will impact their purchasing decisions. If you manage to do that, then you just might be among the first to deliver on consumer expectations when those expectations shift in one way or another. 

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However, things are never as simple as they seem to be, especially in the retail industry. That said, there is no specific demand planning definition that can guide you to success. Every online store owner takes a different approach. 

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While some are using a more holistic approach like sales and operation planning (S&OP) to minimise risks and balance between supply and demand, others are literally pouring all of their resources into AI-powered predictive analytics. 

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The goal is to try to pinpoint exactly how consumers will respond to certain market trends and other relevant factors in order to gain insight into which products or services will be more or less sought-after. 

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Both approaches are quite viable and will provide you with the data you need. Still, no matter which method you decide to opt for, know that you’ll have to adjust your supply chain operations if you wish to make the most out of the situation, that is.

How Does Demand Planning Benefit Your Supply Chain?

The unfortunate thing is that no matter what anyone does, it’s impossible to actually predict what’s going to happen in the near future. You can, however, predict in which direction the market is going to move alongside consumer preferences. 

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This is more than enough to help you understand the demand and also help you capitalise when the opportunity presents itself. When done properly, demand planning can greatly benefit your entire supply chain. So, let’s have a look at exactly how it can boost supply chain efficiency, shall we?

1. Improved Resource Allocation

Having a general idea of what the demand is going to be like allows you to squeeze your supply chain for all its worth. A good example of this is notifying your suppliers and manufacturers on time so that they can provide you with enough materials and products to satisfy the upcoming demand. 

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In other words, you’ll be ready to provide customers with what they need the moment they start demanding products or services. Therefore, you can create and put in motion an entire logistic plan that will ensure you’re more than prepared for when the time comes to place new products on the market.

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But that’s not all. Precise demand planning also helps you prepare your in-house resources. That includes hiring enough staff, making enough room in your warehouses and procuring additional transportation vehicles, if necessary, to help manage this new demand.

2. Boosted Profitability

Knowing what the customer will want the moment they want it creates an opportunity to fulfil orders at a much faster and more efficient rate. No one needs to tell you just how vital seamless order fulfilment is for your sales. 

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That said, since you’ve planned for the demand, you won’t miss an opportunity to make a sale. Not only that, but you’ll also be able to keep inventory at optimal levels reducing warehousing costs in the process. All in all, more sales and fewer costs add up to more profits in the long run.

3. Contingency Planning

Being able to forecast demand also gives you an opportunity to determine whether or not you’ll be able to handle it. If not, you still have time to figure out a solution. 

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For example, if you lack the capacity and means to manage whatever comes next, you can consider supply chain outsourcing and fill in the gaps that your company isn’t able to manage on its own. 

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Moreover, if your suppliers or manufacturers cannot provide you with what you need to meet the demand, you still have time to find alternative sources. Think of it as creating a backup plan in case things don’t turn out the way you’d expected. 

4. Improved Customer Satisfaction

Perhaps the most important benefit of demand planning is improved customer satisfaction. Being able to fulfil orders and provide customers with a seamless experience creates a positive domino effect that will improve your business as a whole. Here are a few examples:

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• Meeting customer expectations ensures their retention and loyalty, which means they’ll more likely come back for repeat purchases. 
• Satisfied customers will engage in word-of-mouth recommendations and bring in new customers for your business. 
• Engaged customers are more likely to opt for your upsell and cross-sell offers, which means more recurring revenue.
• Happy customers are more understanding towards inconveniences that may happen along the way. If, for example, their shipment is delayed for some reason, they are less likely to become outraged and abandon your business as a result. 

Common Challenges with Demand Planning

As mentioned before, there’s no certain way to predict anything with certainty. The best you can hope for is that consumer behaviour won’t shift in a completely opposite direction than what you predicted. 

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As such, demand planning is not as straightforward as you might think, which is why you must expect the unexpected. That said, here are some of the most common challenges you might face when planning for the demand.

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• Outside factors that can influence consumer behaviour - Geo-political conflicts, local and global economy, natural disasters and similar factors can change consumer behaviour and do so abruptly.

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• Market factors - New technology, rising market trends, social media influencers and new competitors in the market are common factors that shape consumer purchasing decisions. If you’re unaware of what’s happening in the industry, you’ll have a difficult time planning for the demand.

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• Lack of historical data - If you don’t keep records of your company’s performance and previous sales, you won’t have anything to base your future demand planning on. At that point, all you can do is improvise and hope for the best.

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• Gaps in the supply chain - If you’re planning on growing your business by capitalising on demand planning, you must make sure your supply chain can handle it. This often includes having standardised business processes, not relying on a single supplier or manufacturer, utilising modern technology and software solutions, managing inventory and so on.

Plan for the Demand with Bezos

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More often than not, demand planning reveals that the company may not be able to manage everything on its own. But that’s no reason to be discouraged. If you’re proactive, you can find the right outsourcing partner to help you tackle the demand head-on. 

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Bezos is that partner, because we have years of experience in managing demand with our global fulfilment network. So, if you think you won’t be able to make the most out of demand planning, give us a call today, and we’ll help your company grow.

Conclusion: The Future of eCommerce is Demand Planning

Although nothing is certain, one thing is for sure: the online market is continuously changing and growing. 

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In order to succeed in such an environment, retail and eCommerce stores will have to engage in demand planning so that they can prepare to capitalise on every opportunity that comes their way. 

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Understanding demand allows you to optimise your supply chain, and a strong supply chain is one of the surest ways to reach business success.

FAQ:

What is an example of demand planning?

A good example of demand planning is when an eCommerce store wishes to prepare for the upcoming seasonal sales. 

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They leverage past records of which items were sold the most, as well as analyse current market trends and consumer behaviour to forecast demand. 

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Using the data obtained, the online store can procure enough goods and adjust its supply chain to manage the demand accordingly.

What is the difference between S&OP and demand planning?

As mentioned before, sales and operation planning balances supply and demand with fewer risks involved, while demand planning relies on forecasted data to estimate the upcoming demand. The two methods actually work much more efficiently when used together rather than being used as two separate approaches.

What is ERP demand planning?

ERP (Enterprise Resource Planning) is a software solution that helps businesses forecast demand and make suggestions on how to optimise the supply chain for said demand. The software uses the company's historical data and analyses current purchasing patterns among existing customers to make predictions about what the demand may look like in the near future.

What are the three major activities of demand planning?

The entire process of demand planning can be separated into three major activities, which include:

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• Forecasting demand
• Optimising the supply chain
• Verwaltung der Bestände

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