Ask any supply chain professional: what is the first thing you need to make better decisions? I’ll bet the answer will be: more information. But what makes us so curious about data? Why do we need to know detailed information analyzed from several angles and layers? I’ll tell you why: because in the supply chain universe mistakes cost you money. Let me remind you of some names for those: double-handling, overstocking, out-of-stock, late shipments, and unplanned external warehousing. I could go on, but you get the gist of it. Try explaining to your CEO that you didn’t know how much inventory you’d need for the new category introduction and that’s why after a week you’re out of stock for the next ten days. It happens all the time. Still, no one can predict the future, but you have to plan for it.
Demand planning has become a matter of utmost importance for supply chains all over the world, just for the reasons stated above. Strong and agile supply chains have built state-of-the-art fulfillment processes, distribution centers and shipping capabilities to serve demand. Now it is time to gather the right set of data and relay the forecasted demand to the operational functions of supply chain.
In preparation for each NFL game, coaches study all of the available statistics on the opposing team in order to help them choose the right strategy for their own team. They also compare both sets of stats to analyze what might be the right play selection for their team. This way, when a coach knows that the opposing team typically gives up many yards on running plays, they will prepare their running backs and offensive linemen for an elaborate set of running plays to take advantage of this tendency. A good example of that would be two games played by the New England Patriots against the Indianapolis Colts during the last season. Both times the Patriots chose to run the ball even when it’s well known their passing offense is one of the best in the NFL. They did it exactly because the Colts had poor numbers on run defense. Needless to say, the Patriots blew out both games, scoring more than 40 points on each occasion.
Like analyzing your competition, demand planning is about getting the right information from the complex environment that surrounds supply chains, analyzing the data and using statistical algorithms to forecast future demand. When you master your demand plans, you can send signals downstream to fulfillment, warehousing and distribution, allowing those functions to prepare and respond to the demand appropriately and in a timely manner. Sound simple? It is, if you do it right.
Demand forecasting is based on item sales/shipments data streams collected on the store/customer level. This basic stream has to come in regularly and steadily in order to establish good historical data that will enable data analysis and cleansing. The next step is to produce an average that will be used to create the ongoing demand forecast.
It is important to remember that sales during promotions, as well as irregular one-time deals or large sales, need to be excluded from historical analysis in order to prevent data contamination – those transactions are not expected to occur in the future on a regular basis. Another type of forecasting is called for in those instances.
In football, special teams are called for duty on kick and punt returns, and also for field goals. Just like with demand forecasting, the players need to be accurate, smart, well prepared and timely to achieve good results. And if the team gets it right, the result is not only rewarding, it is also exciting. Getting a touchdown on a kick return means quick points and mental advantage for the rest of the team down the stretch. A good demand forecast gives your whole supply chain confidence, just like a special teams touchdown.
As we know, not all of life is a statistical repetition of the past. The marketing and commercial departments introduce a lot of promotions in stores and on media channels such as TV, print, online, radio, and apps. Demand planning’s role in this process is to get their hands on these promotion plans as early as possible and transform the marketing vision into supply chain reaction. This is where careful consideration is needed, because forecasting demand for promotions can be very difficult, mainly due to many missing parameters that have to do with predicting consumer behavior and their reaction to the specific promotion during a specified timeframe. The best way to get over this hurdle is collaboration between the commercial and supply chain departments. This way an organization can make sure their customers get their desired goods right where they expect them to be. I can assure you, it is not magic, it’s transforming knowledge into power.
For more information on demand planning, visit JDA Demand Management.