There is a big need today for companies to strengthen their demand management capabilities. Consider the fact that supply chain executives consistently cite demand volatility and the lack of demand visibility as two of their top challenges, according to the analyst group Gartner. Additionally, innovation and growth depend on a company's ability to quickly and effectively process and respond to demand.
The solution, according to the Gartner report "Five Tenets of Demand Management Are Foundational to Supply Chain Transformation," is to move beyond thinking of demand management in the traditional terms of demand planning and fulfillment. Instead, companies need to create a comprehensive demand management strategy that also encompasses demand forecasting, sensing, and shaping. The report makes the following best practice recommendations for each of the five elements.
Demand forecasting: Organizations with a strong demand forecasting process do not just look at historical sales activity. They also incorporate more forward-looking signals, such as sales forecasts or marketing plans, and downstream demand data, such as retail point of sale or channel sales data. This data, however, is often incomplete. Gartner says that tools such as pattern recognition and machine learning can help predict missing data values.
Demand planning: Gartner says that companies can improve their demand planning process by increasing the frequency of forecasts, which will lead to using more accurate and timely data. The paper also suggests that before deciding on a consensus demand plan, members of sales and operations planning (S&OP) teams should assess multiple forecasts. Mature demand planning processes will also provide models for segmented channels.
Demand sensing: Real-time "sensing" of demand has replaced demand forecasts that are based on rules, particularly in the business-to-consumer world. Demand sensing is also making inroads in the industrial business-to-business realm as companies seek to gain better visibility of demand through indirect wholesale and distribution channels. Demand sensing technologies, according to Gartner, are now evolving to include simulation and optimization techniques, which can help companies with midterm planning.
Demand shaping: Demand shaping includes programs and capabilities such as price management, new product launches, and promotions to increase demand or profitability for products and services. Best practices involve synchronizing supply strategies with demand and product management decisions through processes like S&OP.
Demand fulfillment: Companies are increasingly realizing that they need to differentiate their demand fulfillment processes to serve different combinations of products, customers, and channels. For example, certain defined segments or combinations may require a make-to-stock or make-to-forecast model, while others will be configure-to-order or make-to-order.
According to Gartner, almost every company has these five demand management capabilities somewhere in their organization, but they are often scattered across multiple teams and roles. To become better at demand management, companies need to create a structure that connects these abilities to create a well thought-out response to customer demand.