Demand planning is a collaborative and strategic approach in supply chain management that is extremely important for companies to align their inventory with customer demand, in order to minimize overstocking or disruptions in the supply chain. This process not only enhances profitability – by avoiding financial burdens associated with storage costs, spoilage, and tied-up capital – as well as customer satisfaction, but is also the foundation of operational efficiency. Let’s see why.
What is demand planning?
Demand planning is the process within supply chain management that forecasts customer demand for products, with the objective of balancing inventory levels and meeting customer demand without overstocking or understocking. This process is multifaceted and involves anticipating various factors that influence demand, such as fluctuations in the workforce, seasonality, economic variations, etc. Furthermore it leverages various data and analytical methods to optimise a company’s ability to meet consumer demand efficiently.
Demand planning encompasses three critical areas:
Product portfolio management
This aspect of demand planning has the purpose of managing the variety of products a company offers throughout their life cycles. Managing a portfolio of products effectively means making sure that when you introduce new products, you don’t hinder the sales of existing ones and that your overall mix of products captures the largest possible market share. This requires a thorough understanding of how products relate to each other and how they fit into the market.
This area relies on data to predict future demand. Demand forecasting involves analysing trends, sales patterns, and seasonal variations that occurred in the past to predict future sales. It is particularly useful, especially in case of regular fluctuations, such as seasonal demand peaks.
This area focuses on how marketing strategies and promotions affect demand. Therefore, analysing demand fluctuations that result from discounts or promotions is essential. The challenge here is ensuring that spikes in demand are met without leaving inventory in excess. Moreover, it is important not only to react to demand but also to shape it: marketing and promotions can influence your consumers’ behaviour.
Importance of demand planning
- Prevention of stockouts and overstocking: forecasting demand helps businesses to reduce stockouts or overstocking that lead to lost sales, tied-up capital and unnecessary storage costs.
- Higher customer satisfaction: meeting customer demand is at the core of running a successful business, since it retains clients and creates loyalty. Having the right product available at the right time is your differentiator.
- Increased operational efficiency: effective demand planning helps to streamline operations by optimising the fulfillment process and reducing delivery times.
- Improved financial planning: when you can predict future sales, your finance departments can benefit from it too, by allocating budget strategically and planning more accurately for business needs.
- More successful marketing strategies: understanding demand trends and sales patterns helps businesses make more informed decisions on product launches and other strategic moves.
Measure your results
Setting objectives and identifying the right Key Performance Indicators (KPIs) enables your ecommerce to measure how effectively you are planning and how quickly you reach your set targets.
Some useful KPIs to track are:
- Sales forecast accuracy
- Inventory turnover
- Fill rates
- Order fulfillment
- Lead times
- Cost of Goods Sold (COGS)
How eLogy supports your demand planning
Having the optimal AI-driven analytics forecasting tools positions e-tailers to make better decisions and have more insights into consumer demand to align their product assortment and marketing strategies accordingly.
Our all-in-one e-commerce platform enables you to make the most of your opportunities and drive sales.
Storing inventory data accurately is the key to successful demand planning. eLogy’s WMS software helps you to automatically store all the data you need and enhance your processes by:
- Tracking inventory levels
- Giving real-time visibility on inventory
- Automatically sending reorder notifications to always keep optimal stock levels
- Storing all the data you need to monitor your essential KPIs
- Forecasting demand for better stock replenishment and fulfillment
With eLogy you know which products to stock, and where to overcome all challenges of modern retailing!