What is Demand Management: A Detailed Guide with Examples

Organizations must have a thorough awareness of the demands and preferences of their customers in today’s highly competitive business environment. Effective demand management can assist in achieving this understanding. Demand management is a crucial procedure that enables companies to streamline the activities of their supply chain operations, cut costs, and improve customer satisfaction.

In order to practice effective demand management, businesses must examine historical data, market trends, and customer behavior. This makes it possible for businesses to organize and improve their supply chain operations, inventory levels, and production schedules.

Businesses can do this to prevent stock-outs, lower surplus inventory, and ensure that goods are accessible when and where customers need them. In this blog post, we’ll look at many facets of demand management, including its definition, importance, key elements, and examples for optimizing demand.

What is Demand Management?

The process of understanding, forecasting, and managing customer demand for products or services is known as demand management. It is practiced by businesses to forecast demand accurately and involves analyzing historical data, market trends, and customer behavior. Demand management makes it possible for businesses to optimize their supply chain operations, production schedules, and inventory levels.

Effective demand management is essential for organizations to remain successful and profitable. By ensuring that products are available when and where customers need them, demand management helps them minimize stock-outs, eliminate excess inventory, and improve customer satisfaction. Businesses can lower expenses, boost income, and enhance overall operational effectiveness by optimizing their demand management processes.

Demand Management Process

Demand management is a subset of supply chain management that ensures a fine balance between the demand and supply of a product. There are 3 main steps in the process, modeling, forecasting, and demand planning, followed by the fourth step, supply planning. Detailed information about the steps is as follows:

Step-1: Modeling

A key step in the demand management process is modeling. The demand planning team gathers information from a variety of sources, including sales and demand drivers, social media strategy, and market trends. Once the information has been gathered, it is either manually examined for a variety of exercises, or it is manually entered into demand management and planning software.

Below-given are the data sets that are considered:

Model review: This method involves ensuring that the existing demand model is updated and working accurately.

Mathematical modeling: Equations based on previous data are used in this process to examine the demand impact.

Reality assessment, test and simplification: Based on logic and statistics, this process verifies the validity of the demand indicators.

Data collection and preparation: In order to create a demand planning strategy, this process gathers and analyzes data.

Step-2: Forecasting

Allowing companies to project future demand for their goods or services, forecasting is an essential step in the demand management process. By employing predictive analytics, businesses can yield accurate sales and revenue estimates that support trustworthy supply chain decisions.

Here are some key areas of focus for demand forecasting:

Objective setting: Before starting the forecasting process, setting up specific goals that meet the demands of different departments, such as product marketing, financial planning, operations, and logistics, is essential.

Collection and data recording: Businesses must combine data from numerous sales channels to generate an accurate forecast in order to gain a clear view of the actual product demand.

Measurement and data analysis: Whether using automation and predictive analytics or completing the task manually, businesses should opt for a repeatable data analysis process to set themselves up for success with subsequent forecasts.

Budgeting: Businesses should update their budget in order to distribute funds in accordance with growth objectives based on the feedback from the forecasting process.

Step-3: Demand planning

Demand management includes demand planning as a crucial step. It aims to foresee demand for a service or product so that it can be met without causing excess inventory.

Following key areas are included in demand planning:

Collaboration with Customers: For a business to get a clear image of future demand, understanding client behavior and working with them are essential.

Forecast Management: To make wise decisions, demand forecasts must take into account the most recent data.

Using Past Sales Data: Data from previous sales offer insights into demand trends from the past.

Data Reexamination: It’s crucial to continually examine and reanalyse data to make sure that supply and demand are balanced.

Step-4: Supply planning

Supply Planning, which encompasses inventory management and optimization of customer service costs, is an essential step in demand management strategies. This process requires identifying the most critical issues and planning across multiple locations to simulate potential responses.

Also, planning routes with multiple locations is included in supply planning. The goal is to carry out a strategy based on the best data available while taking into account the needs and preferences of the consumer.

The following are some key areas of focus in Supply Planning:

• Determine and reduce supply chain risks
• Create a strategy based on the most up-to-date information
• Optimize customer service costs and inventory levels
• Optimize customer delivery routes
• Fulfilling deliveries in the most cost efficient way or least time
• Solve any critical issues to ensure that the supply chain runs smoothly

What are the Objectives of Demand Management?

The following are the 5 key objectives that businesses aim to achieve:

1. Enhance customer service

Enhancing customer experience was and will always be the primary objective of demand management as it focuses on ensuring that the products are available on when and where customers need them. Businesses can prevent stock-outs, shorten lead times, and increase order fulfillment rates by precisely anticipating demand and streamlining supply chain operations. This in turn contributes to greater client loyalty and satisfaction.

2. Better forecasting

Increasing the accuracy of demand forecasts is another objective of demand management. Organizations can find patterns and insights that help them estimate future demand more precisely by examining historical data, market trends, and customer behavior. As a result, they are able to more effectively plan and manage their production schedules, inventory levels, and supply chain operations.

3. Lower business costs

Lowering costs is a significant objective for most businesses, and demand management can help achieve this by decreasing excess inventory and avoiding stock-outs. By managing inventory levels and supply chain operations, firms can reduce holding costs, transportation expenses, and obsolescence costs. As a result, they are able to increase their profitability and competitiveness.

4. Product betterment

By precisely forecasting demand, businesses can find opportunities to enhance current products or release new ones that more effectively meet client needs. Organizations can also launch new products to market more swiftly and effectively by streamlining their supply chain operations.

5. Robust planning

The final and important objective of demand planning is to improve planning efficiency across the company. This includes all the other objectives and entails streamlining supply chain operations, inventory levels, and manufacturing schedules to make sure that goods are available when and where customers need them. Organizations can increase their overall competitiveness, lower expenses, and increase customer experience by doing this.

Example of Demand Management

A fashion retailer implemented a demand management system to optimize inventory levels and enhance their capacity to meet consumer demands. The shop was capable of forecasting demand more accurately by looking at past data and market trends, which helped them to plan their production more effectively and get rid of extra inventory.

As a result, they were able to increase operational efficiency, lower expenses, and meet customer demand. The company was also able to boost consumer satisfaction and loyalty by having the appropriate products available at the right time, which contributed to revenue growth. Overall, the company was able to maintain its competitiveness in the market which was changing rapidly because of demand management.

Demand Management Vs. Demand Planning Vs. Capacity Management: Comparison

Here is the quick comparison between demand management, demand planning and capacity management.

Demand management

As we know that, demand management is a process that comprises all the activities that involve managing consumer demand. From analyzing customer demands and preferences to forecasting them and optimizing inventory levels, it includes everything. The main objective of demand management strategies is to ensure that the products are available when and where required by the customers, while managing inventory accurately.

Key activities involved in demand management strategies:

• Categorizing clients into groups based on their preferences and needs.

• To forecast future demand using historical data, market trends, and other factors 

• By optimizing inventory levels, ensure that products are available when and where customers need them.

• Managing the full order process, from receiving orders to fulfilling those by delivering them to customers on time.

Demand planning

Demand planning is a subset of demand management that focuses on the demand management processes of forecasting and planning. The goal of demand planning is to estimate future demand so that production schedules, inventory levels, and supply chain operations can be planned accordingly. Basically, demand planning is more of a long-term forecasting so that customer demands can be met efficiently in the future.

Key activities involved in demand planning:

• Making predictions about future demand using statistical models and other methods.

• Ensure that all key stakeholders are on the same page and working toward the same objectives by including them in the demand planning process.

• To help identify potential risks and opportunities by creating multiple scenarios.

• Based on forecasted demand, manufacturing schedules and inventory levels can be planned.

• To make sure the demand plan is in line with the overall business strategy, by bringing together all the important stakeholders in the organization.

Capacity management

With capacity management, businesses can make sure they have the resources necessary to fulfill customers’ demands. Capacity management involves analyzing the resources required to produce a product or service and matching them with the available resources within the organization. By using this technique, businesses can avoid over or underutilizing their resources while maximizing their use of them.

Key activities involved in capacity management:

• Ensuring that the organization’s capacity is in aligned with the demands of its customers

• Making sure that resources are used effectively

• Recognizing potential capacity constraints and proactively addressing them

• Maximizing the usage of existing resources

• Finding potential improvements in capacity usage

Upper Route Planner: Your Best Companion for Efficient Supply Planning

The main idea of supply planning is to streamline the supply chain and find out the cost-efficient ways to carry out supply operations. One of its ways is to adopt a route optimization software and when it comes to finding out a robust solution, Upper Route Planner stands out in the market.

The important features of Upper makes it an exceptional tool to optimize routes for the delivery tasks. Supply managers plan delivery routes manually, which makes it a very time-consuming task. Also, with increasing delivery stops and number of drivers, the complexity increases and thus the chances of making human errors are more.

On the contrary, planning and optimizing routes with Upper Route Planner is a matter of a few minutes only. Also, there is no room for any errors. If you got a list of stops and drivers ready, you are almost done with the process already. Just import the list, assign drivers, optimize routes and send it to drivers, this is all it takes to plan routes using Upper.

In addition to that, businesses can save fuel costs and reduce delivery time by optimizing routes with Upper. As a result, you can earn desired profit with less expenditures. 

Along with route planning and optimization, Upper has other impactful features like:

• Route scheduling
• One-click dispatching
• Excel import
• Report and analysis
• API integration
• Proof of delivery

Conclusion

The success of any organization depends on having a strong demand management strategy. Companies can reliably forecast future demand, plan production and inventory levels accordingly, and ensure they can meet consumer demands by putting in place a robust demand management process.

Modeling, forecasting, demand planning, and supply planning—the four essential elements of demand management—integrate flawlessly to give a dependable, data-driven approach to managing demand. Businesses can optimize their operations and promote long-term sustainable growth by utilizing the most recent tools and technology. And to begin your demand management journey right away, Upper can be your go-to tool. Try your 7-day free trial now.