Demand Management

Determining what the demand might be in the future and planning how to manage it is demand management. To properly manage demand, companies need to look at many factors. First, they need to try and understand their customers. What do their customers want? They also need to consider marketing. If you want to sell more products, you might increase your commercialization of the product. Companies might even influence demand by their prices and promotions.

Demand management has a defined set of processes, capabilities and recommended behaviors for companies that produce goods and services. Consumer electronics and goods companies often lead in the application of demand management practices to their demand chains; demand management outcomes are a reflection of policies and programs to influence demand as well as competition and options available to users and consumers. Effective demand management follows the concept of a “closed loop” where feedback from the results of the demand plans is fed back into the planning process to improve the predictability of outcomes. Many practices reflect elements of systems dynamics. Volatility is being recognized as significant an issue as the focus on variance of demand to plans and forecasts.

The last few decades have seen an increasing demand for enterprise software applications that can streamline supply chain processes and provide lean manufacturing capabilities. At the other end of the supply chain, companies have been moving towards outsourcing their product distribution in order to keep sales overhead in check without sacrificing revenue.

Organizations are in a competition of applying new technologies and analytics to make their supply chains more efficient, reduce inventory, and improve customer satisfaction while improving profitability. This implies the need to have an effective process for demand management.

Need for demand management

• Demand management processes help organizations gather valuable insight, agility, and improve the ability to plan and forecast while increasing visibility into customer demands.
• Demand management helps companies improve inventory levels, enhance customer service, optimize trade and promotion planning, and enhance inventory planning.
• Demand Management is far more robust than developing a demand forecast or sales forecast.
• Improper demand forecasting results in more supply chain costs and low margins.

Related Terms

• Demand Sensing: Shortening the time to sense “true” market data to understand “true” market shifts in the demand response. This is in contrast to using order-to-shipment data that can have 1-3 weeks latency in translating “true” market (or channel) demand to action.
• Demand Shaping: Applying techniques to stimulate market demand. This includes new product launch, price and revenue management, assortment, merchandising, placement, sales incentives, and marketing programs. These techniques to lift demand are seldom deployed singularly. Instead, they are usually deployed into the market together.
• Demand Translation: Translating demand outside-in from the market to each role within the organization. The system design recognizes that the requirements for each—distribution, manufacturing and procurement— are different. In this process, the forecast is based on “the selling unit” into the channel with “ship-to modeling.” The demand is then translated to “ship-from” views based on the needs of the specific role.
• Demand Orchestration: Making trade-offs market-to-market based on the right balance of demand risk and opportunity. These trade-off decisions depend on the use of advanced analytics to sense and shape demand simultaneously.

As Business Process

Demand management is both a stand-alone process and one that is integrated into Sales and Operations Planning (S&OP) or Integrated Business Planning (IBP). The definition of the process and components covered in this section describe the current best practices encompassing the methods and competencies that have a track record of success with leading companies today. Much effort is put into more esoteric financial or academic approaches; however their practical value is limited by the ability of business practitioners to use on a regular basis. As those methods become more accessible and part of regular use they join the best practices, “predictive forecasting” covered in this section is a great example.

Demand management in its most effective form has a broad definition well beyond just developing a “forecast” based on history supplemented by “market” or customer intelligence, and often left to the supply chain organization to interpret. Philip Kotler, a noted expert and professor of marketing management notes two key points: 1. Demand management is the responsibility of the marketing organization (in his definition sales is subset of marketing); 2. The demand “forecast” is the result of planned marketing efforts. Those planned efforts, not only should focus on stimulating demand, more importantly influencing demand so that a company’s business objectives are achieved.

The components of effective demand management, identified by George Palmatier and Colleen Crum, are:

• Planning Demand;
• Communicating Demand;
• Influencing Demand
• Prioritizing Demand.

Demand Control – Demand Control is a principle of the overarching Demand Management process found in most manufacturing businesses. Demand Control focuses on alignment of supply and demand when there is a sudden, unexpected shift in the demand plan. The shifts can occur when near-term demand becomes greater than supply, or when actual orders are less than the established demand plan. The result can lead to reactive decisions, which can have a negative impact of workloads, costs, and customer satisfaction.

Demand Control creates synchronization across the sales, demand planning, and supply planning functions. Unlike typical monthly demand or supply planning reviews, Demand Control reviews occur at more frequent intervals – daily or weekly – which allows the organization to respond quickly and proactively to possible demand or supply imbalances.

Time Fences – The Demand Control process requires that all functions agree on time fences within the planning horizon, which should be no less than a rolling 24 months based on Integrated Business Planning best practices. A time fence is a decision point within a manufacturer’s planning horizon. Typically, three established time fences exist within a company:

• Future Planning Zone – Supply is managed to match demand
• Trading Zone – Demand is managed to match supply for production
• Firm Zone – Demand is managed to match supply for procurement

Demand Controller – A Demand Controller is established when a company implements a Demand Control process. Unlike a Demand Planner who focuses on long-term order management, the Demand Controller is responsible for short-term order management, focusing specifically when demand exceeds supply or demand appears to be less than planned, and engages sales management in both situations. The Demand Controller works across multiple functions involved in the supply and demand processes, including demand planning, supply planning, sales, and marketing.

Elements of Demand Management

Planning demand involves a full multiple-view process or work flow; including statistical forecast as a baseline from clean “demand history” [not shipments], using the most effective statistical models. Kai Trepte developed the Microsoft Excel add-in “Forecast X” to provide practitioners with a workstation capability to assess the best matches between data and forecast models. Increasingly “predictive forecasts” have moved from a limited use to becoming best practice for more companies. Predictive forecasts use simulation of potential future outcomes and their probabilities rather than history to form the basis for long range (5-10+ years) demand plans. Baseline forecasts are typically developed by demand planners and analysts, who may be regional or centrally located. They work under the guidance of the demand manager. Baseline forecasts are communicated to members of the demand management team. This usually includes regional sales leaders, market managers, and product managers. The team may include customer service leads who manager orders under service agreements with customers and have direct insight into customer demand. For major retailers this is often point of sale data provided to suppliers.