Demand management is a crucial aspect of supply chain management. Especially, large-scale organisations will thrive only with effective demand planning; it impacts every step of the supply chain. Effective demand management not only ensures customer satisfaction but also impacts the bottom line– a mere 5% reduction in supply chain costs can lead to a doubling of net profits. 

However, for perfect execution demand management, various activities such as demand capacity, demand chain, communication, modelling, demand shaping, sensing and prioritising. Let’s learn about the role and benefits of demand management activities in this article.

What is Demand Management in Supply Chain

Optimised supply chains lead to 15% lower supply chain costs, reduce inventory holdings by 50%, and lead to 3X faster cash-to-cash cycles.

Demand management in SCM involves planning, controlling, and regulating various internal and external factors that influence demand. Effective demand management increases operational efficiency in SCM and maximises profitability. 

But demand management techniques vary from business to business and type of product. It must be tailored for every organisation to optimise resource utilisation, reduce inventory costs, and improve customer satisfaction.

Types of Activities in Demand Management

Demand Capacity

An important activity of demand management is capacity planning. Organisations must plan their capacity demands so they can meet customer needs with existing resources. They refer to everything from machinery, shop floor, staff, and knowledge to software and outsourced capacity resources. Capacity demands vary for different customers with the type and size of product they’re ordering.

Before calculating demand capacity, understanding the maximum capacity of an organisation is crucial. They have to identify the slowest part of production, like a machine, to gauge the maximum output. Calculate it by determining the slowest part’s hourly production rate and multiplying it by operational hours. The formula is as follows:

Maximum Capacity: Hourly Production Rate × Operational Hours.

Consider a manufacturing plant with a slow machine producing 25 items per hour, operating 10 hours a day. The maximum capacity is 250 products daily, limiting the overall daily production regardless of other process speeds.

Demand Chain

The demand chain model shifts focus from the traditional supply-based approach to meeting customer demands. Instead of monitoring and adjusting product/service supply, it monitors customer demands to keep up with their expectations and create satisfying products or services. 

Market attractiveness reports are crucial for demand chain planning, impacting production and sales. Inadequate planning may lead to surplus inventory or sales losses. In service industries, improper planning can result in excess or insufficient staffing relative to demand surges.

Demand Communication

When companies prioritise communication with suppliers to keep pace with demand forecasts, it is demand communication. Active communication by sharing, analysing, and collecting data among the stakeholders of the supply chain is crucial to plan for changes beforehand. 

By keeping suppliers informed about demand changes, organisations can ensure that the right inventory is available on time. Demand communication helps suppliers replenish and maintain their stocks efficiently and cost-effectively. Given the vastness of the supply chain, demand communication also ensures that problems are addressed before they arise and escalate. It prevents delays or unexpected stockouts. 

Take the following steps:

• Implement a consistent communication schedule, whether through daily briefings or weekly email updates. Keep all team members informed about the latest operational developments. This will also create a platform to celebrate successes, address challenges, and develop strategies for the future.
• Promote a feedback-friendly environment to enhance supply chain efficiency by valuing team opinions and fostering open communication. 
• Leverage technology for efficient communication by adopting systems such as supply chain management software, cloud-based documentation, Internet of Things, and video meetings and conferences.

Demand Modelling

At this step, organisations start modelling various internal and external factors that impact estimated future demands. While production capacity, human resources, machinery, shop floor, and capital constitute internal factors, evolving market needs, economic trends and even economic policies can be part of external factors. Demand modelling relies on every existing data point, internal and external.

The goal is to minimise risks by promoting decision-making based on evidence, resulting in shorter waiting times and improved quality of care.

With successful demand modelling, organisations can:

• Identify high-demand services and reasons for growing waiting lists.
• Model necessary capacity to match demand.
• Assess the gap between current and required service capacity.
• Calculate maximum waiting lists for each service.
• Identify inefficiencies or resource barriers and plan resource optimisation.
• Support informed decision-making for service changes.

Demand Shaping

Demand shaping involves influencing the market demand to meet existing supply needs. Organisations typically use the following techniques to shape the demand:

Changes in Pricing: Altering the cost of a product or service can impact its demand. For overstocked goods, lowering prices is a good idea to quickly sell out. Similarly, when there are stockouts, increase the prices.

Special Offers and Discounts: To increase demand, offer initial discounts and perks such as 1+1, promotional codes, etc., and withdraw them when supply is scarce.

Promotional Activities and Marketing: Ads and marketing create or boost awareness for a product or service. Top brands like Puma nail their advertising when they launch new products. Leveraging the art of advertising makes creating demand easy. But, effective collaboration between planning and marketing teams is crucial for this.

Product Innovation: Introducing new or enhanced products or services can stimulate demand. 

Creating Scarcity: Limit product or service availability to instil a sense of scarcity. Offering it for a short time can spur demand, and restricting product availability for certain markets also works.

Raise the sales incentives for sales reps or distributors, who will then work actively to create demand.

Demand Sensing

It’s a mathematical method that enables businesses to monitor real-time demand for products/services. Additionally, it forecasts customer identity, identifies top-selling items, and assesses how products influence demand. It involves the following techniques:

• Use POS data analysis that examines real-time sales data from POS terminals. It identifies demand signals and adjusts inventory levels.
• Watch social media to track activity and sentiment. It uncover trends and shifts in consumer behaviour that might affect demand.
• Analyse weather data. Use forecasts and history. Predict how weather might impact demand.
• Economic indicators, like GDP growth and unemployment rates, also show demand patterns.
• Use Machine learning algorithms to find patterns, trends, and relationships. They can scrutinise large datasets. It helps with data-based demand sensing.

Demand Prioritising

After making a demand forecast, it is important to prioritise various organisational activities based on their role and urgency. This involves understanding customer needs and market trends, addressing risks, managing resources, and evaluating requests. The objective is to optimise productivity while minimising costs.

Some of the aspects involved in demand prioritisation are:

1. Customer Segmentation: Categorise customers based on certain factors, such as profitability, strategic importance, order volumes, or contractual obligations. It helps in assigning priorities.
2. Establish Prioritisation Rules: Define the criteria for prioritising demand. These include customer tier and order size. Also, product margins, delivery dates, and penalty for non-fulfilment.
3. Assign Weightage: Assign weightings based on business objectives and priorities. Use them to determine the importance of each criterion.
4. Demand Scoring: Score each customer demand based on the criteria and weightings to create a ranked list of demands.
5. Allocate Supply: First, allocate supplies to meet the highest-priority demands. Then, work down the ranked list until supplies are exhausted.
6. Communicate Priorities: Clearly communicate the demand priorities and expected lead times to customers. This will set the right expectations and transparency.
7. Monitor and adjust: Continuously watch demand patterns, supply limits, and shifts in customer priorities. Adjust the prioritisation process as needed to align with evolving business conditions.
8. Collaborate with customers: Engage with key customers, especially for high-priority demands. Explore options like order splitting, postponement, or substitutions if needed

Related read: What is Seasonal Demand Forecasting?

Conclusion

In conclusion, looking into demand management activities reveals their critical role. They optimise supply chains and boost business performance. It covers forecasting, demand sensing, data sharing, and analytics. Executing these activities not only ensures adaptability and responsiveness to ever-changing markets, it fosters sustained growth and operational excellence for thriving businesses.

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