With the global supply chain management (SCM) going haywire, thanks to the pandemic and war, it’s time for us to understand the relationship between Demand Management and SCM. Demand and supply are intrinsically connected. It is but natural that the effective management of Demand will obviously have its positive effects on the Supply Chain Management. The role of Demand Management in Supply Chain is thus extremely crucial.
So, What Is Demand Management?
Forecasting the demands of customers and ordering products based on that forecast so that the stock remains filled with the products in demand is what we call Demand Management. Once you know which product should be ordered before the demand gets out of control, you can then control then have control over the supply chain management. Without a proper Demand Management in place a company runs the risk of running out of products that its customers are desperate to buy. This can lead not only to financial loss but reputation loss as well.
Way back in 2001, the sports footwear manufacturer, Nike installed a Supply Chain Management software. The company wanted to automate the inventory and order management process in its footwear division. It was an extremely ambitious project. The company wanted to know beforehand which product should be demanded more by customers, which product should be ordered in bulk and which product had very little demand. Unfortunately, the software did not work as intended. The software was unable to predict the demands from customers. As a result Nike filled its inventory with items that very few people bought. On the other hand, its inventory of a popular shoe model remained largely empty. Nike suffered a monetary loss to the tune of $400. But above all, it lost the trust of customers.
The above example poignantly shows the effectiveness of Demand Management for supply chain efficiency.
Objectives of Demand Management
Before delving deeper into how Demand Management helps in improving supply chain, let’s talk about the objectives of Demand Management. Providing customers with impeccable service is the primary reason behind Demand Management. Once you know which products will be demanded by customers in the near future, you can manage the supply chain with this priceless knowledge. The stock of the products will never dry up and customers will get what they want. Remember, when we talk about products, we also mean services. Here are some specific objectives of Demand Management-
- Impeccable Customer Service– With Demand Management, you can predict what your customers will want, ask or do. This gives you an awesome opportunity to serve your customers in a 360 degree way.
- Predictive Analytics– Demand Management will give you the power of predictive analytics. You can keep the supply chain running smoothly.
- Gauging The Emerging Trends– Demand Management is not just about predicting customers’ demands. It also includes knowing what trend is going to storm the market in the near future, giving you a competitive advantage.
- Just-In-Time Supply Chain– With Demand Management you can reach closer to the idea of just-in-time supply chain management and reduce unnecessary surplus stock – without the danger of depleting the stock.
How Demand Management Leads To Supply Chain Efficiency
Forecasting demand and planning accordingly goes a long way in keeping the supply chain efficient. Here are 6 ways in which Demand Management keeps the supply chain robust.
Improved Relationship With Customers
Demand Management helps you keep your inventory levels optimised. With accurate demand forecasts, a company’s distribution and logistics stay in proper posture. These two aspects are important pillars of an efficient supply chain. The ultimate result is- improved customer service with on-time delivery of products and services. An organisation that knows that can gauge the behaviour of customers will be able to serve them efficiently.
Improved Relationship With Suppliers
For retail industries and elsewhere, suppliers are the backbone of Supply Chain. If you have a clear idea about which products will have approximate how much demand, you can plan your raw material purchasing accordingly. This results in zero ambiguity between a company and its suppliers. Suppliers get a clear visibility of the company’s raw material demands and get enough time to fulfil the demand. This keeps the relationship between the company and the supplier healthy. Also, since Demand Management enables you to purchase raw materials with enough time in hand, you can get an upper hand while negotiating the price.
Forecasting Demand Trends Leads To Efficient Management of Product Lifecycle
One of the biggest ways Demand Management leads to supply chain efficiency is by empowering companies to know what kinds of products are going to be in trend within a few months. Companies can use this knowledge to launch new products and discontinue products that are predicted to receive reduced demand. Along with that, enhanced predictive analytics will help suppliers, manufacturers and retailers work in sync.
Reduction of Safety Stocks
Another important way in which Demand Management leads to a better supply chain is by reducing safety stocks. When you have a clear idea about the future demands, you don’t need to keep excess stocks. You have the visibility and you know exactly when to order a particular product. This helps companies maintain optimum inventory levels with as little cost as possible.
On-time shipping depends not just on stock availability but also the availability of enough personnel to handle the shipping process. When you have the ability to predict increase or decrease in demand, you can increase or decrease the number of personnel. This will empower you to have enough personnel during peak time enabling you to ship products to customers on a timely basis. At the same time, you can avoid unnecessary costs by not having too many personnel on standby when you know that the demand will be low. This is another way how Demand Management leads to supply chain efficiency.
Demand Management Creates a Bridge Between Marketing and Supply Chain
The promotion of any product will obviously increase its demand. So it is necessary to gauge the increase in demand for a product after its promotion. Else, the organisation runs the risk of stockout due to sudden increase in demand. This is also true in case of seasonal increase or decrease in demand.
Demand Management is thus an intrinsic part of supply chain management. You can predict demand accurately if you just have a proper Data Engineering and Analytics system present in your organisation. At Automation Factory, we have the necessary expertise to set up a Data Analytics environment for your organisation to predict demand. Come, let’s create a robust supply chain for your organisation.