Demand planning: how to properly forecast your sales
Crystal balls are brilliant — they let you know what will happen in the future so you can act accordingly.
It’s sad that they only exist in fairy tales and stage shows. Unfortunately, there are no crystal balls in the manufacturing world, so you have to resort to other methods to predict your sales and plan accordingly.
The next best thing is demand planning.
This article will cover everything you need to know about demand planning and how it can better prepare you for future sales. So, unless you have some pressing plans for this very moment, make yourself comfy as we dive into the world of demand planning, where we explore all the following:
- What is demand planning?
- Why is demand planning important for manufacturing businesses?
- What is the difference between demand forecasting and demand planning?
- Demand forecasting methods
- Step-by-step guide: how to forecast demand
- Demand planning process
- Demand planning methods
- Tips for excelling in demand planning
- The future of demand planning
What is demand planning?
Demand planning is a process of forecasting, monitoring, and managing customers’ demand for a product while taking into account market conditions, consumer preferences, and other external factors. By understanding the future demand for their products, businesses can better plan supply and production in order to meet customer needs.
Demand planning tools allow businesses to use historical data as well as insights from analytics to make more informed decisions about how much product they need to produce or purchase in order to meet customer needs. This helps them ensure that there are enough products available at the right time and place in order to maximize sales opportunities and avoid unnecessary costs associated with over-production or under-stocking.
Why is demand planning important for manufacturing businesses?
Demand planning is essential for any business that wants to succeed in a competitive marketplace. By understanding the demand for their products and better forecasting consumer trends, companies can plan for their supply chain needs and create more efficient processes that help to minimize costs. This helps them give customers what they want when they want it and at the lowest possible cost.
In addition, using demand planning tools can help businesses adjust their strategies to meet customer needs better. This can include getting insights into the market, understanding customer preferences, and creating plans to anticipate potential demand or supply changes. By doing this, businesses can stay competitive and maximize their profits.
What is the difference between demand forecasting and demand planning?
Demand planning and demand forecasting are both crucial elements of effective supply chain management. While they are related, the two terms refer to distinct processes that help businesses manage their inventories efficiently.
Demand planning is an ongoing process that includes setting business goals and strategies, identifying demand drivers, understanding customer needs, analyzing historical data, developing forecasts, and creating replenishment plans — all to meet customer demand while minimizing costs. Demand planning aims to ensure that companies have the right products in the right places at the right times.
On the other hand, demand forecasting looks at past sales trends and predicts what will happen based on those patterns. It involves looking for patterns in historical data, such as sales figures and customer demand, and then using those patterns to create forecasts for the future. Forecasting is important as it helps companies anticipate market changes so they can adjust their strategies accordingly.
Know the difference
- Demand forecasting — Predicting what the demand for a certain product or service will be in the future
- Demand planning — Planning and organizing the resources, activities, and operations necessary to meet future customer demand
Demand forecasting methods
Demand forecasting methods help organizations forecast and plan for their future needs. These methods enable businesses to accurately anticipate customer demand. Here are some of the most common demand forecasting methods.
Market expert
Ask the experts.
We’ve all heard that before. You can use your portfolio of expert contacts to fill out a survey on their opinions on demand forecasts in your industry, and you can even get product-specific.
This method requires some solid connections to be in place, but the cool thing is that it’s easy to do. Little statistical knowledge is required. Just make sure you have a big enough sample size of experts and that they are contacted separately.
Collusions between those that give answers might seem like a good thing, but it’s always best to first ask separately, so you don’t create a bubble of discussion.
Consumer survey
This approach might seem too simple to be true.
Just ask your customers what they plan on buying in the future. There’s no one better to ask about requirements and needs than your customers. As an additional benefit, it shows your customers that you’re interested in their feedback and want to understand their needs better.
Just be aware that although you can draw on the data, this is a more supplementary method than others. It’s good to get a solid base using multiple methods, so you don’t get stuck on one angle.
Pro tip: A great plan starts with a great forecast. To make sure your predictions are accurate and take everything necessary into account, check out the article — Inventory forecasting to prepare for the rainy days.
Trend prediction
Once you have enough sales data, you can use it to analyze trends in demand. It’s a great way of utilizing data without relying on qualitative guesswork.
By looking at the sales pattern of certain products, you can get a good sense of where the demand is going and act accordingly. You can also identify any seasonal spikes in demand, allowing you to prepare and plan ahead.
Trend prediction is a purely mathematical method, so it works especially well in conservative industries which are easier to predict, such as necessity items, like baby products and salt.
It’s a solid starting point for forecasting demand.
Of course, regardless of how many methods you choose, there is always space for more data. Every piece of extra information you add will make your forecasts more accurate as factors become apparent.
But starting with these methods will give you some reliable data to work with when moving to the demand planning stage.
Step-by-step guide: how to forecast demand
Forecasting demand is a complex but necessary process. Here are the steps you should take to make sure you get accurate forecasts.
1. Gather data
The first step to demand forecasting is gathering the right data. This should include sales history, customer behavior, industry and economic trends, and any external or internal factors affecting demand for your products. Your gathered data will help you make better predictions about future demand and prepare you for the planning stage.
2. Analyze data
Once you have the data, it’s time to analyze it. Look for trends in the data and use statistical methods to identify patterns and relationships between variables to draw conclusions from them.
3. Set targets and track progress
The next step is setting demand targets. This should be done by taking into account all of the gathered information about market conditions, past performance, industry trends, etc. so that you can set realistic but ambitious goals for yourself. Once your targets are set, keep track of your progress towards those goals to ensure that you’re on track and adjust your plans accordingly.
4. Review forecasts and adjust demand plan
Finally, review your demand forecast and adjust your demand plan if necessary. This should be done periodically, so you can stay ahead of the curve and react quickly to any changes in the market.
By following these steps, you’ll be well on your way to having an accurate demand forecast for your business.
Demand planning process
Getting the demand planning process down is not a matter of minutes. It’s going to take fine-tuning and experience. Every time you make your forecasts, you should go back and check how you did with them after the fact. It’s the only way to improve your method.
You got the data, now it’s time to set down the crystal ball and look deep.
Search for patterns that tell the future of your business. Demand planning is the step of bringing together your demand forecasts and making sense of them in the context of your business environment. There are plenty of ways to do this, and you can construct your own plan over time that makes the most sense for you.
But the first thing you want to do is get all your forecasts together and combine them.
You want to use the most up-to-date information on hand to create a kind of master forecast. It’s not necessarily going to be a single graph with a simple line through it. That even means updating information as it becomes apparent after your initial plan.
It will likely end as a document that estimates demand for each product and product group.
Numbers let you know what the demand is likely to be. You can then use that information in your master production schedule and for optimizing your inventory. These numbers aren’t necessarily going to be exact, so just make sure you have some solid ranges down.
It’s great if, at this point, you can also create a process for your demand planning.
That way, whenever you go through the process again, you can keep a consistent method and spot anything that isn’t working well. Because likely, the first time you run your plan, it won’t come out as you expected. But don’t be discouraged — demand planning is a long-term strategy.
Demand planning methods
Forecasts are together, and the picture is built, so you know what’s coming for the most part. Now it’s a good idea to have a strategy — a battle plan.
Your plan needs to contain tactical ideas for dealing with this magnificent painting in front of you. Each stroke of the brush represents a potential change in demand. Now you have to make sure that your forecasts align with the grander story of the surrounding environment.
Because what happens outside your business is as important as what happens on the inside.
Thankfully, a few methods, such as SWOT, TOWS, and PEST analysis, can give you a frame to approach broader contexts. You can step back and think about the greater implications. Let’s look at PEST analysis for an example. It contains four parts:
- Political — Take a look around at politics on a local and national level. Changes to regulations and taxes can have significant effects which are better tackled if seen in advance
- Economical — It’s good to know how the economy is doing on a large scale but also on a smaller scale, like if there are any changes in consumer spending habits
- Sociocultural — What are the current trends and predictions for manufacturing? Consumers are getting pickier with their purchases, so factors like effects on the environment and community are as important as ever
- Technological — There’s no doubt that we are still deep in the age of technology. Technological development changes and how we use it are moving as fast as ever
Tips for excelling in demand planning
Demand planning is a complex process, so it’s important to have the right demand planning techniques in place. Here are some tips you can follow before you plan your production schedule.
1. Set your limits
Make sure you group your forecasts in ways that make sense. Products level, product group level, and entire range make the most sense. If they get mixed up, then your demand planning will be confusing.
2. Use your resources
Not just talking about books and the internet here, but all the people you know around you that have valuable insights, like
- Industry experts
- Customers
- Suppliers
- And even competition
3. Make the purpose clear
If you’re getting input, whether data or helpful insights, make sure the opposite party knows why you are gathering it. Otherwise, their contributions might end up misunderstood.
4. Use your results wisely
Once you have your results, you want to start implementing them by setting up your safety stock and reorder points. Otherwise, all that data will just be going to waste.
The future of demand planning
Making sure you get the most out of your demand planning and forecasting starts with the stockroom. Because optimizing your safety stock is going to be a direct result of your efforts. Getting the fundamentals of demand planning and forecasting down is no easy feat.
If you get it right the first time, then know — you’re one of few, not many.
The reason it’s so difficult to get right is that every business has very different needs when it comes to demand, even with the help of demand planning software.
The analysis is just one part anyway.
After the demand forecasting, you need to make sure that there is a significant degree of accuracy. And then, you need to put your data in context. This is where the right tools really come in handy.
Katana’s live inventory management software updates your stock levels in real time in tandem with your sales, manufacturing, and purchase orders, so you always know what you have and where you have it.
Katana comes with all the features you need to manage and plan your inventory and manufacturing operations, including:
- Reorder points to avoid stockouts
- Real-time master planner for automatic resource allocation based on order priority
- Multilocation support to minimize delivery time and cost
- Insights to monitor sales performance and make data-driven decisions
- Seamless integrations with the best business tools
Give Katana a go with a free 14-day trial and see how it can remove the strain from business management and free up your time for more pressing tasks.
