What is the role of Demand Planning in Logistics? by Marta Suárez

Demand planning: set of activities and calculus that deal with the provision of warehouses. Its main objective is to keep adequate stock levels to meet consumer’s demand in a certain period of time. The key is then to find a balance between demand and supply.

A better demand planning (a better adaptation of the firm’s inventory and purchases to consumers demand) has several positive effects in the firm’s economy. Here are some issues that firms should consider when thinking about demand planning:

• Demand forecasting should be based on trends, seasonality and sales irregularity.

• With demand planning, production can be scheduled more efficiently and be better managed in the case firms have long lead time suppliers. We can ask in advance for the raw materials in a more accurate way.

• A more efficient estimation about procurement allows the firm to be on a better position with respect to suppliers and to negotiate better conditions.

• Reducing the level of stock improving the service level can help to reduce cost

• Save on operational costs from holding the inventory: The less time the inventory spends in the warehouse the less money you’re paying to let is just sit there waiting to be sold

• Optimize purchases by acquiring just the products that are really necessary.

• Reduce the number of obsolete products: a reliable forecasting of demand will help the firm to avoid having excess of stock and this will reduce the chances of obsolete stock   

• Improving the service level implies that the firm would have the products so as to be able to meet demand in a higher number of occasions and in a faster way, which would increase the consumer’s satisfaction.

According to George Palmatier and Colleen Crum, the components of an effective demand management are:

1. Planning Demand
2. Communicating Demand
3. Influencing Demand
4. Prioritizing Demand

The demand planning can be facilitated by using technologies:

• They allow for automatic information about provision necessities of warehouses
• Better coordination between product entries and exists to warehouses.
• Information about the sales points; needed products, the most demanded products …
• Capacity to simulate the future
• Capacity to manage a great amount of data

Firms with a more accurate demand prediction, mature planning processes and using innovative technology obtain high benefits.

Examples of demand management in a business with a large product portfolio

As an example, I’m going to consider Nestlé. Its product portfolio is very large and seems not to stop growing:

In an article I found that in order to enhance it processes and achieve greater accuracy in demand planning, nestle implemented SAS Forecast Server. With this system, they were able to improve forecasting accuracy four percentage points, reduce errors, reduce inventory and increase their service level. The savings achieved exceeded their expectations.  

The high amount of product varieties that consumers can choose from nowadays makes it critical for suppliers to ship the right amount, to the right store and at the right time, also, makes space for storage much more valuable.

While dealing with all this distribution problems, nestle also has to deal with the issue of not letting the products rest too much on the warehouses (both to reduce costs and to provide the best quality products)

Here is a video that talks about the same change in Nestlé, introducing SAS technology:

Another example is Unilever:

It has recognized that more accurate information about demand can, as said before, positively affect customer service, drive down inventory levels and reduce costs.

In order to become more demand-driven, Unilever also decided to look for a good technological help. In their case, they implemented Terra Technology’s Demand Sensing. They first implemented the technology in the US as a trial but given the success (reduced Unilever's forecast error, improved inventory planning, decreased expediting costs and reduced safety stocks) they decided to implement it globally.

Marta Suárez