Business Logistics
Topic 4 - What is the role of demand
planning in logistics?
Definition:
Demand planning is a multi-step operational process of the supply chain
management (SCM) that balances clients’ requirements with the capabilities of
the supply chain. It creates and uses effective demand forecasts to synchronise
supply and demand, increase flexibility, and reduce variability.. Effective demand planning guides its users to improve the accuracy of
revenue forecasts, align inventory levels with peaks and troughs in demand, and
enhance profitability for a given channel or product, as well as enabling a
company to be more proactive to anticipated demand, and more reactive to
unanticipated demand.
Roles:
1. To increase customer satisfaction
- if companies can provide products/services when customers want it, there will
be higher customer satisfaction.
2. Reduce inventory stockouts –
focusing on demand planning can help a firm to time their purchases to
correlate with when sales need to be carried out. This means that if there are
lower inventory times, the company will have lower inventory costs.
3. Managing shipping more
efficiently– demand planning helps to ensure that there is enough capacity to
ship material on time.
4. Better
scheduling of production.
Demand planning is usually used by companies in the short, mid and
long-term.
• Short-term – Focus on demand for
the next several months. Most important for operational logistics planning
process.
• Mid-term – range from one to three
years and involve budgeting and sales plans.
• Long-term – more concerned with
long-term strategy and forecast demand for more than three years.
Important steps in demand planning include:
• Obtaining past sales data and
clean the Historical dataset
• Creating statistical forecasts
• Obtaining customer forecasts
• Override the Statistical Forecast with
Judgmental Input
• Working with customers
• Managing forecasts
Example of demand management in a
business with a large product portfolio.
Unilever is one of the world’s biggest brands, with a huge product
portfolio across of a number of departments such as Persil, Ben & Jerry’s
and Dove.
The brand was one of the first users of a demand management tool called
Terra Technology’s Demand Sensing software, which they tried out in North
America on personal care products in 2006. The process involved placing the
company’s existing sales forecasts, past shipment data and customer orders into
the system which led to more accurate daily forecasts been produced.
Results were positive with weekly forecasts improving by an average of
40% and the company was able to reduce finished goods ‘safety’ inventory by
three days. The demand sensing software has many potential benefits such as
bringing greater supply chain visibility and creating responses to daily demand
information. Furthermore, this demand data could help improve manufacturing
schedules, supplier’s deployment and stock transfers. This software was
eventually implemented further across the brand in 2009.
Demand planning in the
pharmaceutical industry
Pharmaceutical companies face huge competition and their main problem is
that consumers are not usually the ones that make purchase decisions, so in
order to forecast demand and supply, they need to take into consideration the
different stakeholders of the industry. Behind the scene, there exists a
complicated network that involves patients (customers), doctors, pharmacies,
regulation authorities and payers.
There are two stages in the process: prescription and
distribution. The first one is influenced by factors such as managed care
programs the physician belongs to, patient price sensitivity, insurance program
plan coverage, etc. On the other hand, distribution depends basically on
pharmacists, they have the decision whether to give branded or generic versions
of drugs, and it depends on insurance companies that reimburse the drug,
hospital/clinics the pharmacies are affiliated with, patient support programs
pharmacies are involved in, etc.
Therefore, when pharmaceutical companies forecast
demand and supply, they should consider all above components and correlate
manufacturing, operations, distribution and sales planning when making the
business plan and strategy.
References
http://cmuscm.blogspot.com.es/2013/09/demand-and-supply-planning-in.html
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