What is the role of Demand Planning in Logistics? by Anna Garcia and Rebecca Holmes


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

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



Comentarios