What is the role of Demand Planning in Logistics by Saskia Blackburn and Tamara Noiman

What is the role of demand planning in Logistics

By Saskia Blackburn and Tamara Noiman

Before we begin to take a look at the role of demand planning within logistics, we must first understand the concept of demand planning. This includes what it involves, what it can help companies determine, and it’s connection to logistics.  

According an article published by Szozoda, a Business Logistics professor in Poland, Demand Planning is the first stage of business planning (SZOZDA and WERBIŃSKA-WOJCIECHOWSKA). Demand Planning is a multi-step, operational supply chain process that is utilised by companies in order to create reliable consumer forecasts (SZOZDA and WERBIŃSKA-WOJCIECHOWSKA). Those companies with superior demand planning strategies can attain significant competitive advantages through efficient logistical activities including inventory and distribution management.

To be able to effectively execute demand planning there needs to be strong communication across all departments of an organisation. This includes a thorough understanding of the manufacturing, logistics, marketing, sales, and finance of an organisation, as well as the capability to reach outside company walls to coordinate with suppliers and customers (Bowman).

Image source:  (SZOZDA and WERBIŃSKA-WOJCIECHOWSKA)

According to Szooda There are four ways effective demand planning improves logistical activities (SZOZDA and WERBIŃSKA-WOJCIECHOWSKA):

1) Improves customer service level – enables better responses to customer demands with the available goods or services on time;

2) Lowers inventory levels and related costs – allows a reduced inventory levels

3) Improves purchasing and procurement – leads to better planning of purchasing and procurement, which reduces costs of materials and improves relationship with suppliers;

4) Better use of production assets – the basis of correct production planning, leading to more effective use of internal and external assets.

The Process of Demand Planning:

Image source:  (SZOZDA and WERBIŃSKA-WOJCIECHOWSKA).

Demand planning begins with a thorough forecast examination of customer wants and needs, and is based on multiple inputs and factors of the surrounding environment (Rouse). This establishes the goals and priorities of the company. These needs are then translated to key departments throughout the company, and demand and supply are aligned accordingly. This system is not a static one and is continuously updated with new demand information, to allow for accurate planning and results (Rouse).

Other key steps in demand planning include (Rouse):

• Collaborating with customers
• Managing forecasts

• Analyzing marketing inputs

Benefits of Demand Planning:

• Provides information about profitable segments (both local and international)
• Helps assess which warehouses, if any need to be better stocked with inventory
• Which products need to be produced more/ have a higher stock available

Issues with Demand Planning:

• As demand forecasting is based on the collection of data, however purely historical facts can cause errors, and can be repeated if multiple inputs of information are not considered. Demand forecasting needs to evaluate a multitude of inputs to ensure that forecasting changes with demands and environment.

Case Study: How Unilever Gets Ahead

“Our overall objective was to become more demand driven,” says Doug Sloan, the director of supply chain operations support in Unilever’s North American operations (Taylor).

In 2011, the Financial Times recognized companies such as Procter and Gamble, Kraft Foods and Unilever for their effective demand planning strategies through the use of modern technological softwares such as Terra Technology’s Demand Sensing and Multi-Enterprise Inventory Optimization solutions (Taylor). These softwares enabled the companies to thoroughly and quickly gather social data regarding purchasing habits, reactions to promotions, and changing consumer trends.

Unilever has been credited above all others by the Financial Times, as being the first company to effectively utilize technologies to rapidly, and dynamically document consumer preference changes in both North American and European branches, and adapt these changes into their logistical functions (Taylor). With the aims becoming more demand driven, they managed to avoid high costs of carrying too much inventory, reduce risk of needing to discount prices of surplus stock before obsolescence as well as ensuring on-shelf availability for customers in need (Unilever Optimizes). For a company that has been recognized as being one of the biggest consumable goods companies in the world, owning over 400 brand and being present in over 200 different countries, this can help unilever save a lot of costs on transportation as well as storage, as it helps predict which locations will demand more of certain products (Unilever Optimizes).

In conclusion, Mr. Sloan also stressed the consumer benefit of effective demand management in ensuring stock availability: “Improving forecast accuracy enables Unilever to produce the right product mix… [to] better serve our customers,” (Taylor).

Bibliography:

Taylor, Paul. “Demand Sensing Software Helps Unilever.” Financial Times, 8 Mar. 2011, www.ft.com/content/9fab4aee-50e4-11e0-8931-00144feab49a?mhq5j=e7.

“Unilever Optimizes Forecasting and Significantly Lowers Inventory.” Supply Chain Movement, 20 Feb. 2013, www.supplychainmovement.com/unilever-optimizes-forecasting-and-significantly-lowers-inventory/.

Bowman, R. “What It Takes To Be a Great Demand Planner.” Supply Chain Brain , 8 Apr. 2013, www.supplychainbrain.com/content/blogs/think-tank/blog/article/what-it-takes-to-be-a-great-demand-planner/.

Rouse, Margret. “What Is Demand Planning? - Definition from WhatIs.com.” SearchERP, searcherp.techtarget.com/definition/demand-planning.

SZOZDA, N, and S WERBIŃSKA-WOJCIECHOWSKA. “INFLUENCE OF THE DEMAND PLANNING PROCESS ON LOGISTIC SYSTEM RELIABILITY. CASE STUDY.” TOTAL LOGISTIC MANAGEMENT, no. 4, 2011, pp. 147–166.