Would you minimize inventory costs and risk having to sell ‘no’ to your customers? Or do you prefer better service with higher costs due to a larger stock buffer? I often see that shippers are struggling with this dilemma. However, it is possible to minimize storage and stock management costs while serving customers with high demands quickly. The answer is effective demand planning based on advanced models. In this blog I will discuss the success factors for effective demand planning.
Advanced demand planning is often a bridge too far
Effective demand planning requires not only reliable information about expected sales, production time and capacity, but also about distribution and transportation speed. Optimal demand planning helps you to make logistics processes more predictable. We investigated to what extent companies have already achieved this.
The Predictable Logistics benchmark shows that most companies predict demand by manually entering and analyzing historical data. More than a quarter of the companies indicate that demand fluctuates so much that predictions are impossible. In practice I see though, that advanced systems are indeed capable of predicting future sales to a large extent. The benchmark survey shows however that only 7% of the companies use advanced forecasting models in their logistics systems.
The roadmap to effective demand planning
I probably don’t need to tell you that demand planning is useful. But how do you do that properly? To start with demand planning, insight into the total process of sales and operations is needed. For that reason, I recommend to develop an integrated business plan that stimulates the organization to work profitable and customer-oriented. Furthermore, you need to determine in advance at what level you want to predict what the demand will be; think of product families, types of customers or geographic information. Implement a coherent set of key performance indicators (KPIs) and ensure that you have current and complete data. Also create internal and external cooperation to generate as much information about the demand situation as possible.
Remember that demand planning goes beyond forecasting. A forecast is a prediction of demand based on figures from the past. The forecast is the basis of demand planning, after which you must include the following in your plan: distribution, where do you store which products and at what point in the chain do you do that, etc. When the demand can be predicted correctly, you can coordinate marketing campaigns accordingly. The effective planning of your stock and distribution subsequently prevents unnecessary stock costs and at the same time ensures that the products can reach your customers (more) quickly.
The impact of international trade developments
We have come to the conclusion that demand planning is not that easy. Trade wars like between the US and China, the Brexit and the rapidly changing economic outlook make it even more difficult. Therefore, a solid service can only be achieved with a high-quality demand planning system and reliable partners. Given the advantages in efficiency, effectiveness and customer satisfaction of good demand planning, it is in my opinion a must for every shipper to invest in this.
Compare your logistics performance and plans with those of fellow companies
Above insights are found in the national benchmark Predictable Logistics. VCK Logistics has investigated how companies anticipate on developments in the logistics sector, which aspects are important, where the opportunities and challenges for improvement are and which future plans companies have to improve their logistics processes. You can download the benchmark report free of charge.
In addition, you can compare your own logistics performance with those of your industry peers. Fill in the questionnaire here and immediately after completion you will receive an overview of your answers compared to those of the other participants.