How to implement effective demand management
Implementing effective demand management involves using projected sales numbers to optimise product and service delivery. By connecting supply chains, inventory management and operations, demand management makes it easier to give customers what they want.
This guide lays out the basics of demand management, along with benefits, disadvantages and best practices.
What is demand management?
Demand management is a planning framework that blends forecasting, supply chain management and capacity management to optimise product or service delivery.
What is the purpose of demand management?
The purpose of demand management is to help your business keep up with fluctuating demand for products and services, ensuring that you always have stock, staff and capacity to deliver. The strategy lets you predict and meet demand in your market, helping you improve customer service, maximise sales and reduce waste.
Why is demand management important?
Demand management is important for a few reasons – from improving efficiency and customer service to reducing carrying costs and minimising bottlenecks in your supply chain.
Improve customer satisfaction
By matching inventory levels with projected demand, the framework ensures that you have the right stock on hand at the right time. As a result, customers are more likely to be satisfied with your business and less likely to go elsewhere.
Boost efficiency with better forecasting
Demand management uses effective forecasting to improve efficiency in your supply chain. Instead of guessing when to order stock or ordering at the last minute to meet a spike in demand, you use forecast data, accounting for lead times and potential delays.
Reduce bottlenecks
Efficient demand management spreads orders and delivery over time, helping streamline operations and minimise bottlenecks. For example, you could gradually ramp up manufacturing months in advance of a projected spike in demand instead of scrambling to catch up.
Reduce costs
Effective demand management helps you avoid excessive carrying costs, wasted product and the expense of last-minute orders, rush deliveries, refunds and extra staff. If you know what's coming, you can stock and staff appropriately, maximising your revenue.
Demand management vs demand planning
Demand planning is designed to predict demand in the long term – often over one or two years. On the other hand, demand management tends to be about the shorter term, focusing on demand for the next few weeks or months. Unlike demand management, demand planning is chiefly a forecasting process, not a full optimisation model.
Demand management vs capacity management
While demand management aims to predict, plan for, and manage future demand, capacity management is about managing current inventory and resource levels in the most effective way. It's an immediate response to changing demand, ensuring that your business can thrive – even as the market fluctuates. For example, a business with multiple locations could use capacity management to move staff from one location to another as demand shifts.
Demand management vs supply planning
Demand management involves forecasting customer demand for certain products or services. Supply planning helps you work out how to meet that demand without going over budget or compromising your service standards. Essentially, it helps ensure that your demand management plans are feasible, factoring in production, inventory and logistics.
How to implement effective demand management
Implementing effective demand management is complex, as the process involves several elements and parts of your business. The details of your process will depend on the software you have available, the complexity and size of your business, and your specific business goals.
Analyse current market conditions
Current market conditions have an impact on sales, so they need to be part of the demand management process. The more information you can gather about market conditions, your competition, similar products and services in your sector, and how your business stacks up, the better informed your demand management.
Forecast demand
Forecasting uses historical data, market conditions, trends and other factors to predict future demand. Once you've gathered your data and created a forecast, you can use that to inform your demand management strategy.
Create your demand management strategy
A demand management strategy lays out the steps you need to take to manage demand effectively over a given period. This plan helps you control for lead times, supplier capacity and fluctuations in demand, while prioritising high-demand products, and setting targets around product delivery. For example, a 6-month demand management plan would include order volumes and dates for different suppliers, with delivery timelines and backup suppliers if needed.
Implement supply planning
At this stage, you put your demand management plan into action. This usually involves working with in-house teams, such as procurement or manufacturing, to ensure that your demand plan is possible. It's also a chance to work through potential issues and challenges. Do your suppliers have the capacity to meet your projected demand? Is there another supplier that could deliver the same stock or inventory if your usual supplier falls short? Are you manufacturing new products? Will you need new suppliers of raw materials?
Continually review and optimise
Demand management is an ongoing process. Once your plan is in place, track outcomes to see what worked and what didn't so your next demand plan is even more effective. Don't make assumptions about ongoing demand – as your business grows and the market shifts, demand can change significantly, so it's important to keep monitoring, forecasting and tracking progress.
Demand management challenges
Common challenges involved with demand management include forecasting issues, external factors and inaccurate or inconsistent data.
Forecasting can be challenging
Forecasting takes time, effort, expertise and accessible data, which can be challenging for many smaller businesses - particularly if data is held in separate systems. This is where an integrated business management platform adds tremendous value,
For example, MYOB CRM brings together CRM, ecommerce, order management, fulfilment, inventory management and more for goods-based businesses. It also integrates with your MYOB or Xero accounting software so your financial records are always up-to-date. Managing demand effectively becomes easier when your software integrates and your data is accessible.
Inadequate data
Naturally, forecasts and demand management plans are only as good as the data behind them. if your business doesn’t maintain accurate, clear, high quality data, your demand management plan is likely to be inaccurate or lacking key details.
Limited control over external factors
As with all forms of planning, forecasting and business management, unexpected outside factors can cause issues. From market changes and global supply chain issues to natural disasters and economic shifts, almost anything can affect customer demand or product and service delivery.
Demand management best practices
Best practices for demand management include using analytics-driven process improvement, gathering customer insights, and including your manufacturing, procurement, sales and operational teams in the process.
Deploy analytic driven processes
All demand management should be driven by data analytics, not guesswork. That's why demand management starts with forecasting – you need accurate projections before you can make effective planning decisions.
Understand your ideal customer
Your customers drive demand, so understanding their wants and needs is a key element of demand management. Detailed customer analysis, surveys and ongoing tracking of average sales and online searches can all help you build an understanding of your customer, which gives you a deeper understanding of what's behind changes in demand.
Include effective supply chain management
Supply chain management needs to be part of your demand management planning. After all, your supply chain delivers the goods and materials you require – if it's not working effectively, all the planning in the world won't help. Changing the way your supply chain works can mean extending lead times, finding new suppliers or manufacturers, or switching from overseas to local production – or vice versa.
Sales and operation planning
Demand management involves several business areas, including your sales and operational teams. Including these stakeholders from the beginning helps you identify potential issues and ensure that the human side of product or service delivery is covered. For example, if you project a major increase in demand over the holiday season, you may need to bring in more sales or distribution staff to keep up.
Example of demand management
While demand management is different for every business, here's what it could look like.
Jo’s Specialty Bakes is a local bakery that makes bread, buns, and pastries on site. Jo and her team create a forecast that shows a 30% increase in demand over the next three months, thanks to increasing residential builds and more foot traffic in the surrounding area.
Jo and the team come up with a demand management plan that includes sourcing higher volumes of flour, butter, yeast, and other ingredients, as well as extra packaging, and increasing staff numbers in the kitchen and front-of-house. They work with suppliers to find out whether their new order volumes are feasible in the requested time frame, and talk to a number of new suppliers to check volume prices for ingredients.
The bakery ends up finding a new supplier to provide some of the ingredients, as the existing supplier is unable to meet new demand levels. Jo also writes job descriptions and starts reaching out to contacts to increase the number of staff available.
Demand management FAQs
What is the difference between demand management and customer management?
While demand management and customer management are both about making your customers happy, they're quite different in focus. Demand management involves forecasting, planning, and managing demand for your products and services. Customer management focuses on building relationships and delivering great service to existing customers through marketing, customer outreach and personalised promotions or services.
Is demand management the same as demand forecasting?
Demand management and demand forecasting are different, although they both deal with projected demand. Demand forecasting is about predicting future sales of products and services, while demand management lays out your plan to deliver those products and services. Forecasting informs demand management, giving you clear numbers to guide your planning.
Managing demand and more with MYOB
To make demand management work, you need internal systems that record transactions and deliver accurate information about your business and financial position. The MYOB business management platform connects all your workflows - customers, supply chain, projects, employees, finance, accounting and tax - so you have the software and data you need to run your business effectively. Manage demand and much more with MYOB.
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