Demand Management: A Crucial Determining Factor for Supply Chain Efficiency

The success of any business is determined by its ability to create the demand for its product in the target market and manage the supplies to meet the demand. It doesn’t matter if the business is a commercial profit-oriented company or a not-for-profit enterprise; managing the demand is crucial.

Enterprises today understand the fact that demand management is the key to staying profitable in the modern economy, and hence, direct a great deal of efforts towards employing teams of Managers and Planners to assist in demand management processes. They can help to collect critical data, generate meaningful insights from it, and create sales forecasts to lay down the set of processes in sales and operations planning systems.

Looking at the ever-changing business environment, there is no business or corporation that is not impacted by the forces of technology, unrestrained access to data, changing customer preferences, globalization, and government policies. So, the question we need to think about is when perception, behavior, and attitudes change overnight as data reaches everyone at blazing speeds, how do enterprises relate with their customers and prepare a robust approach to demand management. But before we get on to that, let’s first see what exactly demand management is.

What is Demand Management?

Forecasting sales and estimating the overall demand is the most pervasive aspect without which the definition of demand management is not complete. However, there’s more to demand management than this task. In a company, the demand management function handles all the potential demands on the production system. The demand could be external where customers place an order with the company signaling their intent to purchase, or it could be internal, such as the need for raw materials and components to manufacture finished products or planning a promotional activity in the marketplace. Identifying these demands, capturing them, and deciphering them all come under the functions of demand management.

Demand management function lies within the boundary of the MPC system (Manufacturing Planning and Control) and acts as the bridge between the internal operations of a company and the marketplace. It ensures that all the interactions between the external customers and the sales and marketing professionals are captured so that the business can fulfill them.

To sum up, demand management activities encompass demand forecasting, customer order promising and management, and internal and external company communication. Besides, it also helps coordinate the demands placed on a company with planning and control activities. Therefore, as companies seek to gain a competitive advantage in the market, they must focus on having a structured, responsive, and unambiguous DM function in place.

Faster and agile business system

With modern technology, it has become easier to find out about the customer response to a product in real time. Although this speed is a desirable attribute, it is even more important to be agile. Businesses need to be well-prepared at all times and act intelligently as and when new information surfaces. Demand management supports enterprises to become more effective and efficient with their planning and control functions.

With a demand management process, companies can ensure that the flow of data from the market into the business is supported and the data doesn’t overwhelm the internal operations. The demand management output can be used as a decision support tool by businesses that can contribute to their strategic initiatives and help them remain stable during volatile market conditions.

Collaboration of business processes

Demand management processes work by collaborating with sales and marketing functions, finance and operations as well as other logistics functions in the company. This is carried out through a formalized process where the senior management regularly interacts with functional managers and planners to balance supply and demand.

The demand management processes can be configured based on the product delivery strategy of the business, which involves MTS (make-to-stock), MTO (make-to-order), ATO (assemble to order). The demand management activities may be centralized into one functional area or may be used across several functional departments as well depending on the company history, culture, and skill sets of teams working within the organization. Whatever the scenario may be, demand management processes must be in alignment with the strategic direction of the company.

Better sales forecasts in smaller time frames

Never before in history, there has been a higher pace of introducing new products to the marketplace. And one of the major challenges that come with fast product introductions is a shortened product life cycle. On top of that, the sales history will be limited which may leave the company with only one chance to get it right.

With properly configured forecasting and demand management functions, managers and planners can not only be able to forecast the history of the product performance in the market but also be ready to challenge the assumptions regarding the data. As analysts quickly capture new data from a broad variety of areas, demand management will assist them to identify sales trends faster in the process. Once all the inputs are put into the broader perspective along with the participation of sales and marketing operatives, all the demands being put on the organization can be coordinated and planned well.

Conclusion

The right demand management approach can bring drastic improvements in the accuracy of forecasts as well as encourage the use of a single collaborative sales forecast across the organization. Ultimately, this leads to better control over waste and inefficiency while pushing the organization ahead with long-term growth and sustainable profits.