Have you evaluated and optimized your demand planning strategy since shake-ups related to the pandemic first began? Does it seem an impossible feat, considering significant issues with the supply chain, economy and global politics?
Though it’s best practice to evaluate the effectiveness of your demand planning regularly, we’re willing to bet that quite a few of you have avoided the subject and busied yourself otherwise.
After two years of turmoil, continuing to wait out significant disruption is not a helpful strategy. Instead, distributors must develop capabilities that allow them to operate in tandem with ongoing uncertainty. Of course, this effort must apply across several critical functions of the business. But here, we’re focusing on demand planning as it’s one of the messiest areas for most distributors to gain control over right now.
Demand planning and uncertainty are veritable nemeses. If your approach has involved defending your business one strike at a time, your demand planning strategy is probably worse for wear. Its armor is dented and chinked, and it needs an upgrade to suit these lasting, volatile conditions.
That upgrade should involve a more intentional inventory analytics program that puts your demand planning on the offense, capable of more accurate forecasting, faster pivots and more efficient inventory management despite less predictable demand.
Once you take a closer look, you’ll also understand more about the new landscape of distribution, how it has transformed and how you can get an advantage over it with better processes, advanced technologies and retraining.
Let’s dig into the three main areas that factor into demand planning. At this time, each has been through significant shifts, and you might be surprised by the differences today versus one or two years ago.
For each, ask yourself:
Understanding the state of your product mix is essential to both optimizing that mix and improving demand forecasting. Look closely at individual product categories to learn how they perform versus the same period in previous years. What is different? Are you losing value on any products? Could you capture more opportunities with others?
Define buckets for product categories that reflect their performance, such as:
Use your data to learn whether performance ties to factors such as location or seasonality. Once you have a clear picture of your current product mix, you can better align your working capital to actual product performance.
Customers are responsible for your demand fluctuations, so it’s helpful to understand their motivations, concerns and needs as you revamp your demand planning strategy. This understanding will serve you well as you work to align working capital to actual demand. In addition, analytics can reveal the drivers behind trends, such as surges and slumps, so you can investigate the reasoning, better understand what the data is telling you and act accordingly.
Is a specific type of customer driving a surge in demand? Has a region you serve reduced usage of a product? You’ll find that some trends are occasional, and others have become consistent – information you can use to plan better.
With the understanding you’ve gained around product performance and customer demand, you can work to improve your supplier mix so that it aligns with the realities of inventory and demand in your distribution business. However, before you make any change, evaluate the impact it would have on your business as a whole. For instance, one product might be in low demand but is essential to a top customer.
As part of this, evaluate supplier performance and whether you should diversify sourcing as part of your demand planning strategy. For example, have you struggled to source specific products from specific suppliers when demand is high? How can you better protect your product availability?
Keeping a close eye on these three areas of your business means you’ll have tabs on the most critical factors for demand planning. Your data can tell you precisely what is happening with inventory and customer demand today. It can help you determine what’s next or pivot if an unexpected change occurs. With an intuitive, sophisticated platform for your analytics program and purposefully designed dashboards, you’ll be able to use what you learn to improve demand planning, inventory management, operations and more.
For instance, if you learn that a product is consistently in the “slumping” category due to decreased demand, you can act to optimize your inventory. Or, if you identify a customer with a high value to your business that you’re constantly short on product for, you can focus resources on that customer and improve stocking of that product.
Having relevant, real-time data that reflects your business activity will help you strategize more effectively and continually optimize as change and disruption continue.
Does your team have the tools and training necessary to execute this analytics plan? If you’re looking to upgrade your armor and find balance through change, reach out to us at ACTvantage.