Demand planning services entail creating demand forecasts for future products or services. These forecasts are used exclusively by the firm's operations and not third parties. The primary output is a master production schedule (MPS). This details how many units of each product should be manufactured over time to meet projected requirements.
Demand planners use a variety of tools and techniques, as discussed below.
Statistical Forecasting Models
Statistical forecasting models are used to forecast the future based on existing data. The most common statistical model is exponential smoothing. This can be used for short-term and long-term time-series forecasts. Data is usually summarized using indexes such as the simple moving average (SMA), weighted moving average (WMA), or exponentially weighted moving average (EWMA).
Factor Analysis
Factor analysis is a secondary data analysis method used to create new variables by combining existing ones. This can be used in demand planning when too many factors affect demand. It is not easy to find a relationship among them all. Since this statistical model uses linear regression, there may not be a good relationship between the variables. However, if asked to forecast demand based on different combinations of factors, it is possible that such a relationship can be found.
Causal Models
Causal models are used when there is no existing data to use as input for statistical forecasting models. One type of causal model is a hierarchical regression where the dependent variable's factors are organized hierarchically. Another type of causal model is based on data envelopment analysis (DEA), which focuses on resource efficiency. The variables included in this model are not directly related to demand. They measure internal organizational processes that affect production or service output.
Demand Management
Demand management is a business process that drives sales and profit growth at the expense of competitors. The role of demand management involves identifying sources of revenue, assessing market opportunities, and developing strategies for capturing these opportunities. It also entails prioritizing options to make the most profitable resources and executing plans. By using demand management, companies can maximize their revenue through existing opportunities. The two main pillars of demand management are marketing and sales.
Sales Management
Sales management involves coordinating the efforts of marketing, sales, operations, finance, and human resources. Operations ensure that products are available to be sold at the right time and place by managing inventory levels to meet demand. Companies can use advanced statistical or causal models with resource efficiency variables to forecast demand more accurately to determine the most profitable inventory level.
Many companies are outsourcing the demand planning work to external service providers. Demand planning (DP) is important in effective supply chains. It provides a dynamic and practical approach to managing customer demand and supply. Demand management helps companies have the right product at the right time. This is an advantage for businesses as they continue implementing lean operations and gaining a competitive advantage from supply chain best practices.