What is demand planning and forecasting ?
Think of demand planning and forecasting as two sides of the same coin. Demand planning is the process of forecasting demand for inventory, product, or services. It's an important step when you're a retailer, supplier, or service provider. This is because it tells you when to order, stock, and sell products. Secondly, demand planning is the process of forecasting demand for key resources (human, process, or technology). Planning for demand helps retailers and suppliers understand the volume of customers that will need their products. It also helps them anticipate demand for new products and services. Finally, demand planning and forecasting are two complementary processes. However, they are often confused and intermixed, especially by retailers and suppliers without an in-house demand planning team. In this blog post, we'll give you a quick overview of what demand planning and forecasting is, how to do it, and when to do it.
How to Make Demand Planning and Forecasting Simple- A Guide for Beginners
What is Demand Planning?
Operating a business successfully takes a lot of doing. You must know the number of supplies you need to stock, how frequently supplies have to be reordered and replenished, and your sales and revenue targets a year down the line. The difficulties in running a business can be mitigated with astute demand planning or predicting and preparing for changes in customer behavior.
Demand planning refers to the process of collecting and analyzing historical data related to sales, consumer patterns, and so on, with the help of tools of business intelligence for forecasting future demand. On the basis of these projections, an organization can make sure that the proper amount of supplies is acquired to fulfill anticipated demand.
Therefore, demand planning factors in inventory management, sales forecasting, supply chain planning, and capacity planning in order to achieve a supply equilibrium that cuts excess inventory and avoids supply chain disruptions.
Demand planning has three main aspects. They are-
1. Product portfolio management-
This is responsible for overseeing the entire product lifecycle, from the launch of a new product to its end-of-life planning. On a number of occasions, product lines may be intertwined and knowing how new items influence the demand for existing products is critical to determining the product mix needed for maximizing market share.
2. Statistical forecasting-
This relies on historical data to construct supply chain forecasts with sophisticated algorithms. In this regard, it is critical to assess the correctness of various models, and pinpoint outliers and exclusions. Statistical forecasting can also be used to assess seasonal shifts in demand such as the surge in shopping that happens between the months of October and December in view of the holiday season.
3. Trade promotion management-
This can impact demand, particularly in the retail business. Trade promotion's purpose is to connect a brand with a customer, usually through a discount, in-store giveaway, or promotion. These elements can influence product demand.
However, you also have to factor in the possibility of projections changing over time. Planning and forecasting may be defeated in the event of major economic shocks that can trigger widespread panic. This has become all the more obvious in the wake of the Covid-19 pandemic that resulted in massive unemployment, violently swaying markets, and plummeting customer demand, throwing all planning out of gear. However, these are once-in-a-lifetime events, and on most occasions, a business would be served well by planning well in advance.
What is Demand Forecasting?
Demand forecasting is the technique of estimating and predicting future demand through the predictive analysis of past data.
Businesses can use demand forecasting to analyze historical data and forecast future sales, and thereby, make informed decisions about a variety of issues from storage requirements and inventory planning to executing flash sales and meeting consumer expectations. This ultimately results in better inventory optimization.
Demand forecasting is a subset of the broader demand planning process and involves analyzing external and internal data to forecast sales. Forecasts typically cover 18 to 24 months, though the period of projection may differ according to the industry and product. Companies may revise their forecasts on a regular basis as new data and market situations become known. As the company figures out the ways to fulfill predicted sales, the demand forecast becomes the bedrock of the broader demand planning process.
Flawless and effective demand prediction acts as a boon for an organization. Demand planning aids in the allocation of resources, measurement of a company's strength, and development of plans to capitalize on opportunities and acquire market share.
In a nutshell, demand forecasting aids in the understanding and prediction of demand, maintenance of adequate supply to fulfill the demand, and management of product lifecycles within an industry.
Demand forecasting is a critical component of supply chain management since it informs the planning part of supply chain operations like material procurement, logistics, purchasing, and distribution.
Demand planning and forecasting are two of the most important functions in supply chain management, but they can be a little confusing for some businesses.
We’ll walk you through the basics of demand planning and forecasting so that you can get a handle on this important part of your business.
Why is Demand Planning Important?
While stock-outs caused by inadequate demand planning might leave customers with a negative impression of an organization, overabundance has its own set of risks. Although a restaurant must be constantly well-stocked to meet the demands of its customers, it must also make sure that food wastage is prevented.
Spoilt food is a huge resource wastage, and restaurants should do everything they can to avoid it. One can have an idea of the seriousness of food wastage from the fact that one-third of all food that is produced goes to waste, despite over 800 million people going hungry across the world.
According to the United Nations Environment Program, 30% of all food in the United States is discarded each year. In monetary terms, the value of this wasted food would be around $50 billion.
The Food Waste Reduction Alliance estimated in a 2014 survey that about 85% of unsold food in restaurants in the US is discarded. Food wastage has far-reaching economic, humanitarian, and environmental consequences.
Overestimating demand and over-purchasing are both signs of overspending. As a result, investments have to be made in physical space for storing unusable products, inventory carrying expenses would increase, and a considerable amount of financial hardship would have to be endured as a result of designing desperate tactics, such as discounts for quickly getting rid of excess stocks.
Poor demand planning may also contribute to the disparity between projected and actual resource utilization. Ordering and purchasing considerably more than what is required increases the possibility of food and dollar wastage, and would inevitably affect the profitability of the business. Expert demand planners, however, would be able to predict demand with a high degree of accuracy.
Restaurants should, therefore, aim for supply chain planning and inventory optimization. This can be done by evaluating Point of Sale (POS) data to determine which menu items are the most popular and which ones garner just a lukewarm response. It's also possible that the restaurant is overpaying for out-of-season items without realizing it.
Awareness of these issues lets restaurants select which menu items to keep, promote, or drop in order to increase earnings. These selections are data driven and hence, more confidently executed. Market research on consumer preferences provides enough actionable information for restaurants to develop new products.
Proper demand sensing and forecasting allow foodservice businesses to accurately predict consumer traffic, on the basis of which, employee schedules can be created and modified and employees can be cross-trained with the aim of reducing labor costs.
Why is Demand Forecasting Important?
1. Customer satisfaction-
Since customer requirements drive demand, every business activity should look to fulfill those requirements. Timely service and providing the products that customers desire would satisfy them and encourage them to buy from you regularly. Demand forecasting accuracy is extremely important in this regard as it ensures that the business possesses sufficient stocks to quickly fulfill customer demand.
2. Inventory optimization-
A detailed examination of customer demand will assist you in identifying products that are highly popular and those that are not. This will let you calibrate your Supply Management strategies better, and determine which ingredients are to be bought more than the others so that embarrassing stock-outs can be avoided. Furthermore, demand forecasting can help you decide the time to place orders for products with long and varying lead times so that your restaurant is always well-stocked.
3. Less need for safety stock-
Demand forecasting examines past data for seasonal patterns and other trends. It also examines the total change in demand as a result of factors such as price adjustments, promotional campaigns, and so on. This will give you a better idea of when to have a bigger inventory and when to have a smaller one, and lets you decide whether you need safety stock, or extra product quantities as buffer against stock-outs.
4. Improved promotions and prices-
Promotions and price changes are external influences that may raise the demand for goods and services. By taking these factors into account, demand forecasting lets business owners determine whether they need to buy or manufacture additional products to fulfill a predicted surge in demand. Planning promotion and pricing effectively by considering 'what if' scenarios can assist planners in maximizing the organization's net revenue.
5. Controlled production of perishable goods-
Demand forecasting is particularly valuable for sectors that handle perishable products, such as the food service and chemical industries. Inefficient demand forecasting can lead you to manufacture too much of an item, forcing you to sell excess stock at a discounted price before the expiry date. Manufacturing in excess would also result in excessive storage costs.
How to Make Demand Planning Simple
1. Clearly define roles-
Make sure that those who are part of the cross-functional team for demand planning have clearly defined responsibilities. For instance, members from the supply chain and purchasing departments may be in charge of ensuring that the company obtains adequate inventory in a timely manner for meeting demand forecasts. Also, often, it is the finance department that creates the actual forecast.
2. Define and collect internal data-
To generate an accurate forecast, there should be a consensus among all the demand planners on the data that must be included. An organization cannot do without data on sales, inventory turnover, out-of-stock rates, lead times, obsolete inventory, production times, and other critical inventory metrics. Consult your marketing and sales teams for information on promotions, marketing campaigns, and the timing of price changes that could influence demand.
3. Use external data to improve forecasts-
External data can improve the quality of demand planning. External information, in this regard, may include supplier and distributor performance and their delivery timelines, purchasing patterns of key clients, general economic circumstances that may affect sales, and market fluctuations.
4. Create a demand projection based on statistics-
Determine the sort of forecasting model that best suits your organization. A demand planning software is ideal for this although some businesses are still stuck with Excel or similar tools that require greater manual effort, consume a lot of time, and are susceptible to error.
5. Put your demand forecast to test-
Reviewing, reanalyzing, and refining your demand forecasts with the main stakeholders is a good practice. You may introduce the most recent information and see whether that significantly affects the forecasts. This means that you should constantly update and enrich your forecasts with the latest data to make sure that your business stays in touch with changed realities. For instance, a demand forecast made in 2018 to cover a five-year period would have had to be updated in 2020 when Covid struck and industries feared a sharp fall in demand. You also need to question any information that might seem erroneous. It will be a good idea to double-check that the demand prediction is in keeping with the overall financial projections of your company.
6. Measure projections against inventory-
Decide the amount of inventory that is required to meet expected demand, including a safety stock buffer. Identify the vendors and suppliers you would need for fulfilling this demand, and ensure that they are able to supply the products on time.
7. Evaluate outcomes-
Identify the Key Performance Indicators (KPIs) that allow you to gauge the effectiveness of your demand planning. Sales forecast accuracy, fill rates, Cost of Goods Sold (COGS), and order fulfillment lead times are some of the metrics you must track. Review your company's performance regularly against these parameters and make adjustments as and when necessary.
Demand planning and forecasting are often seen as difficult and confusing topics.
There are many people who have the same issues you do, but don’t know how to fix them. This guide will simplify the subject for you.
Top 3 Demand Planning and Forecasting Software for Restaurants
1. Zip Forecasting-
This automated demand planning and forecasting solution can be accessed from the Hubworks restaurant app store. With just a few clicks, the Zip Forecasting program can be integrated with the POS system of a restaurant and is able to generate highly useful sales estimates.
The Zip Forecasting solution is cloud-based and allows users to view, and interpret data in real time, from any location, using any device. Users can use this software to monitor and analyze data on a daily basis, as well as estimate sales at intervals of 60, 30, and 15 minutes.
Advanced algorithms are used in this Hubworks solution to completely automate forecasts based on past data.
A restaurant would be able to place orders for the exact quantity of goods and avoid undersupply, oversupply and wastage by accurately forecasting demand using the Zip Forecasting software. This program can, in fact, be used together with several other Hubworks products to eliminate under- and overstaffing, expedite reordering, and improve restaurant supply chain management.
2. Forecast Pro Demand Planning Software-
This off-the-shelf solution enables organizations to build, manage, monitor, and refine predictions. Forecast Pro offers a high degree of forecast accuracy and is user-friendly.
It easily integrates with larger planning platforms, allowing an organization to keep its current Enterprise Resource Planning (ERP) or other planning systems.
This software solution's major features include automatic statistical forecasting and machine learning frameworks, forecast adjustments and collaboration, customized hierarchies and multiple units of measure, and accuracy tracking and reporting.
It can handle sales forecasting and demand planning and allows businesses to manage tasks such as sales and operations planning, accuracy reporting, and so on.
3. Blue Yonder-
To create a unique demand forecast, Blue Yonder uses a variety of demand-driving variables as well as machine learning. This includes risk assessment and calculated business impact. Demand planners using Blue Yonder need not depend on spreadsheets, and can strategize better by taking into account potential hazards and growth prospects.
Organizations can optimize their operations and establish more profitable supply chains with Blue Yonder's end-to-end synchronized supply chain management solutions.
Blue Yonder also assists companies in getting rid of excess inventory and lowering obsolescence costs. Furthermore, by examining the elements that influence consumer demand, smarter pricing selections can be made.
Supply Chain FAQs
Q. What are the reasons for supply chain disruptions?
A- Poor reaction to technological advances, natural calamities, inadequate demand planning and forecasting, fluctuations in transportation costs, and government regulations are some of the major reasons for supply chain disruptions.
Q. What does supply chain digitization imply?
A- The method of converting analog supply chain methods to digital ones is known as supply chain digitization. It may also be called supply chain digital transformation. This is accomplished by creating exclusive master data that includes information from various parts of the supply chain, and also information on past sales, rates of unemployment, competitor prices, and Google trends. It includes POS consumer data as well.
Q. What is meant by logistics management?
A- Logistics management is the process of planning, executing, and regulating the forward and backward movement and warehousing of commodities, services, and related data between sites of origin and consumption. This is done with the ultimate aim of fulfilling consumer demands.
Q. What is the difference between warehouse management and inventory management?
A- Warehouse management relates to the process of overseeing the storage of stocks, as well as packaging and picking tasks in a warehouse. This method uses data on demand trends to accelerate shipment by placing the top-selling items close to the packing sites. It also dictates which products to use for filling orders. For example, products whose expiry dates are approaching would have a preference while filling orders. Inventory management, on the other hand, involves the management of stocks for the entire business.
Demand planning and forecasting can be confusing, and not just for beginners.
We’ve created this guide to help make it simple!