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in Demand Sensing , Supply Chain

Pros and Cons of Demand Sensing for Supply Chains

by Vanguard Software

Supply chains are seeing record global changes that are making them rethink their current inventory software requirements. Demand sensing software is receiving a lot of attention now due to the potential value to businesses, trading partners, and customers. Specifically, it may reduce operating and inventory costs, when implemented correctly as part of an overall framework.

Demand sensing software has pros and cons though. Both will be explored in this blog to help supply chain practitioners decide which option is best for their particular needs.

Challenges meeting customer demand

It happens unexpectedly; at the 11th hour, demand can shift, leaving retailers and suppliers shocked by sudden demand surges.  Perhaps a new story breaks or a bad review on social media from a celebrity causes sales to plummet. While it’s not unusual for businesses to have sudden seasonal orders, forecasting using mathematical models and point of sales data can help you anticipate and accurately predict demand.

With increasing market and demand volatility, supply chains face growing challenges. Customer behaviors are evolving and shifts in market volatility make it difficult to predict demand leveraging traditional ERP or Excel-based models in supply networks.

For businesses needing help with demand planning software and demand forecasting software, Vanguard’s advanced analytic forecasting and planning software incorporates predictive abilities, includes cloud-based data storage, and automates workflows that can leverage IoT data.

How demand sensing helps supply chains

Demand sensing uses technology that takes huge amounts of data and recognizes patterns so supply chains have actionable signals and can make accurate decisions. It helps companies understand consumer behavior and variables by synthesizing big data in real-time. Data sets may include shifting weather patterns, point-of-sale data streams, competing prices, social media, and economic indicators.

In the age of digital transformation, demand sensing has been adopted by some supply chains that recognize the need for new solutions for advanced inventory planning. Demand sensing software is a set of forecasting models that can complement traditional forecasting-related techniques to create a broader framework of forecasting.

Demand sensing pros

Demand sensing can reduce forecasting errors by up to 30 percent to help supply chains increase efficiencies and customer satisfaction when implemented correctly as part of a comprehensive approach. Not only can demand sensing improve forecasting by using specialized math techniques to analyze demand, but it can accurately provide forecasts for near-term demand by focusing on consumer sell-through.

Aside from improving forecasting accuracy, other benefits from demand sensing can include lower inventory levels and shipping costs, in addition to providing a more responsive framework for supply chains to fulfill demand near-term with precise execution.

If you have questions about how to use demand sensing software to synthesize sales and other data, contact Vanguard.

Demand sensing cons

While demand sensing is qualitative in nature, forecasting methodologies will never ensure 100-percent accuracy. However, organizations that utilize demand sensing and demand planning tools find they have a more accurate analysis of consumer demand than relying on human logic alone.

Another downside can be solely relying on forecasting models like demand sensing.   This is a major mistake.  Demand sensing can send false signals with over-sensitive models that subsequently trigger overreactions.  Some element of human management is required, in addition to a comprehensive view of the overall forecasting framework.

False signals can come from:

  • Weak data sets: Corrupted data, independent events, small sample sizes, and historical drivers that don’t relate to future demand
  • Non-linear drivers: Weather changes, market variables, and promotions
  • Overconfidence: Using forecast models alone

Businesses need a combination of both human logic and demand sensing to ensure they don’t rely on, and make decisions solely based on, forecasting models.  Additionally, businesses should not rely on demand sensing alone.  It is but one technique that should be part of the overall approach for an organization.

Wrap-up

Companies that use demand sensing as part of their demand framework may find that they are more prepared with a fully enabled end-to-end supply chain and benefit from new data-driven models with optimized consumer interaction.

Vanguard Predictive Planning is the leading Integrated Business Planning platform, leveraging predictive analytics, artificial intelligence, and advanced automation.

 

About Vanguard Software
Vanguard Software introduced its first product for decision support analysis in 1995. Today, companies across every major industry and more than 60 countries rely on Vanguard Software’s Integrated Business Planning (IBP), forecasting and advanced analytic cloud platform. Vanguard Software is based in Cary, North Carolina.

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