Most supply chain executives don’t take demand planning seriously enough. They see it as just another piece of software, like CRM or ERP. The truth is that this demand planning prevents you from losing money and customers. Here’s why demand planning is the key driver of your inventory optimization.
Demand for your products can change overnight, without warning, or it may change subtly, but in such a way that you do not notice the trend shift. If you’re not prepared, you could lose hundreds of thousands, or even millions, of dollars in a relatively short time. Imagine that one of your key accounts slowly cuts back on orders over a period of time, ending with a notification that they have switched to a new supplier entirely. Say it was due to your poor fill rate for their orders.
This is where a good demand planning tool comes in. It’s an essential step in planning your supply chain. This software forecasts the future, as accurately as any technology can, based on historical sales data, current market conditions, economic factors, and other variables, and makes accurate predictions about demand for products in your organization. It does all of this through data analytics. It collects valuable information from various sources, such as sales records, POS data, and inventory levels.
As a result, you can prepare for the unexpected. Take the example above. Let’s say that customer was Walmart and they drive 50 percent of your sales and then stop purchasing your products as described. Leading demand planning software would see the trend change in their purchases and predict a downtrend, which could alert the account manager to reach out to the account and ask why their purchases have decreased. Walmart might inform the account manager that due to the poor fill rates and customer service, Walmart is cutting back their orders until they see a performance improvement. Now you can take action before Walmart ends the relationship altogether. Fulfillment issues are another area that Vanguard Predictive Planning can solve, but we will leave that for another blog.
Demand planning software lets you better predict future carrying costs in your inventory, and reduce safety stock that you don’t need. As a result, you can save money.
Research shows that average holding costs for inventory are around 10 percent of total stock. This could amount to hundreds of thousands of dollars every year. Reducing these costs, however, provides you with the money you need to manage other areas of your business. Vanguard clients see a typical reduction in inventory spend by over 20% in the first year after go-live.
Receive in-depth insights into your business
Demand planning software provides you with accurate real-time insights into your business. You can find out which products are the most profitable, for example, or when products are trending out of style.
Not all demand planning software is the same, however. Choose a solution that aligns with your user experience requirements. High user adoption is paramount. Obviously accurate forecasts are also important, but if no one uses the software, what good are they?
Additionally, ensure that your software can scale with your data and volume requirements. “If your demand planning system can’t cope easily with as much data as your inventory locations can provide, it’s time to find another system,” says The Innovation Enterprise. “If your management reporting system is not simple and exception-based, it’s time to find another reporting system.”
The best demand planning software lets you analyze key performance indicators in one place, so you can make smart decisions and reduce risk quickly.
Demand planning is probably the most important part of your supply chain planning process. You need to see it as a mission-critical process, not just another piece of software. Get demand planning right, and you will optimize your supply chain and grow your business.
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 the Vanguard Predictive Planning platform. Vanguard Software is based in Cary, North Carolina.