What is Demand Planning?
Demand planning is the process of forecasting the customer demand for products to ensure that there is sufficient inventory to meet their needs. It involves the use of cross-functional processes such as supply chain management and inventory management to minimize excess inventory while avoiding supply chain disruptions. It aims to strike a balance between retaining sufficient inventory levels to meet consumer needs without overstocking. When this is achieved, it will result in increased profitability, customer satisfaction, and efficiency gains for your Shopify business.
The supply chain of any eCommerce business needs to be very efficient, as it is critical for inventory planning and ultimately revenue. Various factors should be considered during demand forecasting as demand can be affected by economic shifts, labor force changes, global crisis events, natural disasters, or severe weather. Three aspects are involved in a demand plan, and they include:
• Product portfolio management –l ooks at the overall product lifecycle, from the introduction to end-of-life planning. Some product lines might be interdependent, and understanding how the demand of one influences the other helps to know how to go about inventory planning.
• Statistical forecasting – involves using historical data to come up with advanced statistical algorithms to create supply chain forecasts. This helps to identify seasonal shifts, but it is critical to note exclusions, assumptions, and outliers in this model.
• Promotional management – marketing events and promotions influence demand, and they might include giveaways and discounts, thus having an impact on the demand plan.
- Product portfolio management –l ooks at the overall product lifecycle, from the introduction to end-of-life planning. Some product lines might be interdependent, and understanding how the demand of one influences the other helps to know how to go about inventory planning.
- Statistical forecasting – involves using historical data to come up with advanced statistical algorithms to create supply chain forecasts. This helps to identify seasonal shifts, but it is critical to note exclusions, assumptions, and outliers in this model.
- Promotional management – marketing events and promotions influence demand, and they might include giveaways and discounts, thus having an impact on the demand plan.
Importance of Demand Planning
When a product is not in stock for customers to purchase, then your business will lose out on revenue and eventually the customers. Having excess unused inventory on the other hand uses up space and unnecessarily increases production costs. Demand planning helps business leaders to stay at the top of market shifts and make proactive decisions while still responding to their customers' needs.
Best Practices for Demand Planning
Demand planning involves multiple practices that are reliant on the right information, tools, and processes. There might be some variations in the process based on organizational goals, inventory needs, and product positioning. The overall aim is to attain certain essential KPIs such as accurate forecasts, optimum product lead time, optimum inventory turnover & service levels, faster customer order cycle, and improved customer satisfaction rates. Some of the best practices that can help your Shopify business to achieve this include:
1. Use the Right Software
There are numerous platforms such Shypyard that one can use for demand forecasting in their eCommerce business. Although choosing the right one might be tricky, the important thing is to be certain of the tools’ ability to handle the various aspects of demand forecasting. You must consider the provider’s reputation, transparency, reporting capabilities, and reliability of the forecasts produced.
2. Collect and Prepare Data
Real-time data has a significant impact on your eCommerce demand plan. Obtaining metrics reports of inventory movements helps to identify areas that require action or improvement. Timely data mining and aggregation will help you to create a more responsive process model.
3. Involve Other People
Demand forecasting and planning require any Shopify business owner to communicate and collaborate with the various stakeholders at each step of the way. These relevant players include suppliers, finance, operations, sales and marketing, demand planners, and any other department that is involved in the process.
4. Define Process Models
Your Shopify demand plan has to follow a defined cycle to avoid confusion during the process. If the processes and information are not clearly stipulated then it will not be easy to hold anyone accountable, leading to under-performance. The steps of a well-planned demand process can follow these steps:
i. Data preparation
ii. Initial forecasting
iii. Incorporation of market intelligence
iv. Consideration of financial reports and sales goals
v. Final refined forecast
vi. Real-time performance monitoring
5. Have Clearly Defined Roles
Supply chains are quite complicated as various people work together and some might get lost in the process. Each participant in the process has to have real-time visibility and clearly defined roles to avoid confusion if they don’t fully understand what is required of them.
6. Be Ready for New Opportunities
An effective demand plan should not only predict consumer needs but also highlight risks and identify growth opportunities. An increase in demand for a particular product can signal that you need to raise your production capacity in advance through hiring or shifting staff.
7. Sync Demand and Supply
Demand forecasting should enable you to effectively make the purchasing decisions for your eCommerce business. A well-developed demand plan will enable you to issue purchase orders intelligently.
8. Integrated Business Planning
Integrated business planning involves aligning your eCommerce business goals with your supply chain, finance, marketing, product development, and other operational functions. A Shopify business that embraces integrated business planning creates a direct line from production, inventory, and purchasing to sales and marketing to financial budgets and targets. It ensures that products are bought at the right time, at the best price, and in the right quantity to fulfill the market demand.
Successful integral business planning ensures close collaboration and trust among various departments, hence improving decision-making. It ensures business goals, financial targets, decisions, and execution of plans across the entire Shopify business are in tandem. IBP will help your business to have reduced holding costs, improved demand fulfillment, better customer service, shorter shelf life for new products, and improvement of the correlation amid demand planning and fulfillment
9. Implement and Monitor
A successful demand plan is designed on a pilot version using historical data. From this basis, regular adjustments to the descriptive analytics can be made along the way. You can have a team of staff that is solely dedicated to devising the plan, implementation, error reduction, and designing execution processes.