This is the article on the Importance of Demand Planning in Supply Chain Management. It is the topic under the chapter on Supply Chain Planning & Design. Mainly, this topic is utilised as the chapter three topic in the book of supply chain management while evaluating the supply chain integration.
The term “demand forecasting” refers to the practice of making predictions about future purchases based on past patterns of demand. Demand forecasting software has improved the reliability of aggregate projections in this highly unpredictable industry by using both factual data and intuitive approximations. Predicting future demand is an integral part of supply chain management, which in turn ties into corporate strategy. Push processes in supply chain management, such as raw material planning, buying, and logistics, are likewise initiated by demand forecasts. It controls pull operations such as inventory management and order fulfillment. Let’s dissect the role that forecasting plays in SCM.
Importance of Demand Planning in Supply Chain Management
Budgeting, financing, sales and marketing, material and production plans, risk analysis and mitigation strategies, and so on are all made easier with the help of demand forecasting. Below are some of the Importance of Demand Planning in Supply Chain Management:
Better conditions of purchase and relationships with suppliers:
The process of raw material planning is driven by demand forecasting, which allows purchasing managers to provide suppliers with a buy plan in a timely manner. Raw material demand visibility and transparency help strengthen relationships with suppliers and give purchasing managers more leverage in contract negotiations.
Improved resource allocation and utilisation:
Effective production scheduling is possible given the existing inventory levels, raw material availability, and anticipated client orders. As a result, production capacity is used more effectively, and resources are allocated more efficiently.
Read More: Demand Forecasting in a Supply Chain
Inventory management for maximum efficiency:
An accurate Demand Forecast is critical for setting appropriate amounts of raw materials, work in progress, and completed items. This optimises inventory levels and decreases stock-out or over-stocking problems throughout the Supply Chain by dampening the Bullwhip effect.
Logistics and distribution planning improvements:
This is especially true for large corporations that have to deal with a vast variety of product SKUs and distribution channels, as opposed to the smaller ones. Managers of distribution and logistics may now strike a better balance between stock in various locations and strike better deals with transport companies.
Acquiring more satisfied customers:
Correct size and right placement of inventory lead to better customer service metrics like on-time delivery (OTD), on-time in-full (OTIF), case-fill/fill-rate, etc. when inventory levels are optimised and Distribution Planning and Logistics are enhanced.
Better product lifecycle management:
Long-range to medium-range Demand Forecasts enable improved visibility of new product launches and existing product discontinuations. This facilitates coordinated raw material, production, and inventory planning in preparation for the introduction of new items and, more crucially, the elimination of obsolescence for those that have been phased out.
Helps with performance management:
Key performance indicators and objectives may be established for departments such as sales, finance, purchasing, production, distribution, and more on the basis of medium- to long-term plans produced from the Demand Forecasting process. Organizational efficiency, effectiveness, and improvement projects may be established for important areas of the firm.
Increase Happy Customers:
Demand forecasting is particularly critical for assemble-to-order and made-to-stock business models. When things are sent and delivered as promised, customers are more likely to be satisfied. Shorter lead times and more efficient distribution are made possible by demand forecasting.
The Optimization of Capacity Use and Resource Distribution:
With a more precise prediction of probable client orders, firms may source and buy just the required raw resources. Moreover, it implies that the production schedule will be more accurate because of the efficient use of capacity and the allocation of resources.
The Bullwhip effect may be mitigated with the help of an accurate demand prediction since it allows for more precise inventory planning throughout the supply chain. From raw materials to completed goods, only marketable inventory will be kept on hand. Consequently, there will be less need to overstock or run out of supplies.
Plan Sales Strategies:
Demand projections give a starting point for additional strategic planning activities inside the firm such as product design and management for new goods and same family items. They also give vital data utilised to make choices in buying, pricing, and marketing of existing and future items.
Better Supplier and Purchase Terms:
As indicated above, demand forecasting directs the push operations such as raw material planning, buying, production, and inbound logistics. This implies that buying managers will have more lead time to make purchases and communicate their intentions to suppliers. The upshot is improved connections with suppliers and power to negotiate better terms with suppliers.
A company’s product development plan is one component of its larger business strategy for entering new markets and expanding into current ones. The importance of Demand Planning in Supply Chain Management is in order to disrupt the competition, maintain market share, and accomplish sales growth and revenue targets. This plan lays out the guidelines for the future of the new goods, including how they will be funded.
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