Top five demand planning strategies
What is demand planning?
Demand Planning plays a key role in the demand management process. It forms parts of the overall management strategy and affects many individuals and functions within an organisation.
Demand Planning enables an organisation to tailor its capacity, either production or service, to meet variations in demand. It also helps to manage the level of demand by using marketing or supply chain management strategies to smooth out any peaks and troughs.
Demand drives the entire supply chain, from suppliers to manufacturing, marketing, inventory, distribution, and service to customers. An organisation needs to be able to forecast demand accurately. To do this, you’ll have to understand demand patterns, and how factors such as new products, competition, and changing market conditions affect these patterns. This understanding can only be reached by a correct flow of information up and down the supply chain.
How can you forecast demand?
Before inventory control can be implemented, it is key that you analyse first. Using records of usage and trend of demand, will help you to forecast for future demand.
The two most common approaches are:
- Moving averages:
This is an artificially constructed time series, in which each annual (or monthly/daily) figure is replaced by the average of itself. The values will then correspond to several preceding and succeeding periods. There is no precise rule about the number of periods to use. However, you may find it useful to use the number of periods between consecutive peaks and troughs.
- The exponentially weighted average method (EWAM):
This method involves using an exponential series of weights with decreasing value, which produce a total sum of one. The EWAM can be applied in any company and guarantees good inventory control.
Which tools or techniques could support demand planning?
There are several tools and techniques that you can apply, to help you get to grips with demand planning.
- Materials resource planning (MRP):
This technique gives you the number of components required to produce a known quantity of finished products. It starts with a master production schedule which schedules the end-products to be completed week by week, during the planning periods. It’s based on customer order levels, sales forecasts, and manufacturing policies. - Economic order quantity formula (EOQ):
This technique attempts to reconcile the problem of storage cost and ordering cost, to give you the order quantity which will minimise both. Economic aspects of stock management may be determined through an analysis of the costs incurred in obtaining and carrying inventories.
- Manufacturing resource planning (MRPI):
This technique is an extension of MRP. Various functions in production planning and control have all been integrated into a single system. - Just in time (JIT):
This technique can be described as continuous flow production. This is where materials and services are generated in the exact quantities needed, at the right time. With the obvious effect of keeping inventory down and reducing costs. - Variety reduction:
This technique can help you to achieve considerable savings. It’s done by standardising and where possible, reduce the range of products and materials in stock.
What is operations management?
Operations management is a key area within any organisation. It plays a key role in keeping supply chains operational in today’s challenging environment. Discover the key to success when thinking about operations management
Find out more about Operations Management
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