What is Demand Management? (Components, Process, Example)

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Overview of Demand Management

Each organization has a certain amount of demand for goods and services. Managing this demand is necessary for an organization to be successful and meet its goals.

Demand management is a way to ensure that the demand for something stays the same as the available amount.

It is essential for businesses and organizations. Companies can optimize resources and improve operational efficiency by understanding and managing demand.

In this post, we’ll explore what demand management is and its different components. We’ll also look at its process and provide an example.

What is Demand Management?

Demand Management comp[onents

Demand management is the process of controlling how much material a company needs. This is done by predicting how much material will be used. In other words, it is a system of analyzing customer behavior and industry trends to improve the effectiveness of marketing products and services.

The key factors determining demand management are Pricing, Purchasing, and Supplier.

There are some techniques that businesses can use to get ahead of the curve. Demand management is about anticipating what consumers want before knowing it. It’s about reading signs and adapting accordingly.

It is also popularly known as consumption management. It is the connection between suppliers and customers.

What is the purpose of demand management?

Demand management initiative aims to forecast, realize, and determine customer demand.
This enables companies to satisfy customer needs better, help them identify trends, and spend wisely. This is done through various statistical techniques such as trend analysis and time series forecasting.
Companies can also use demand management in developing a well-balanced project portfolio management by the following:
(1) balancing the company’s product mix (to meet key demand drivers)
(2) managing inventory levels at stores or warehouses (ensuring that they are not undersupplied nor overstocked), and
(3) Target promotions to maximize target customers’ response rates without saturating their market share.

Components

Demand Planning Process

According to Feldman, there are four main steps in this process.

  1. Modeling: It is the process of representing reality in a simplified way that allows us to understand and predict behavior. In other words, it is a means of understanding the past to anticipate the future better.
  2. Demand Forecasting is the process of making predictions about future events based on past data. This data can come from many sources, including historical sales.
  3. Demand planning: Making a demand plan requires the right tools, information, and operation. Depending on its strategic objectives, product positioning, and inventory needs, it may be different for each organization.
  4. Supply Planning: It determines the correct quantity of materials, parts, and products to produce or procure to meet customer demand. It ensures that an organization has the proper inventory to meet customer demand while maximizing profits.

Best practices

Following are the best practices.

Have the right ERP software

While implementing Enterprise resource planning software in your organization, ensure that it can handle forecasting reporting and confirm that it provides transparency and realistic forecast data.

Collect and prepare data

It gives real-time visibility to look at inventory movements to identify the areas to be improved.

Define the process

A well-defined process with accurate data and information helps improve overall performance. To define the process, follow the below steps.

  • Construction of data
  • Initial forecasting
  • Integration of market intelligence
  • Review of sales objectives and financial reports
  • Rectify the final forecast
  • Monitor the performance 

Monitor the demand planner

Based on the historical data and expressive analytics, design a demand planner and have a dedicated team to design the plan, execute it and monitor it.

Advantages and Functionalities

Advantages

  • Helps to build a foundation for merchandising, budgeting, and logistics processes.
  • Monitor supplier transactions and check for growth or decline, respectively.
  • Monitor all related expenditures.
  • Build a strong relationship with customers and suppliers. Also, ensure that relationships last with reasonable pricing and other offers.
  • Allows you to boost supply chain operations.
  • It helps to create more revenues.

Functionalities

  • Point out the critical delivery dates.
  • Make out the future needs.
  • Point out the frequency of demand.
  • Link the requirement to the budget.
  • Based on past spending and future demands, analyze the expenditure.
  • It integrates with strategy, procurement, requirement, and market analysis.
  • In the case of strategic purchases, manages industry analysis and commodity analysis.

Demand management process

Demand Management Process

1. Planning Demand

This process analyzes customer requirements in advance and forecasts IT resources.

Built primarily for IT administrators, this component analyzes, evaluates, and projects customers’ future requirements within an IT environment.

It uses statistical analysis, best practices, and current demand cycles to evaluate future customer needs.

It also serves as an input to capacity planning to provision required IT resources based on current and expected future demand.

2. Communicating demand

Communicating demand is an essential component of demand management. Therefore, management will implement qualitative methods to forecast the market and share with the stakeholders.

Once the firm understands the demand, it is vital to make it known to several aspects of the business to ensure they leverage the production accordingly.

3. Influence demand

As part of supply chain management (SCM), Businesses should focus on retaining customers, service levels, and supplier relationships.

Companies should build additional policies to face sudden changes in demand and supply.

4. Prioritizing demand

Identifying and prioritizing projects forms an essential part of the demand management process.

Organizational capacity, risk assessment, financial value, and implications must be carefully assessed while forming policies.

Challenges

While implementing demand management faces some fundamental challenges. They are

  • Lack of knowledge about automated algorithms.
  • Maintaining balance for sales and retailers to generate demand design to find the timing, level, and location.
  • Lack of organized data structure for receiving, storing, and retrieving the point of sale information from retailers.

Factors that affect demand

Many factors will influence demand. Here I am listing a few factors.

External factors

  • Market situations: It is a significant factor that directly affects the demand—for example, recessions and strikes.
  • Competitor’s step: If your competitor starts giving the same product or services with good quality at less price, then there will be a chance of a sudden reduction of demand for your product or service.
  • Seasonality: Some products’ demand increases or decreases depending on seasons. For example, ice cream, woolen cloths, umbrellas, school bags, etc.
  • Trends: Market trend is one of the major factors that increases or decreases demand.

Internal factors

  • Pricing approach
  • Maintenance
  • Customer relationship
  • Promotion and advertisement for products/services
  • Product alteration

Demand management tools

The following are the popular software tools for demand management systems.

  • Oracle Demand
  • SAP Advanced Planning
  • Infor Demand Planning
  • Logility Demand
  • Kinaxis RapidResponse
  • NetStock

Demand management vs demand planning

Demand ManagementDemand Planning
It is the process of understanding, anticipating, and managing customer demand.It is designing and building a plan to meet desired customer demand at a minimal cost.
It includes forecasting future demand, setting targets for meeting that demand, and taking steps to ensure that the necessary supplies are available when customers want them.It usually includes determining what products to make, how much of each product to make, when to make them, and where to make them.
Considers customer demand in the short termConsiders customer demand in the long term

FAQs

What are the components of demand management?

Demand management comprises three main components: forecasting, pricing, and promotion. Forecasting helps businesses anticipate consumer demand, while pricing and promotion help encourage consumers to purchase goods and services. By understanding and utilizing all three components of demand management, companies can help ensure their success and stability.

What is an example of a demand management strategy?

One example is adjusting prices to raise them if you have too much inventory or lower them to move things out faster.
Another option is to change your marketing mix to emphasize selling products well and downplay those that aren’t.
You can also adjust your production schedule to meet changing demand levels.
Ultimately, the goal is to match supply with demand as closely as possible to minimize wasted resources and maximize profits.

Who uses demand management?

Typically organizations use it to make decisions about price, promotions, product mix, and inventory.
And also, every department, such as production, quality control, logistics, R&D, marketing, and sales in the organization, utilizes demand management.
The information flow from all these departments affects customer service, order fulfillment, customer relationship, and product development.

Advanced Technologies in Demand Management

Artificial intelligence and machine learning are helpful in demand management. These are the top future technologies that can be used in SCM. Each of these is discussed further below.

Machine Learning in demand forecasting

Some businesses rely on their sales staff to anticipate consumer demands. Unfortunately, this frequently results in over-or understocking, which can cause shortages or surpluses. Machine learning may help you make more accurate forecasts and reduce the uncertainties in demand prediction.

The company can use machine learning in demand forecasting by incorporating data from different sources such as social media, news feeds, and on-site activities on shopping portals. In addition, machine learning has been found effective for demand forecasting in cases where forecasting is prone to human bias.

For example, a case study on high street fashion retailers demonstrated reduced forecast errors by 10% using machine learning compared with traditional methods.

Companies may also use social media insights to derive demand forecasts. For example, social media mining techniques are used for unstructured text data analysis and can enhance time series analysis leading to accurate demand forecasting.

It can derive insights from customer conversations, analyze products’ satisfaction levels, and forecast future demands. Sentiment analysis may be conducted using natural language processing techniques such as speech tagging, parsing, and sentiment lexicons.

Artificial Intelligence

AI systems rely on learning algorithms to predict demand patterns in different situations. For example, the AI can predict demand patterns based on past data, recommend optimum inventory levels maintained at warehouses, and determine the right time to replenish stocks.

In a study, a company used artificial intelligence with machine learning techniques to forecast sales of fashion apparel items to choose the right quantities of things to be ordered from the supplier. This study indicated that machine learning techniques with artificial intelligence could aggregate demand forecasts at multiple levels and reduce forecast errors.

Conclusion

Demand management is a process that ensures the supply and demand of your products stay in balance.

Any company needs to have some strategy for it. Still, it can be beneficial if you’re dealing with customers who need specific types or quantities of goods on an ongoing basis.

An excellent way to start is by looking at each sale funnel step and using tools like forecasting software to simulate forecast scenarios. Hence, you know what could happen when new product launches, promotional campaigns go live, or inventory levels change over time.

We hope this post has been informative enough about how robust demand management strategies work and where they fit into the broader scope of business operations.

References

Lessons in demand management