Learn More About Demand Planning Software
What is Demand Planning Software?
Demand planning software (also known as demand forecasting software) automates the process of predicting consumer demand to optimize inventory levels. Demand forecasting entails analyzing buying behavior, seasonal patterns, and consumer trends to determine appropriate levels of stock. The ultimate goal is stock optimization—to not have too much or too little inventory.
Achieving optimal inventory is an important business task because overstocking can lead to dead stock (or unused and unsellable products), which creates unnecessary carrying costs and sales losses. On the opposite end of the spectrum, a shortage of products can result in consumer frustration over sellouts and unavailable products. Demand planning software successfully resolves these issues using analytical tools and collecting point of sale (POS) data to anticipate the necessary size of future reserves. Forecasting metrics can thus inform supply chain management, inventory control, and sales and operations (S&Op) strategy.
What are the Common Features of Demand Planning Software?
Demand planning software solutions carry out the tasks involved in planning future inventory levels. Thus, all features of this software will in some way automate the process.
Product portfolio management: Demand forecasting software must oversee the product lifecycle, from launch to end-of-life planning. Many products in a business’ portfolio are interdependent, so studying lifecycles in the context of an entire product mix is crucial. Understanding the portfolio mix, in turn, helps understand how demand for similar products affects the demand for another item.
Statistical forecasting: Using historical data to create predictive models is a central feature of demand forecasting software. These algorithms are developed in a meticulous statistical process of evaluating outliers, exclusions, and assumptions. Linear regression is often used to accomplish this, and it entails taking previous demand levels, plotting them on a graph, and creating a “line of best fit” to help predict where demand will be in the future.
Demand sensing: Incorporating seasonal patterns and current events in the projection of consumer demand is also part of demand planning software. Current events could include disruptions to the supply chain due to weather, infectious diseases, government regulations, and historical trends. Artificial intelligence (AI) and machine learning help accomplish this through inputting inflowing, real-time data into computer algorithms.
Trade promotion management: Trade and marketing promotions naturally spark consumer interest and demand. Supply planning accounts for the likely increase in demand due to limited-time marketing initiatives, promotional tools, and pricing changes. Demand planning software will incorporate these into its statistical models.
AI and machine learning: The difference between pen-and-paper supply chain planning that internal teams conduct and demand forecasting software is the presence of AI and machine learning to develop algorithms and statistical models. A core feature of this software is the ability of a computer to continuously incorporate real-time data and develop insights for effective supply chain strategies.
Metrics: The final stage of demand planning is assessing results to determine the accuracy and effectiveness of the project, often quantified as key performance indicators (KPIs). Demand planning tools help businesses track the attainment of KPIs throughout and after the forecasting process. Some key metrics include forecast accuracy, inventory turns, fill rates, costs of goods sold, and order fulfillment lead times.
What are the Benefits of Demand Planning Software?
Demand forecasting software effectively automates the process of inventory management to react to changes in consumer demand. What once was an imperfect human process can now be accomplished through computer algorithms and AI. This entails the following benefits:
Improved forecast accuracy: The most crucial aspect of demand planning is the accuracy of the forecast. Finetuned reporting means more insight into anticipated company revenue. In addition, this software can use the preciseness of a current project to improve future projects. For example, if the algorithm is repeatedly underestimating or overestimating demand, it can recalibrate until it more closely matches future consumer demand.
Effective inventory levels: Achieving the perfect balance between overstocking and understocking is the end goal of demand planning. With proper forecasting of stock demand, a business can ensure warehouses and brick-and-mortar stores have enough stock to prevent sellouts, but not too much that products pile up and become unsellable. Effective replenishment of stock, thus, leads to greater revenue.
Efficient production scheduling: When changes in customer demand are expected, businesses can better anticipate production scheduling, warehousing, and shipping. This is crucial because more streamlined warehousing leads to greater profits.
Optimized labor scheduling: Labor is one of the most expensive costs associated with manufacturing, and planning systems help optimize this through allocating labor appropriately based on expected fluctuations in production. For example, more workers can be scheduled if a busy season is expected. On the other hand, a projection of shrinking demand would lead to fewer scheduled workers to prevent overpaying for labor. In addition, expectations on the timing of completion of projects can be set for employees to work toward when demand planning predicts a change in consumer demand.
Effective product launching: For a new product to be successfully launched, its predicted demand must also be calculated. Demand forecasting solutions accelerate the idea-to-commercialization cycle by connecting high-level ideation with feasibility models and scenario-based profitability modeling.
Who Uses Demand Planning Software?
Multiple people are involved in the supply chain forecasting process. All of these professionals will come in touch with the functionalities of demand planning software.
Demand planners: People who are trained in advanced statistical analysis and responsible for the punching of hard numbers are called demand planners. These professionals will work most closely with demand planning software, and they are responsible for logistics optimization. Demand planners are the ones who can speak the language of computers and know how to manipulate data to produce compelling insights in supply chain decisions.
Sales and marketing: Promotional events help drive consumer demand, so people involved in sales and marketing will be looped in during the production planning process to ensure future environmental variables help inform the statistical analysis.
Buyers or supply chain managers: People involved in the purchasing process and management of the supply chain will need to be comfortable using demand planning software. When a restriction in market activity is expected, buyers can ensure fewer raw materials are purchased. On the contrary, when the market is expected to expand, buyers ensure enough tools and materials are available for replenishment and warehousing.
Product managers: Executives who are responsible for the management of product suites and high-level business strategy can speak fluently about the product mix and items of interest. They assist in the demand planning process by acting as a subject matter expert on brand strategy, lead times for components, and production times.
Software Related to Demand Planning Software
Demand planning software is but one facet of the logistics and supply chain industry, it is related to other software solutions that optimize the comprehensive process of selling, procurement, replenishment, and inventory management.
Enterprise resource planning (ERP) systems: ERP systems integrate all aspects of a production-based or distribution business, and they contain financial management, HR, supply chain management, and manufacturing and distribution. ERPs are perhaps most crucial to demand planning software because they provide the data that will be used to develop the forecast.
Supply chain planning software: This software helps plan and organize various aspects of the supply chain. It accomplishes this through detecting issues in the supply chain and predicting supply and demand from consumers. Thus, the predictive features that accompany this software can be used directly with demand planning software.
Inventory control software: Software that assists in the maintenance of proper inventory levels is vital in the functioning of demand planning. This software often uses barcodes and radio-frequency identification when working with stock keeping units (SKUs). Thus, inventory control systems that trigger restocks or prevent overaccumulation of goods will improve the process of responding to consumer demand.
Challenges with Demand Planning Software
Although demand planning software (and the demand planning process, in general) has the potential to significantly improve a business’ supply chain strategy, it is not without potential downsides and complications.
Complex and theoretical: Some businesses, especially small businesses, believe demand planning software overcomplicate supply chain management. They may not have the manpower to accomplish the daunting process, and the abstract nature of demand planning may not seem worth it.
Cost: The demand planning process can be very expensive, as it is the result of statisticians, warehousing, product managers, finance, and IT professionals who collaborate. Some companies simply may not have the financial resources to accomplish this.
How to Buy Demand Planning Software
Requirements Gathering (RFI/RFP) for Demand Planning Software
The first step in selecting the appropriate software for a company is to accrue a list of requirements that the software must satisfy. Buyers must begin with a long list of requirements that has more broad criteria, and then narrow down to a short list that has more urgent and industry-specific criteria.
Compare Demand Planning Software Products
Create a long list
Buyers can begin creating a long list by mapping out a business’ demand stream and demand drivers, and display the input and output, as well as any technology that is already in use for the demand planning process. The availability of the following features should be considered when creating the list:
- Available languages and global support
- Ease of integration
- Multiple calendar support, such as finance and production
Create a short list
Finally, to create the short list, buyers may consider the statistical analyses the business currently relies on to forecast demand, and then choose which software best fits the existing processes.
- Full suite of statistical forecasting methods (i.e., ARIMAX, econometric, cluster analysis)
- Forecast generation using hierarchies, event or pricing models, and what-if scenarios
- Error measurement protocol
- Data visualization tools
- POS data capabilities
Conduct demos
Next, it is crucial to schedule product demonstrations with vendors of interest. Buyers should ask them to show the process of data input, statistical tests conducted, and visualization of data.
Selection of Demand Planning Software
Choose a selection team
A selection team must be formed of various professionals throughout the business to ensure the winning software meets various criteria across organizational needs. These stakeholders include project managers, product managers, IT, and functional end users of the product.
Negotiation
Vendors will bring their strongest salespeople to the negotiating table, so one should be prepared to advocate for their business interests and needs.
Final decision
The final decision will balance nice-to-haves with must-haves. The ultimate decision on which software to purchase should be a collaborative process with full team buy-in. Purchasing demand planning software is a major financial and human capital investment; as such, the whole planning team should approve.
What Does Demand Planning Software Cost?
Demand planning software tools are expensive, ranging anywhere from $5,000 to $30,000 per user. The number of bells and whistles and advanced features will determine the final price tag. More generally, this software costs about $5,000 to $6,000 for every $100,000 of revenue. However, a company with the resources to afford may find it to be a worthwhile investment due to indirect cost savings and return on investment (ROI) for more effective supply chain management.
Return on Investment (ROI)
ROI is the time it takes for the cost incurred by an investment to be negated through increases in profitability and efficiency. Demand planning is a long, complicated, and expensive process, so it may take a while to reach ROI.
According to G2 data as of September 16, 2021, businesses achieved ROI in the following intervals with demand planning software:
- 18.6% accomplished ROI in less than six months
- 37.2% accomplished ROI between seven and 12 months
- 20.9% accomplished ROI between 13 and 24 months
- 4.7% accomplished ROI between 24 and 36 months
- 4.7% accomplished ROI between 37 and 48 months
- 9.3% accomplished ROI after 48 months
- 4.7% never accomplished ROI
Demand Planning Software Trends
Point of sale (POS) data
An important trend in the demand planning software market is the integration of real-time POS data into the forecasting process. This means that when an item is scanned at checkout, the data is automatically integrated into algorithms and data sets.
Internet of things (IoT) devices
IoT devices improve demand planning by providing real-time updates on the status of raw materials in the production process and the movement of inventory. It can also monitor sales as they happen, allowing the distributors to quickly replenish items that are selling faster than the model predicted.
