Data is making our world smaller. It has never been easier for organisations to reach out to new markets, using technology to enhance their operations. Analytics programmes sieve out data from every segment of the business to illustrate key trends and insights.
Demand planning and forecasting can leverage this abundance of information to chart a healthy, sustainable business growth trajectory. Many B2C companies look to the past to predict the future by examining historical trends and KPIs from a structured enterprise data warehouse containing records on the consumer level.
However, as our world becomes increasingly interconnected, it is no longer possible to rely solely on historical trend analysis. Forward-thinking agencies are looking around themselves, taking external demand trends like consumers’ income levels, demographic makeup, industry happenings and complicated trends into account. Moreover, competition also influences pricing, selection, and service investments.
A more holistic approach to demand planning, including macroeconomics and historical as well as competitive trends will help you better predict your future performance. Data-driven clarity will light the way forward.
You can’t act on what you don’t know. When forecasting demand, your business should have a mechanism to understand external demand variables. One practical way to do this is by setting up teams to examine how these variables impact demand for your business.
One team could specialise in using historical data and applying trend prediction methods across the board, leveraging deep analytical models to anticipate future trends. They should be backed up by a team of research analysts, seeking to examine macroeconomic trends and how they interact with your industry and your business. With their wide and deep understanding of market interactions, economic analysts can provide new, refreshing insights from an outside-in perspective.
Dedicate a third team to assess your competition: from their services, pricing strategy and investments down to tracking competitors’ online presence and popularity by analysing their site & visitor metrics.
As Sun Tzu wrote in The Art of War, ‘If you know the enemy and know yourself, you need not fear the result of a hundred battles’. Working in unison, this holistic demand planning team will help you devise well-informed estimations and growth strategies.
Supply and demand are inseparable; any demand forecast must take supply, and therefore capacity, into account. Demand planning is compartmentalising capacity across the board.
Here are some of the supply side factors to consider.
At the start of your supply chain is the issue of selection capacity. This refers to issues like how much product you have, the product selection available to you and how diverse it is.
Down the chain, tech capacity comes into play. How much load can your systems support when your products hit the market? Are your systems scalable enough to handle the demand? Questions like these should be carefully considered for effective market outreach.
If selection capacity is about what you have, and tech capacity addresses your system limitations, then service capacity speaks to something more fundamental: how are you going to do it?
Using e-commerce as an example - the supply chain defines service capacity. Do you have enough people on the ground to make the deliveries happen? This capacity becomes critical when you need to have something delivered on a short turnaround time. While manpower issues can create headaches for e-commerce companies, it is a better scenario than not having any business at all. It is easy to sink into irrelevance amidst intense competition in the rapidly growing e-commerce industry.
You would then have to think about how much you can invest in discounts for your products. That is, looking at demand curves to figure out at what price you’ll be able to sell a certain quantity of goods.
Here are some of the demand side factors to consider.
Media and marketing spend become a necessity to keep your business alive and relevant in the minds of consumers. While Investment capacity encompasses various marketing channels, including TV, radio and Digital, reach capacity lies on the other side of the same coin, where you must take into consideration who and how many you’re potentially targeting with your media channels. Make sure you’re investing in traffic science to better understand both performance and salient media investments.
Many companies think they’re ready to see the profits roll in after sorting out their supply chain and investing a heavy sum of money into their marketing, thereby growing their reach and demand. If you stop here, you’re making a critical oversight – you’ve failed to take the customer, your source of revenue, into consideration.
Suppose you’re in the luxury brands business. You’ve spent your way into market presence, resolved supply and demand matters and even done the math based on historical trends that X amount of investment generates Y amount of money from a given channel.
By not evaluating customer capacity, you could have unwittingly priced yourself out of your audience’s wallets. Customer capacity is analysing your target demographic, their spending habits and their limits. It is a necessary factor to bridge the gap between marketing metrics (site traffic, search engine visibility etc.) and actual demand projection. Look at income trends of your new customers, and spending trends for existing customers.
Lastly, you’ll need to factor in an element of ‘magic’ in demand planning. Sometimes, your business strikes gold by releasing a product that becomes super popular in the market, creating soaring, unexpected demand that you could not have foreseen but must cope with. Even with the aforementioned capacities taken into account, there is still room for unpredictable factors – don’t discount the possibility of going viral.
For fast-growing companies in a dynamic market, something is wrong if you’re consistently meeting your demand targets. With light-speed markets like e-commerce and the ride-sharing industry, it’s a good sign if your demand exceeds your supply. That’s when the future demand works out in your favour, because your consumers want more than what you can currently supply.
While some of your consumers may feel frustrated because they’re unable to obtain your products or services, it’s a natural consequence of being unable to meet the markets’ demands. That said, you need to quickly come back with enough supply to deliver on consumers’ wants.
For instance, if your company is running crazy festival sales, that’s a time period where you’re bound to be unable to meet the demand. However, within the next few months or so, you’ll have to cater to customers who missed the promotional timeframe. Otherwise, they’ll become disassociated with your brand. It’s crucial to strike a balance for customer retention.
Keeping the market supply constrained is Xiaomi’s technique to taking over the market. When they started in the Indian market, they sought to create hype around supply-limited products that were aspirational for Indian youth, increasing demand accordingly. Xiaomi ran multiple flash sales and launched an ecomm site, which built their brand around a supply constrained product. With consumers expecting new and latest tech upgrades more frequently, Xiaomi products have stayed fresh and relevant on these trends too. The outcome: within five minutes of a flash sale, the products would practically sell themselves.
Fulfilling demand over a period of time is also key. While Xiaomi’s approach proves effective in the short term, customers won’t necessarily come back after six months if they fail to cater to their demand eventually. Growing companies should plan demand reflective of their growth/product potential, while backing it up with constant, fast-hitting product flows to remain relevant with consumers.
Where organisational structure is concerned, the demand planning department normally serves under the COO. They might not fit well under a CFO, as investments that come into demand planning could become cost aspects (overseen and scrutinised by the CFO) that can create constraints on their operations. For the opposite reason, the department also should not report to a CMO, as they would be influenced to make investments to meet the CMO’s demand KPIs. Under a COO, they can achieve growth KPI maximization by balancing the cost across supply and demand functions.
Having done your math and accounted for supply, external factors and competition, you present your demand forecast to senior leadership. As they have the tendency to take the figures at face value, many demand planning people simply pitch their findings as such to the C-suite, without highlighting the trends and competitive considerations behind the figures. While some teams in the business need not know about the underlying trends, so as not to reveal competitive strategy, the CXOs and Business leads should be kept well-informed.
If the planning team sends the targets to the business teams without a trend context, teams would run blindly to achieve those targets. If they’re left unaware of potential large threats by the competition, discipline in the business will start to falter after the day of execution; if things fail to start up, the departments will be prone to making frantic, rash decisions that might undermine the business strategy further.
At the strategic level, CXOs should be kept aware of the analytics that affect demand planning. Otherwise, if they go into the demand planning mindset without knowledge of those traits, a blame game might ensue, and future demand planning can take a hit.
As diverse learners by virtue of their positions, these key leaders should also seek not just an analytical view of operations, but also ask questions in order to make demand planning a science. If these questions are not asked and the science and importance of demand planning is not fostered in the CXOs’ respective departments, crucial information may not reach the demand planning department, which could result in inaccurate predictions.
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Head of Marketing | Former Senior Director
Coinbase | Flipkart