Embracing Holistic Demand Planning

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.

A Three-Pronged Approach

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.

Capacity in Demand Planning

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.

1. Selection Capacity

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.

2. Tech Capacity

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.

3. Service Capacity

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.

4. Pricing Capacity

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.

1. Reach Capacity

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.

2. Customer Capacity

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.

3. Magic and Room for Error

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.

Forecasting in a Growth Context

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.

Reporting to the C-Suite

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.

Advanced demand planning is cross-functional in nature. Dealing with historical data, external trends and players, supply chains and customer marketing as a demand planner requires know-how of these factors. If you find yourself in this position, you would need to combine your knowledge of these different fields to forecast future trends and demands. A hardcore analytical mindset and an ability to convince stakeholders by drawing coherent links to your conclusions would help greatly.

Along with good understanding and comfort with numbers, you would have a hard set of negotiation skills for collaboration across departments. It’s a tricky balance to strike, because the data inputs that you’re receiving feed your predictions; the rest of the business will be driven towards your forecasts.

While the marketing and finance departments have crucial data for your demand planning, they also possess their own set of goals, with different priorities relating to demand focus. Marketing could share that they’re looking at X amount of traffic by the end of next year, as a major KPI, while Finance is only willing to allow a certain level of investment to minimise costs. Their independent goals undergo planning on a platform level, which is also where different interests can come together. This provides you, the demand planner, with an opportunity and tools to negotiate with the different parties while getting them to align with the unified goal of maximising revenue and advancing profits and margins.

A strong understanding of collaboration and negotiating skills in turn contributes to understanding your own demand channels; your projected plans will need to be based on various policies and marketing channels. Individuals combining these soft skills with a clear grasp of marketing and various business nuances are very difficult to find. Instead, your demand planning team could comprise experts in these respective fields, led by someone with an overall cross functional perspective.

Differences in B2B and B2C Forecasting

Demand planning as a philosophy will serve any organisation well, regardless of whether they’re online, offline, B2B or B2C businesses. When core principles are followed, availability of data is simply a function of which platform you operate on. However, some differences exist between B2C and B2B models.

B2B companies: as you do not have consumer transaction data to leverage, you’re trying to project the demand of players as a middleman. B2B companies do not have full control of demand as it is actually being created by the end consumers; because you’re not interacting with them, you’re missing out on visibility to gauge demand. You’re also subjected to the possibility of reduced business by your clients if they face hardships, which could not have been forecasted by your company to begin with.

B2C companies: While you have the advantage of consumer data to use for demand planning, you are more directly vulnerable to sudden drops in consumer demand caused by unpredictable external factors like natural disasters or brand backlash. One should also offer a B2C online space (if you lack one), to tap on the availability of online data and statistics for demand planning.

Revising Timeframes and Figures

While some companies perform demand forecasting on a big level, at a half-yearly or annual basis, smaller companies can adopt a quarterly framework. Their demand will not tend to suddenly spike, also owing to the limitations on how much they can afford to invest.

Although the frequency of adjusting your demand forecasts depends on the growth stage of your company, B2C online players should review their work on a monthly basis, as lifestyle trends, seasons and consumer behaviours tend to change often. Hence, you should be constantly absorbing from the consumer ecosystem and evolving your outlook regularly.

If you’re supplying lower than your product demand, you should focus on analysing more recent periods of historical data. Some firms look at six-month trends, perhaps one year at best. Two to three-year trends are not advisable, as Asian markets are in strong growth stage and constantly evolving. In particular, the electronics industry is growing much more quickly than other industries, so older trends lose significance.

Approaches to Forecasting Growth

On the B2C online front, the top of your marketing funnel is where the demand lies from a reach capacity perspective. Take consumer capacity into account and make predictions based on historical trends of customers’ spending habits and capabilities. Once you’ve determined how much traffic you need, you can divide the figures up among your platforms and take stock. By comparing it with your consumer spending data, you’ll derive the amount of goods and revenue to aim for. This is one standalone pillar of planning, defined by a single flow coming from online platform visits to revenue; it does not take the financial aspects of demand into consideration.

Another pillar of planning is defined by a bottom-up plan, taking into consideration all the products and supply-side constraints, as well as historical sale conversions, pricing rates & discounts. This leads to a revenue prediction calculated from your number of expected sales conversions, which in turn is derived from your supply evaluations.

One should use both of these pillars to guide your projections. However, it should be supported by careful observations of the macroeconomic and competitive trends in the background. They are often overlooked but exert an influence on your supply and demand set. The possibility of an ever-increasing competition exposure, and the off-chance that your company might miss projected targets, should also be considered.

Look at a full trend analysis of the things that influence the customer and ask the right questions about his capacity to buy from your platform. You’ll get a clearer view of how your product will be perceived in the market. An average grocery shop owner understands this quite well –and hence he would set attainable demand targets, with a better grasp of his potential revenue. While you’re not running a small-scale grocery operation, you should aspire to understand your consumers equally well. When you better understand consumer trends, you’re also approaching the demand planning mindset more deeply. This lets you set targets with a clear path to realising them.

Moreover, take product forecasting into consideration. Suppose you’ve figured out how much traffic your platforms will receive. What about your product lineup? Are you planning for consumer lifestyle habits or mobile as a category?

Product-level predictions should address how being marketed through different platforms affects your products’ merchandising, as well as their visibility in the market. Perhaps you’re pushing a product that already sells well, but neglecting to promote another, less visible product in the market. Demand planning will therefore be affected. To avoid this, the merchandising team needs to have a say in the forecasting process, as they are well placed to offer insights on user experience & demand on your web store.

In Conclusion

Knowledge is power in a new era of convergence and interconnectivity. As agenda-setters, demand planners need total knowledge on the ins-and-outs of their business. Data is exploding in an ever-shrinking world, and those who analyse variables holistically create better foundations for business growth.

Everybody’s diversifying – e-commerce players are encroaching on traditional players’ markets, while the traditional players are adopting e-commerce platforms and best practices. To continue as architects of future success, demand planners need to meet this challenge head-on, with every tool they have at their disposal.

1. Be Consumer-First

No amount of planning is relevant without taking the end user into account. Adopt a consumer-first mindset to arrive at more credible, realistic and attainable forecasts.

2. Possess A Deep Analytical Skillset

It’s not enough to look into historical data and trends. For a holistic view, look around and beyond your business. Analyse not just the customer, but also your supply chain, competitors and external macroeconomic factors.

3. Harness Soft Skills For Other Departments

While you’re dependent on data points and insights from the other departments of your business, they have their own interests and goals. Negotiate and collaborate with other key departments to get them on the same page as you.