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How Does Demand Sensing Work?

Learn about:

  • How demand impacts supply chains
  • Methods for accurate demand sensing
  • Turning demand insights into actionable plans

Present-day supply chains face challenges in the form of mushrooming product-lines, contracting product lifecycles, complications, and vast quantities of data. Supplementing this, suppliers have demanding and irregular customers; the fluctuation of trends driven by the internet is rising, and promotions and sales depend on the weather, new launches, and the economic system.

To prepare for tomorrow’s challenges, brands must be clear about the effects of supply chain fluctuations on demand. This knowledge is how they can ascertain that they fulfill customers’ needs at the right time.

Demand sensing, true to its name, is primarily the sense and sensibility of being quick to catch the drift of short-term trends and create better forecasts about customer wants. Brands cannot come up with a precise prediction of demand for the simple reason that there is an unlimited number of variables in play. 

Some of these variables are identifiable, and others are not. A study by KPMG and the Economist Intelligence Unit revealed that only 22% of companies surveyed could make predictions within five percentage points. On the whole, forecasts deviated by 13%, causing a significant influence on the share price.

The best part about demand sensing is that it promptly integrates short-term trends with the long-term forecast. Rather than depending on the same forecast within a 60 or 90-day window, planners get a better understanding that enables them to perpetually calibrate predictions with the help of the most recent sales data. This data allows supply chain managers to respond quickly and more often to fluctuating demands, resulting in enhanced profits, increased service quality, and waste reduction.

Methods to sense demand

There are many methods to sense demand, and each new understanding can quicken response time and lift profits. Three domains primarily draw the most significant returns from demand-sensing operations:

Short-term predictions using sell-in data 

The best means that firms can use to start sensing demand is with the help of the most granular past data at hand. Often this comprises analysis of everyday sell-in/ship-to demand data using short time frames and consequently fine-tuning the forecast.

The shipment history considers this type of demand-sensing easily accessible in much supply chain planning or enterprise resource planning (ERP) systems. A few of the planning tools comprise short-term statistical forecasting for better forecasts’ responses to the demand changes in progress.

Include sell-out data 

During demand sensing, one must consider every possible data source that can help in improving the forecast. Downstream sell-out information like customer, point-of-sales, or channel data, for instance, can help recognize the patterns of demand, give early alerts of any trouble, and bridge the gap between the plan and the actual scenario within the supply chain.

Include demand causations and outside data 

Demand sensing must blend demand-associated variables to generate a forecast vigorous enough to respond to a broad spectrum of upcoming eventualities, both identified and unidentified. Among these are stock market ups and downs, rival promotions, viral social media trends, new product launches, climate, and other external elements.

Collating the sell-in data, the sell-out data, and the appropriate demand causes results in the most thorough possible depiction of need imaginable. Collating this data also provides a basis for straight-through demand sensing. With this, planners can use their entrepreneurial competencies to even better forecast and enhance consumer services.

Power up your insights

From insights to profitable activities

A few instances in which demand sensing is helping companies convert insights into lucrative operations are as follows:

  • Fine-tune against-the-stream planning by directly pulling out PoS data. With the help of demand sensing, brands can extract requirements from point-of-sale (PoS) data. Using this, manufacturers do not have to wait for distributors and retailers to do more accurate sales forecasting.
  • Boost production-planning performance. Using demand sensing inputs to production and supply operations allows for easy modifications to the production plan by accelerating or slowing down orders.
  • Consistent streamlining of upstream inventory. Using demand sensing, it becomes possible to make dynamic improvements to your inventory and offset the network by including the stock at local storage facilities and forecasted customer demand in specific locations.
  • Bridge the inbound/outbound gap. The inbound staff aims to fill warehouses; the outbound staff, on the other hand, aims to exhaust them by deliveries to retailers and customers. Demand sensing combines these two sections by displaying one global demand scenario.
  • Forecast highly precise seasonal demands. Consolidating the distribution network visibility is critical to improving supply chain response capacity. Improved visibility helps in getting to know which seasonal items are likely to sell each year. Using demand sensing, planners can instantly know when key retailers are out of stock. At the same time, when an item fails to perform, manufacturers can promptly modify production.
  • The proper volume of inventory for launching new products. With shrinking product lifecycles, replacing items becomes more and more difficult. With demand sensing, companies can get the needed support to decide the best amount of inventory of new and previous variants of products to fulfill customer service expectations.
  • Improve promotion functions. Demand sensing can take into account sell-in data like promotion features, merchandise, and market information so that planners can perceive the characteristics responsible for the boost. Planners can make better forecasts about the impact of future promotions armed with this information.

Innumerable inner and outer variables affect demand variability, resulting in scaling up of change yet to come. Inventory is the best means to deal with changes and to ensure superior service quality. 

Using demand sensing, brands can make the most optimum use of inventory. It segregates the significant indications from the commotion, thereby offering better and more accurate forecasts, enhanced short-term demand visibility along with reduced inventory, better customer service, and any future eventuality.

Better insights with SupplyPike

SupplyPike’s Retail Intelligence software creates metrics for your daily, weekly, and monthly analyses, giving you up-to-the-minute insights on your forecasts and enabling accurate demand sensing. We use machine learning to power our forecasting models, giving you the edge over your competition. 

Retail Intelligence - SupplyPike Sales Forecast
Retail Intelligence – SupplyPike Sales Forecast

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Make sense of your demand
Updated on November 3, 2020

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