The Analyst Corner: Demand Management

Sensing the future: Next-generation practices in demand management


The reality is that we are master of very little of what it takes to excel at demand management. And the diffusion of the enterprise definition, which leaves many firms as mere influencers, can exacerbate the problem. In the past, people may have doubted your numbers, but they were beholden to follow your dictates. Today this might not be the case. Therefore, reaching out to markets, sensing and visualizing them all should be front and center in your company's demand management practices. Creating these models allows you to look at several key issues, such as in which markets your company can make money, what products go into which channel partners, or how fast product lifecycles need to turn to effectively compete.

The next digital zone is item-level identification through RFID and related systems. Though this is new stuff, many firms can get in on this action already. And linked to this information will be a cornucopia of opportunity, such as in-store operation optimization, more effective promotion management and better management of returns. (Many firms do not effectively use point-of-sale data today, so we recommend enhancing your utilization of these data now.)

Make It a Process

Most forecasting exercises are studies in introspective "spreadsheetsthenics" (spread sheet prowess) vs. infusing the system with fresh intelligence from the outside (markets, customers, trading partners, etc.). Looking at most information technology budgets will reveal a huge pile of cost locked up in legacy IT systems (with or without enterprise resource planning systems — legacy support statistics by various analysts put the number at 50 to 80 percent of budget) and not much investment in technologies that can help grow the business. Subscribing to fresh data sources, market analytics, visualization (data and tools) and understanding trends usually consume less than 1 percent of IT budgets, yet they are directly in line with growth opportunities.

Now from markets, let's look at products. Product demand characteristics change over the lifecycle of the product. Trends and fashion changes turn on and off the spigot of demand. Auto and high-tech pile on features to extend the life of product. Product launches, promotions and other stimulants to the market introduce variability. You need to account for these and overlay traditional patterns like seasonality with lifecycle patterns. Over time, your knowledge of how to manage these will improve.

Managing across the chain and creating responsive and dynamic processes with understandable metrics is critical. Looking at metrics and simple things like forecast vs. actuals will allow you to learn and improve. Evaluate and share these metrics and learnings across the time zone of business events (and your trading partners). What assumptions went into the early phases of market discovery through end of life? What can be learned from these? Very few of these are practiced in a systematic way.

Expanding the Practices of Demand Management Across the Chain

All businesses have to compete for scarce resources — customer's wallets, scarce resources from supply markets — and for time. As we import more, critical time is lost in the ocean lanes. Understanding longer-term needs as well as methods to become more responsive (a worthy subject for another time) becomes even more critical, not less. So giving up due to cynicism is not the answer. What is? Using a broader set of methods and tools appropriate to your markets.

As we rely more on our trading partners, changing the nature of relationships becomes critical. Today's approach becomes inclusion, building a collaborative framework, creating a consensus and increasing sharing in the chain. Adversarial relationships build shortages in the chain – and more costs. As companies become more sophisticated in their process, information consumption and analytics, they understand the impacts and drivers to cost. Ultimately, a lack of collaboration will cost you more in terms of time to market, product costs, expediting costs or shortages at the shelf. Some manufactures of late have fired their retailers since they understand now that they just don't make any profit from certain customers, and no amount of scale can reduce the effect. Better to be a bit smaller and very profitable than large and go out of business. Adding to the arsenal is the ability to understand and manage the risks involved. Risk management becomes a key element of today's intelligent enterprises.

A full treatise on demand management practices could fill books, but included here (see Table 1) is a framework of practices or elements for your consideration.

Table 1

Conclusions

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