Page 14 - Logistics News Oct Nov 2020

Demand Planning

Demanding better demand planning

By Ann Grackin, courtesy ChainLink Research

Some thoughts on the difference between ordinary demand planning and
AI/ML-enabled demand understanding.

INNOVATION IS moving along rapidly in supply the other, consumers are paying. We must find a way
chain these days. Users and solution providers are to fit this data into the forecasting system.
learning together how to apply more advanced Historically, we could look at some of these
analytics and data. But so many organisations are factors and attempt to glean whether our strategy
still relying on past philosophies of demand and and investments in customer segments or product
supply. Too often, price elasticity curves (and the development were effective or not. Fact is, in the
accompanying promotions) drive forecasts for very recent past there was no consistent way to
production. validate that the results could actually be tied to the
We all know price is not the only factor causals. Many organisations today still don’t practice
that influences demand. However, in the past, building smarter models based on these and other
with fixed concepts of data, this was all many demand-factor inputs that they may even know
forecasters could analyse and calculate. Even if about through experience.
your organisation has more nuanced forecasting
systems, most companies have basically ignored Widening the horizons in demand
many important inputs in their forecasting systems, So, let’s dive deeper into this discussion about
for example: widening our ability to understand demand and
Marketing input: Marketing people often chafed at supply. Simply, products and pricing strategies can
price elasticity as the method, instead presenting be looked at in two fundamental ways, assuming
other views and market analyses of demographics the necessity of the product: commodity, highly
and other methods for defining customer grouping, available from multiple sources (often cheap sources
as well as the customer’s desire for/need for a of production); or limited supply, often single
certain product or service. In fashion, ‘prestige’ or source (where often production cost is higher, with
‘budget shopper’ laces marketers’ language. Since expensive material, but not always).
they include income data in their spreadsheets,
these various views allow them to conjecture pricing • Commodities
and demand for certain groupings of customers. A popular commodity like soap is a necessity. But
Problem. It’s all in the spreadsheet! And even if it is also a highly competitive market. As well, there
marketing does have a system, the credibility of the is abundant supply. Thus, buyers often feel little
data is often not validated. It becomes an artifact of pressure to buy without some incentive at a given
the recent past as production gets rolling. time. Therefore, the amount of soap you sell, to a
Product design/engineering input: Product great extent, can be gauged on price. This is why
people also chafed at the demand/supply elasticity brand companies and their channels expend so
curve as it did not take into consideration product much effort on promotions. However, promotional
attributes and features and their utilitarian and management comes at a huge price. Commodities
sustaining value. Importantly, price elasticity does products can, at times, have so much availability
not take into consideration the customer’s ability to that, in essence, they are dumped in the market.
actually evaluate the increased value they receive Yet we can still spend a fortune on the associated
and, thus, their justification of an increased price. information, relationship management and logistics
Product designers often supported their argument costs and coordination.
with competitive analysis based on feature/
function. Again, this data does not fit neatly into • Single source/limited supply
the forecasting system your company may have These are products for which there is only one
purchased as recently as two or three years ago. source, or limited sources, of supply. Generally,
Logistics input: Then we have the issue of sellers in these markets can claim higher prices
availability. Currently, consumers in more ‘developed’ for their products. These conditions may be a
economic sectors have access to lots of home permanent factor of supply markets, or temporary.
shopping/delivery options to get deliveries. Delivery For example, some products, such as lifesaving
today plays a big role in demand. And one way or medications, will be bought at any price. On the

12 October/November 2020 | Logistics News