Demand management can make or break a business — Here’s how to ace it
December 10, 2021
When you run a business, there are few things worse than having too much or too little product. Not only does this waste time and resources, but you’ll probably end up with a frustrated workforce and angry clients who never come back. Without demand management, your business is prone to ups and downs that are beyond your control.
Knowing how to be prepared for a shift in demand is essential. Overshoot the mark, and you have to throw away products or cut prices aggressively to try and sell them. Not to mention, you have to explain low sales numbers to investors. Underestimate the demand, and you may need to adjust production of other items or reallocate workloads to make up for it.
The good news is you don’t have to leave it to chance. Let’s look at some actionable ways to manage demand and keep customers satisfied.
What is demand management?
Demand management is the concept of predicting how much of a product or service you think your customers will buy. Based on those forecasts, you can decide the best way to structure your operations. Otherwise, you’re more likely to react poorly to market fluctuations and increase your expenses.
Demand management aims to balance your supply and resources at all times, making it easier to adapt to changes in demand.
Demand management takes into account external factors and internal projections. Competitor actions, customer expectations, pricing decisions, and market regulations also play a role in product demand and availability. For this reason, a demand management strategy is often about reshaping the demand to fit your short-term goals.
But how do you reshape demand?
Consider the many reasons why a business might struggle to meet demand. A logistical problem with truck drivers. An equipment breakdown that slows production. Suppliers who fail to deliver on time. An unexpected staffing shortage. A societal shift that causes more people to need your product.
You can make a plan to get products to customers on time, but you can’t control every component in the supply chain. However, you can create policies or incentives that change where demand is focused. For instance, if your deliveries are delayed, promoting a different product solution gives you time to resolve the supply chain issue.
So to summarize…
Demand management is about keeping an eye on market trends, studying past sales patterns, and making predictions based on available data. When done correctly, demand management allows your company to make informed, cost-efficient decisions.
Predicting product demand: a fine art
As demand rises, your costs also increase. Production of raw materials, transport costs, storage, and staffing all add up. When these decisions are rushed, you have fewer options and are more likely to incur extra expenses. That’s why demand management should be an integral part of every company from the very beginning.
If costs get too high, you have less working capital and can’t take advantage of surprise opportunities. And raising prices to cover expenses can drive away customers. If prices stay too low… well, there goes any profit you would earn from selling more items. The bottom line? Managing demand is necessary to keep your business stable and drive growth.
Demand management vs. demand planning: what’s the difference?
Demand planning is a long-term strategy for consumption management. It involves forecasting future market conditions and how that will affect product demand, as well as creating strategies to ensure you’re prepared for whatever happens.
Demand management refers to how you put those plans into action and how you adapt when real-time demand doesn’t match up to predictions. It includes creating inventory plans that will meet the current and projected short-term future demand for a company’s products or services while minimizing supply chain problems and avoiding shortages.
Why is demand management important?
Here are some more reasons why demand management is crucial:
- Delaying or containing costs can save you money.
- Financial flexibility allows you to seize opportunities if demand suddenly goes up.
- Thorough planning reduces waste when specific products become hard to sell.
- Streamlining your inventory management process reduces costly surpluses and shortages.
- Accurate ordering improves your relationships with suppliers and vendors.
- Avoiding persistent shortages leads to higher customer retention.
Demand management: best practices, tips, and tricks
Demand management sounds pretty straightforward until you try to implement it. But don’t let that scare you off! With a bit of planning and a lot of patience, you can come up with a strategy to balance supply and demand.
There are a few best practices you can adopt to manage this better.
- Have a clear process in place for organizing orders. Make sure everyone who has access to your company’s inventory knows how to create and manage order requests. You don’t want to double up on orders or not order something because you assume someone else has.
- Maintain a manageable overstock during low-demand times. Estimate how much extra stock you need to account for product damage or sudden surges. This helps to reduce the number of lost sales due to stock-outs.
- Diagram common scenarios that affect demand management. Your predictions are only valuable if they help you navigate obstacles with more clarity and buying power. Use what you know to create action plans your team can enact when a change in demand is abrupt.
- Establish a backup supply chain. Having more than one way to meet goals is critical, especially when a major supplier or logistics solution falls through.
- Create a dedicated role (or department) for planning and forecasting future demand. Building up a wealth of data improves your ability to make accurate forecasts.
- Take advantage of third-party resources. Demand prediction software, advisors, or project management tools can help you assess data and make profitable choices.
Demand management tools: what do you need?
Tools for demand management come in all shapes and sizes — just like the companies that use them!
At their most basic level, these systems let you monitor buying and pricing trends. Year over year, you get better at understanding the flow of demand and setting realistic targets. They also help you manage inventory and predict the best times to reorder supplies, helping to cut costs and waste.
More complex tools allow integration across many departments. This keeps operations, inventory, sales, and marketing teams on the same page, so they can decide how and when to promote specific products.
Project management tools are the way to go when it comes to staying organized within the company. PM software can help you supervise project workflows. Always know what supplies were ordered, their current position in the supply chain, and whether something is likely to run out. Rather than juggling multiple platforms, you can view all your operations in one place.
Demand management is an essential part of running any business, whether you offer products or services. It ensures that you don’t go overboard with production efforts or fail to plan ahead and leave customers disappointed. In short, it creates a sustainable balance between supply and demand by ensuring that you only produce what people want.
Controlling demand involves a mix of short-term tactics — such as promotions, targeted marketing campaigns, and trade incentives — and long-term ones, like keeping extra inventory on hand and adjusting staffing to accommodate delays. Every step of the process is easier when everyone — from top executives and stakeholders to lower-level employees — works together via project management software.
PM software stores all your project data in one place. Armed with information, your team can make real-time adjustments and stay ahead of the game.