Good forecasting leads to good demand planning —and good demand planning means better profitability. That’s why it’s essential to be sure you’re equipping your organization with the right demand planning software.
When you choose the right solution, you can stay ahead of fluctuations in customer demand, achieve high levels of forecast accuracy, handle seasonality, and drive collaboration across supply chain stakeholders. To find the best solution for your business, you need the “what” and the “why”.
Here are our answers to some of the most common questions about demand planning software.
1. What is demand planning software?
Demand planning software forecasts how many of your products and services will be sold in the future. Your business can use it to create a demand plan, which will help you set inventory levels, plan production, create manufacturing schedules, and drive other parts of your supply chain.
Most demand planning software uses statistical algorithms, machine learning, and artificial intelligence to analyze historic data and look for seasonality or other trends in product sales. The software can then be used to adjust the forecast based on any additional information that’s available, such as promotions and other market changes. Demand planning software also allows the demand planner to review and adjust statistical forecasts based on any other information that may not be in the historic data. For example, the company may be entering a new market, or they may have experienced a natural disaster that dramatically increased or reduced demand for their products.
For midsized and large companies, it’s impossible for demand planners to generate a demand forecast manually for all their products. As companies grow and mature in their supply chain processes, demand planning software gives them the tools to automatically create, update, and manage the demand plan across their product line and then include that plan in their sales and operations planning (S&OP) process.
2. What are the benefits of demand planning software?
Demand planning software generates a forecast of the future demand for your products. You’ll need this forecast to create a demand plan. Your demand plan will take the forecast and add additional information and considerations to create a more actionable and operationally feasible plan.
It’s crucial for your demand plan to be accurate because it’s used to set your procurement and manufacturing levels. If your demand forecast is too high, you’ll carry excess inventory, which will increase your carrying costs. If your forecast is too low, you’ll experience stockouts, lost sales, and lower customer satisfaction. This is where demand planning software shows its value by automating many of the tasks your demand planners perform on a day-to-day basis—tasks such as bringing in historic data and creating a base forecast—and then providing a workbench to review and adjust the forecast. With a centralized system encompassing all these capabilities, your planners can effectively manage the demand plan for each product, while also delving into specific location and individual customer needs.
Before we go any further, it’s important to address a common objection. Many manufacturers ask, “Why do I even need demand planning software? Doesn’t my ERP system provide these same features?” It’s true that for an extra cost, some ERP vendors provide demand planning modules and even include applications that address other areas of the supply chain. But these modules tend to be add-ons to the ERP system rather than core functionality. As a result, they generally can’t produce the level of forecast accuracy that a dedicated demand planning solution can offer. Their feature sets also tend to be less comprehensive than what you find in a true supply chain planning platform that includes dedicated demand planning software.
3. Which companies should be using demand planning software?
Most new companies conduct their demand planning in spreadsheets. As their products and product lines become more complex and their sales increase, companies typically move to real demand planning systems that allow their planners to create and review forecasts and gather input from other departments.
There’s no hard-and-fast rule about when companies should begin using demand planning software. For example, we don’t believe that companies with more than a specific number of SKUs absolutely must make the transition. But we do recommend that when companies move past Gartner’s first stage of supply chain maturity, they begin evaluating demand planning systems. If your company is approaching this stage, or has recently surpassed it, you’ll probably notice that your products and product lines have become more complex and your demand planners are having increasing difficulty creating demand plans in the spreadsheets or software they have available to them.
4. Must-have features & capabilities of a demand planning software provider
Now that we’ve explored the high-level goals and benefits of demand planning software, let’s run down the features your software should provide. Make sure your solution enables you to:
- Generate accurate forecasts. Your demand planners must be able to create high-quality forecasts using a variety of algorithms. The system should make it easy for them to include internal company data as well as any available external data. Your demand planning software should recognize that not all of your products are the same. Some might be seasonal, others might be non-seasonal, and still others can benefit from demand sensing, which involves making short-term adjustments to a forecast based on other attributes. Your system needs to be able to determine which of these algorithms and approaches will be best for each product, and sometimes even at the product-location-customer level. It should also provide error metrics to help you understand how accurate each forecast is. Using the demand planning software, your demand planners should be able to adjust your forecast—and even your historic data—and make changes while the software creates an audit trail. This audit trail will help other team members understand who made the changes and why.
- Run your business on exception alerts. Don’t let your demand planners waste countless hours reviewing thousands of forecasts each year just to find which ones need special attention. Exception alerting calls your team’s attention to the forecasts that contain “out of bounds” data, so that your team can find the root causes and intervene before there’s a bottom-line cost to your business.
- Perform product segmentation. Like exception alerting, product segmentation can save time for your demand planners. Once you’ve segmented your products, your demand planners will know how to divide their time because the demand planning software will automatically categorize the products to show which are in the top segments and should be given the most attention. Perform what-if analysis. What-if analysis enables your demand planners to evaluate how various hypothetical scenarios or changes would impact your demand forecast and the plans that are associated with it. With what-if analysis, your business can assess different possible outcomes and make informed decisions by simulating the effects of alternative assumptions or variables. Make sure your demand planning software enables you to create scenarios, make adjustments to data and models, simulate the impact of scenarios on your demand forecast, and evaluate outcomes for better decision making.
- Phase in and phase out product profiles. Phase in and phase out profiles are an important aspect of demand planning that deals with managing the introduction of new products and the discontinuation of existing ones. It involves carefully transitioning from one product to another in a way that minimizes disruptions to the supply chain, inventory management, and customer demand. Your demand planning software should provide a robust way to ramp up or ramp down the demand as you introduce net new products, sunset old ones, or introduce new products that supersede existing products.
- Report on and analyze results. Your software should make it easy to review your forecast and identify trends.
- Create consensus forecasts. With consensus forecasting, you can generate a single, unified forecast by incorporating input and expertise from multiple stakeholders across your organization. By gathering diverse perspectives and knowledge, you can create a more accurate and reliable forecast than would otherwise be possible. Make sure your solution supports a high degree of collaboration and information sharing.
- Integrate with your other business systems. Even the most sophisticated demand planning software won’t handle all your business functions. You’ll need to integrate your new platform with all the other systems you use to manage your supply chain, including supply planning, inventory planning, and manufacturing planning systems.
Questions to ask a potential demand planning software provider
As you research demand planning software, don’t just rely on the marketing materials vendors provide. Be prepared to ask potential providers highly specific questions about the capabilities of their platforms and the results customers have achieved with them. Here are the questions we recommend:
- How long have you been providing demand planning in fully featured supply chain software? Newcomers to the industry are less likely to understand the unique challenges and pressures you face every day. Look for a partner that built its business around supply chain planning —not an ERP provider that recently launched a demand planning module.
- Which industries do you serve? What types of companies do you work with in my industry? Not all companies face the same challenges. Look for a demand planning software provider that has a successful track record in your industry and specific niche of the world.
- What’s your approach to forecasting? This question doesn’t just relate to algorithms. It also covers how the provider handles demand sensing for short-term changes as well as causal forecasting to incorporate other data that might influence the forecast.
- Do you offer other supply chain planning products besides demand planning? As your company grows, you’ll want to be able to grow with the same vendor. Even if you don’t currently have plans to purchase additional modules, look for a provider that can deliver solutions to complement their demand planning software. You could save yourself from integration headaches down the road.
- How do you create product location and customer hierarchies? A product location hierarchy classifies products based on their physical or virtual locations within your organization. It can help you manage inventory, track sales performance, and understand product distribution across different locations. A customer hierarchy organizes your customers into different levels or segments based on specific attributes or criteria. It can help you understand your customer base, target different customer segments effectively, and tailor your marketing strategies to specific groups. Make sure you’re comfortable with how your software handles these tasks.
- Can you extract data from my internal system as well as include external data? As we mentioned earlier, your forecasts will be much more accurate if they incorporate both internal and external data. Make sure your new solution can interface easily with the wide range of systems in which you store data.
- How do you handle adjustments to the forecast or historic data? Remember that it’s essential to find a solution that provides a thorough audit trail. You’ll want all team members to see which data was updated, when it was updated, and who performed the updates.
- Can you run scenarios and perform what-if analysis? Without these capabilities, you’ll have little chance of determining how hypothetical scenarios and changes could affect your forecast and the plans associated with it.
- Can you generate alerts to help my team identify which forecasts need extra review? Managing your business by exception can save countless hours for your demand planners and allow them to spend much more time on the areas of your business that need the most attention.
- What volume of data and forecasts can you manage? You want to make sure your potential provider can scale to your size. How much bigger do you want your business to grow? Keep in mind that 10x growth doesn’t necessarily translate to 10x the volume of data and forecasts—it could mean 50x or 100x the volume as your company intensifies its focus on data to defend its newfound competitive advantage.
- Do you provide role-driven access to the system? You want to be able to give different users with different rights access to different parts of the software.
- With which ERP systems can you integrate? Make sure your ERP platform is on the list.
- How well can you support the specific needs of my industry? For example, you’ll need to handle expiration dates in the food and beverage industry.
- Do you support proportional planning? Proportional planning is important in industries such as consumer durables in which there are often related products. As you’re forecasting one product, you may need to keep in mind that to build that product, you’ll need several other products that can also be sold separately. Make sure your demand planning software allows you to forecast the base product and identify how many of the other products you’ll need to build it.
Tips for using demand planning software effectively
Getting the most out of your demand planning software is all about the quality of your data. Bad data leads to bad forecasts every time. Your top priority, then, should be to establish a reliable process for bringing good data into your system.
Just as importantly, make sure you can review the results from your prior forecasts. Seek to answer questions such as:
- Which products forecasted well?
- Which of our product forecasts were most inaccurate?
- Which product forecasts do you need to adjust on a regular basis?
You can dramatically enhance the quality of your forecasting by using waterfall analysis to review past forecasts. Waterfall analysis allows you to compare previously generated forecasts to see if they’re getting better or worse over time to, giving you the ability to course correct forecasts.
Finally, make sure your demand planners constantly solicit input from other departments so that everything your business is doing will be included in your final demand plan. For example, your planners will need to know if the marketing department is planning a promotion for a particular product that will most likely drive up demand. The same is true when the sales team plans to push a certain product line aggressively.
Why use Logility’s demand planning software?
There are many reasons to choose Logility’s demand planning software:
- High scalability. This makes Logility an ideal platform for growing businesses.
- Robust forecasting. Our solution provides a wide variety of artificial intelligence and machine learning algorithms that are compared to each other during the forecasting process to ensure you get the best results.
- Ability to include casual data in forecasts. Rather than simply considering historic data, Logility uses future data such as pricing and other causal factors to refine your forecasts.
- Advanced demand planning functionality. Logility includes all the critical features you need to see in a demand planning system, including scenario management, alerting, robust analytics, and profile planning.
- Broad industry expertise. Logility has worked with many industries, including fast-moving and durable consumer goods, food and beverage, and soft goods such as apparel. Each of these industries has a slightly different need in its demand planning software.
- Complete supply chain planning platform. Our demand planning solution is part of an advanced supply chain planning platform that covers the entire supply chain. Whether you’re already looking for a complete solution or want to start with demand planning and grow into a full supply chain planning system, we can cover the entire range of the supply chain for your business.