Demand and Supply Planning-Then and Now

How do you increase profitability in a very competitive market?

Let’s start with good demand and supply planning. It is not just a backdrop but the very stage upon which the drama of supply chain management unfolds. It's a crucial component that determines the efficiency, profitability, and ultimately the success of your FMCG retail businesses.

The Criticality of Strategic Forecasting

Where were the days of “sigarette box” counts for an order based on “front stock, back stock order”? Initially, demand planning relied heavily on historical sales data to predict future demand. This approach was straightforward but often inaccurate due to the volatile nature of FMCG demand patterns. Factors such as promotions, seasonality, and external disruptions were not adequately accounted for, leading to inefficiencies like stockouts or overstock situations.

At its core, demand planning involves forecasting and reacting to consumer demand with precision and agility. It is about understanding not just the 'what' and the 'when,' but also the 'why' behind consumer purchasing patterns. Supply planning, on the other hand, ensures that the anticipated demand is met with just the right amount of product, in the right place, at the right time – no small feat in a landscape as volatile as FMCG.

The fusion of accurate demand forecasting with meticulous supply planning allows suppliers to maintain optimal inventory levels. This balance is crucial for reducing holding costs, but also for avoiding stockouts that can lead to lost sales and, potentially, lost customers.

As the FMCG industry matured, companies adopted rolling forecasts to improve accuracy. These forecasts are updated frequently (weekly or daily). Modern demand planning incorporates external data sources such as point-of-sale (POS) data, social media trends, weather forecasts, and competitor intelligence. This approach, known as "demand sensing," helps FMCG suppliers adjust their projections in real-time and better anticipate short-term fluctuations.

The Role of Technology in Demand and Supply Integration

Integrating advanced analytics and near-real-time data processing tools is indispensable for effective demand and supply planning. Technologies that harness big data, AI, and machine learning can predict trends more accurately, adapt to changes swiftly, and provide actionable insights that drive strategic decisions.

For instance, by analysing historical sales data, market conditions, and consumer behaviour patterns, suppliers can predict future demand more reliably. This predictive power, when coupled with real-time data, enables businesses to react dynamically to any unforeseen changes in demand, such as those driven by seasonal peaks, promotional impacts, or sudden shifts in consumer preferences.

Balancing Act: Agility and Precision

The real challenge - and opportunity - in demand and supply planning lies in the balance between agility and precision. On the one hand, suppliers must be flexible enough to respond to sudden market changes; while on the other, they must ensure that such responses are based on solid, data-driven insights to avoid overcorrections that lead to wastage or underutilization of resources.

For suppliers, here lies the challenge

Most orders are placed by the retailer, with very little control by the supplier. This means responding to orders as they come as well as anticipating future orders and preparing for them proactively. But how does the supplier move from a reactive posture to a proactive stance?

Should the option be available at the retailer, a “Supplier Inplant” could collaborate with the retailer in real-time. It allows for the sharing of stock availability currently and potential stock issues at the supplier.

This approach allows for streamlined supply chain processes such as inventory replenishment and delivery scheduling.

To mention a few benefits:

• Improved stock availability to meet the right consumer demand

• Reduction in overstocks, waste and returns

• Saving costs for both the retailer and supplier

• Price alignment for reduced price claims

Conclusion: A Strategic Imperative

Effective demand and supply planning is a strategic imperative. It is the cornerstone upon which suppliers can build responsive, resilient, and profitable operations.

The role of sophisticated demand and supply planning will only grow in importance, proving crucial for those aiming to thrive. The question for today's FMCG suppliers is not whether they can afford to invest in advanced demand and supply planning capabilities, but whether they can afford not to.