Competing in an omnichannel global market means increased complexity in matching supply and demand for today’s supply chains. Demand management is the science—perhaps art—of collaboratively balancing the organization’s supply and demand by optimizing demand across the network to realize planned sales revenue, profit, and customer service levels.
Generally speaking, demand management includes four iterative components:
- Planning Demand, not to be confused with Demand Planning
- Communicating Demand
- Influencing Demand
- Prioritizing Demand
Why effective demand prioritization is critical when supply and demand don’t match
There are some cases where supply and demand won’t match. For example, when a large, one-time sales opportunity arises that impacts regular orders or when the consensus demand plan understates the actual demand. When supply and demand don’t match, effectively prioritizing demand is critical. Organizations may choose to prioritize demand by segmenting customers and fulfilling orders for the most valuable customers first, or by rationing inventory across the network so that no customer goes without supply. Best-in-class organizations that successfully use demand prioritization to achieve strategic goals have three things in common:
- They have a structured demand prioritization policy.
- They have a structured demand prioritization process.
- They leverage technology to automate and collaborate.
Developing a clear demand prioritization policy
Because cross-functional collaboration is required for successful demand prioritization, a best practice is to have a clear prioritization policy in place and a structured process for implementing it. The policy should clearly indicate who is allowed to prioritize demand, which should be restricted to appropriate management levels based on the level of risk involved in the decision. Decisions involving the highest level of strategic risks should be made at the executive level, and lower-risk decisions should be reserved for stakeholders operating at the management level.
Organizations should also avoid giving prioritization responsibility to individual salespeople, and should clearly document and communicate the prioritization policy to the sales force. In addition to assigning decision-making responsibility to the appropriate levels, organizations should also limit prioritization powers to the demand side of the organization. Although the supply side should provide critical input on costs regarding changes to supply-side activities, the demand side has the most valuable information on customer desires, sales, and marketing goals.
Finally, organizations should use a demand prioritization policy to outline any criteria used for sorting demand and the sequence in which to cover demand. These criteria and priorities can be used for the supply side of the organization to generate proposals and production planning. Moreover, organizations seeking to complete a digital transformation can use these criteria as input to automation and collaboration efforts, as discussed below.
How to create an effective demand-prioritization process
A demand prioritization process is rooted in two principles:
- The intent is to fulfill demand whenever it is practical and will result in an increase in marginal profits.
- Prioritization activities are unnecessary when demand and supply differ within a time frame that allows operations to be changed without impact on costs or other operations.
Because the intent of the organization should always be to fulfill demand where profitable, the demand prioritization process may involve several options for doing so, like fulfilling demand later than is requested, delaying other orders to meet a customer’s request date, or offering a substitute product. Because an order should only be declined if these options are not acceptable to the customer or the sales manager, the sales force and customer service should be trained on the exception process so that unexpected orders are analyzed as soon as possible. When, on the other hand, no prioritization is necessary, the supply side of the organization should be empowered to manage supply. Remember that demand management and prioritization should only be necessary to match demand with supply when there are cost implications.
The demand prioritization process should also involve determining ways to minimize the need for prioritization. This can often be achieved by delaying decisions until a necessary decision point, or time fence, such as when raw materials need to be ordered or capacity changes are required, so that the organization has the most current and accurate information available to inform their decisions. Time fences should be set with feedback and insights from both the supply and demand sides of the organization so that they reflect the optimum balance between production costs and customer service.
Leveraging Connected Planning technology to achieve collaborative demand prioritization
A cloud-based Connected Planning platform with supply chain management tools provides a way to realize collaborative demand prioritization, not just within the enterprise, but across the entire supply chain network. Connected Planning allows for sharing information about actual capacity, demand, and inventory levels, providing increased visibility as well as an avenue for key trading partners, customers, and suppliers to execute various activities, including collaborative planning, forecasting, and replenishment (CPFR), quick response programs (QRP), or vendor-managed inventory (VMI), for example.
Because a connected platform provides visibility to all types of demand and actionable insights to potential prioritization actions, organizations are better equipped to allocate resources and budgets while leveraging technology to generate a new supply plan that takes into account factors like stock transfers, sales orders, and warehouse and production capacity.
Organizations that take full advantage of the power of Connected Supply Chain Planning are able to spend more time collaborating and planning higher-risk, more strategic decisions while allowing the tool to automatically alter the plan or make suggestions, based on prioritization criteria and business rules.