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July 14, 2023

Why is demand planning important?

In this video, we will discuss the importance of demand planning and how it can be transformed using digital technologies. We will explore the following topics:
- The basics of demand planning
- The importance of demand planning
- The challenges of demand planning
- The benefits of digital transformation for demand planning

Demand planning is one of the most important activities in any supply chain. It is the process of forecasting future demand and then using that forecast to make decisions about inventory, production, and other supply chain activities.

Demand planning is important because it helps businesses to avoid stockouts and excess inventory. It also helps businesses to meet customer demand and improve their profitability.

However, demand planning can be a challenging task. The market is constantly changing, and it can be difficult to predict future demand. Additionally, demand planning can be time-consuming and resource-intensive.

Digital technologies can help to transform demand planning. By automating some of the tasks involved in demand planning, businesses can save time and resources. Additionally, digital technologies can help businesses to access more data and insights, which can improve the accuracy of their forecasts.

Okay Chakri So can we talk about Demand Planning now? It's a core supply chain activity, and it's a core element of any digital transformation. But why is it so important? Indeed, Simon, Demand Planning is one of the most important, if not the most important planning activity of any integrated business planning capability.

And its transformation is extremely important. So to examine why, first, let's kind of establish the basics of what is Demand Planning, Why is it important, right? The supply chain of any organization is made up of many supply chain activities, and usually the lead times of the supply chain activities are such that their lead times are longer than the customer expected or the lead times. So what does that mean?

Many of the activities of the supply chain have to be planned based on an estimate of demand, i.e. a forecast. A forecast is a estimate of demand based on certain assumptions about the market and certain assumptions about commercial actions that we are willing to take. Then if you get that forecast wrong, the risk in the supply chain increases. The customers service expectations can be hit or I have to carry a lot more buffer, buffer in terms of inventory, buffer in terms of capacity to account for the fact that my forecast is not accurate.

So it's a tradeoff of customer service versus extra cost and extra inventory. And the Demand Planning is the process of first estimating the forecast under certain assumptions, working with the supply chain to estimate the risk and the cost of supporting that, and then finalizing the plan, i.e. demand plan of what we expect to sell based on the supply chains, ability to support and the cost of supporting it. So it is one of the most important activities because getting that wrong means either poor service levels or too much cost in the supply chain, both of which can have adverse impacts on the P&L.

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