If you run any type of commercial venture, you need to know how much of your product you can sell. This is how you can order enough without wasting money. But more than that, you really should have an idea of how much you can sell in the future. This is the essence of company growth – it never happens unless it has been planned for and it cannot be planned for unless it has been predicted.
One sure way for your company to stagnate is to simply assume that the amount you are selling now is the same amount you will be selling next month. And worse than stagnating, this could even be a way for unexpected customer base growth to actually disrupt your business rather than being the golden opportunity that you can use to grow it.
Demand planning is also essential if you have any cash flow problems. The essence of a cash flow problem is not having the funds available for your financial obligations when you actually need them. fastFACTR is an invoice factoring service based in Utah that works on the premise that future assured payments offer the security for a loan that they provide. Even this requires demand planning as this is the only way to know how much money is due in the future. So demand planning is essential for cash flow and essential for business growth.
A Guessing Game?
Demand planning is certainly not a guessing game – or, at the very least, it shouldn’t be. For it to be anything else, however, will need data – and plenty of it. The important thing to remember is that a proper analysis of demand does not just extrapolate recent sales into the future but incorporates additional factors that could affect demand in a way that would not be forecasted with a simple analysis of recent sales.
For example, if the sales of a certain product are growing by 10% month on month, it is not enough to simply say they will be 10% higher next month. What if that next month is December and there is a seasonal spike in sales? That 10% increase projection counts for pretty little in that case. Here we see how demand planning requires multiple types of analyses and data. Here follows then some top tips for demand planning:
Identify Your Best and Worst Performing Products
For shifting inventory that is difficult to sell, this is absolutely essential. You should not just have a projection of demand against overall revenue, but you’ll need to adjust something about the worst performing products. You may decide not to order any more, or it could be that a promotion or a price change could turn them into your best performing products.
Adjust for Seasonality
Certain things sell better at certain times of year, so this needs to be factored into the projections you make for how demand will increase and decrease. This can be tricky because it is difficult to know how much a promotion will increase demand. Seasonality, on the other hand, can be predicted with reference to previous years.
Factor in Error and Unexpected Events
There is software – and even simple mathematical equations – that can give you a margin of error within which to work. This error could be positive or negative, but it is always best to err on the side of caution and order less of a product that could sell at those lower quantities rather than buying more of a product and being unable to shift it.
Ultimately, demand planning is essential for business growth. And all businesses must move forward or perish.