Demand sensing refers to using the POS level data with minimal lag to understand what is being sold, who is buying and what is impacting the demand. Demand Sensing primarily consists of following activities:
- Using POS or secondary sales data – that means ability to collect and analyze secondary data across market channels, geo etc to recognize demand patterns
- Measuring the impact of demand shaping programs – refers to the ability to analytically measure and determine the impact of demand shaping activities such as promotions and marketing events, NPIs etc on demand lift.
- Reducing lag – refers to ability to model demand changes on a more frequent basis
The understanding of demand, consumers and impact of sales & marketing activities is used to shape future demand, which is translated into demand requirements and response plan through internal processes.
It is the responsibility of sales and marketing team to capture demand insights regarding what sales promotions and marketing activities have influenced consumers to purchase their products. The information from sales and marketing is used to adjust prior predictions of demand.
Most supply chains today are set up to respond to the demand and not for sensing the demand. Consequently, the bullwhip effect remains a reality even today. Further, as a result, companies have built long supply chains from retail shelf to manufacturer that translate demand but at the high cost of huge channel inventories and working capital investments.
Amongst the challenges of setting up such a capability is capturing the unstructured data needed for demand sensing. The setup of sales and marketing function is mostly too unorganized as far as ability to capturing and recording such information is concerned. On the other hand, the planning team needs to develop the capability of combining the transactional data with the unstructured data to sense demand with improved lag times.
However, the benefits far exceed the challenges. Companies are able to improve their forecast accuracy when utilizing secondary sales or POS data for forecasting. As a direct result of this, these companies witness reduced channel inventory and are able to react faster to the changing demand pattern.
One of the dependencies companies have in getting started with demand sensing is getting the secondary or POS level data from the channel partners. To be able to achieve this, companies have to demonstrate the value proposition to their partners. They will invest in sharing the data with the company only if they see value in doing so, which means improved supply situation and product mix. If it makes them profitable as well they will play along and surely their support is critical for the success of the process. We must remember that these customers are important not only from the transaction data perspective but also unstructured data, as they are closest to the end consumer.
To conclude demand sensing capability can be used to delight customers, improve supply chain performance and create value with the channel partners. In an age where demand volatility remains high and companies have struggled to accurately predict demand and sense changes in behavior in a timely manner, sensing is the only way forward. Companies that move towards creating the capability to sense and respond to demand using secondary data shall be best suited to capture higher revenue opportunities while maintaining lower inventory levels and working capital and yet maintain high customer service levels.
Anamind is helping companies build demand-sensing capability by providing forecasting system or outsourced service & consulting. Feel free to reach out for more information and how we can assist you with it.