Inventory management and demand planning are considered important parts of the supply chain. Yet, many look at them as different and somewhat disconnected functions within supply chain management.
In one view, demand planning is a forecast of what should or may occur with orders, while inventory management is related to having the stock on hand to produce the orders placed by customers. Look closer, and you’ll see that the two are more strongly linked than it may appear.
Because the degree of analysis using real-time data is increasing, the link between inventory management and demand planning comes down to demand forecast accuracy. And as software technology evolves and the digitization of the supply chain continues, that link will only grow.
The Problem with Traditional Inventory Management
Inventory management was traditionally a manual process. Many companies used periodic inventory accounting to “tighten up” and identify errors and scrap rates. Unfortunately, this meant that answers were not always available until the dreaded quarterly inventory was conducted, if then. And a time lag of weeks or months meant that process improvement was difficult.
These manual methods were no match for a complex inventory environment. But over time, software became available to automate counting and reconciliation. Many companies were able to move from a periodic inventory to a perpetual inventory system and take advantage of technologies such as barcoding, RFID tagging, and scanning to keep track of inventory on a real-time basis.
The Problem with Traditional Demand Planning
Traditional demand planning was no different. What began as manually kept notepads, guesswork, and rudimentary marketing analysis eventually became spreadsheets and charts that could improve demand forecasts somewhat. Since demand planning is a process that seeks to predict demand for products, because of siloed data and the time it took to turn data into insights, it still suffered from a lack of forecast accuracy. But purchasing remained closer to inventory management because the inaccuracies of demand planning made some degree of “gut-feeling” and experience necessary at the inventory and purchase level. Like inventory management, software made demand planning more dependable. But the lack of real-time data and advanced statistical and analytical capabilities limited the ability to use demand forecasts as a guide or link to purchasing and inventory levels.
How the Two are Converging
Software allowed inventory management and demand planning to become more efficient. But what was missing was a way to link the two with the highest degree of accuracy.
Today, software has advanced to the point that data can now be leveraged to add value to every step of supply chain management. The digitization of supply chain and manufacturing into a comprehensive “smart factory” environment has become possible in real-time. This convergence means that the insights for demand forecasting happen in the same timeframe as those for inventory control.
Additionally, advanced analytics and a cloud-based, flexible database structure mean that analysis can be conducted faster than human planners could. This analysis unlocks undetected trends and patterns and eliminates bias, “gut-feeling,” and human input errors.
Finally, the data is unsiloed and standardized for all functions within the supply chain. This allows users access to the same data in the same form as all other stakeholders so that the system is completely transparent. While inventory management and demand planning remain two distinct functions within the supply chain, these advances mean that the margin for error in both is reduced.
Software can produce highly accurate demand forecasts linked directly with perpetual inventory keeping, automated purchasing, and readily available logistics information. These forecasts allow for better decision-making and an inventory management system that can lean on demand forecasts more than ever before as a guide for stock levels.
Using Demand Planning Software to Improve Inventory Management
If you’re using manual inventory and demand planning systems, chances are they’re conducted separately from one another. The same is true of older legacy software systems retaining siloed data that must be reconciled before consumption by those outside their respective departments.
Demand and Supply Planning Software from Plex DemandCaster can help you synchronize your demand and supply with a high level of accuracy. With unsiloed data in a cloud-based platform, your company can realize true end-to-end visibility to optimize and develop inventory strategies based on actual numbers and highly accurate forecasts. Your data will be linked across the supply chain to allow contingency planning with “what-if” analysis. Reviewing demand at the COGS, margin, or revenue level is easier than ever. And determining an inventory plan that keeps you running with fewer shortages or overages becomes the norm.
Contact us today to find out how DemandCaster can bring your demand planning and inventory management functions closer with the power of data.
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