6/26/2014 Market-Driven Demand Management | Companies & Executives content from IndustryWeek

http://www.industryweek.com/articles/marketdriven_demand_management__27036.aspx 1/5
Companies & Executives content from
IndustryWeek
Demand forecasting and planning (also referred to as demand management) is a
critical function that drives out inefficiencies in the supply chain and affects all
facets of a company across the enterprise.
We have examined the significant improvement in short-term tactical demand
forecast accuracy using demand-sensing. Demand sensing is the translation of
downstream data with minimal latency to understand what is being sold, who is
buying the product (attributes), and how it is affecting demand. Companies like P&G
and Kimberly-Clark are able to further improve forecast accuracy when using
downstream data as part of their short-term statistical forecast. The business
benefits have been compelling.
In addition to improving operational efficiency, companies have found downstream
data useful to flag operational issues that would otherwise affect revenue and service
levels. For example, downstream data alerted one company to an unusually high bias
toward a large customer at a high-volume distribution center. As it turned out, there
was a problem with the ordering system, and orders had not been placed for several
days. The advance warning by downstream data gave the company the visibility to
resolve the issues before out-of-stocks became a problem.
Critical Success Factors
Companies like P&G and Kimberly-Clark work hard to build a joint value equation
with their customers. Because of this approach, customers can share their
downstream data because they can articulate how the data can be used and, how it
will drive business results and build value for both the CPG manufacturer and the
retailer.
Customer support is critical to CPG companies. Customers will share downstream
data if CPG companies can demonstrate their maturity in using downstream data
and articulate how the data will be used to create value. Having a clear supply chain
vision also is critical. Knowing where demand sensing fits within your supply chain
processes is important, and believing in the short-term statistical forecast is
essential.
6/26/2014 Market-Driven Demand Management | Companies & Executives content from IndustryWeek
http://www.industryweek.com/articles/marketdriven_demand_management__27036.aspx 2/5
P&G and Kimberly-Clark continue to add customers to improve demand-sensing
capabilities, and both companies continue to expand their downstream data
capabilities to more business units. These CPG companies will improve their
transportation planning and enhance customer collaboration using downstream
data. Integrating their suppliers to a demand signal brings interesting challenges
and opportunities for future success.
Key Learnings
Knowing what products to make when needed is a competitive advantage for CPG
companies. Leaders in the CPG industry use demand-sensing capabilities to delight
customers, improve supply chain performance and create value with trading
partners. P&G and Kimberly-Clarks sense demand work helps them make what they
hoped would sell. In an age where demand volatility remains high and companies
struggle to predict demand during economic uncertainty, the larger risk may be the
inability to sense an upturn. Companies with the ability to sense and respond to
demand using downstream data are best suited to meet the inevitable surge and
capture upside revenue while maintaining high customer service levels and lowering
inventories, waste, and working capital.
Demand shaping is the ability to increase or decrease the future volume and profits
of goods sold by orchestrating a series of marketing, sales and product tactics and
6/26/2014 Market-Driven Demand Management | Companies & Executives content from IndustryWeek
http://www.industryweek.com/articles/marketdriven_demand_management__27036.aspx 3/5
strategies in the marketplace. There are several key levers that can be used in the
development of demand-shaping strategies.
These levers are:
New product launch (including the management of categories)
Price management (optimization)
Marketing and advertising
Sales incentives, promotions, trade policies/deals
Product life cycle management strategies
True demand shaping involves using a "what if" analysis to influence unconstrained
future demand and matching that demand with an efficient supply response. Based
on recent industry research, demand shaping, just like demand sensing, includes
three key elements:
1. Ability to increase or decrease volume and profit of goods sold by changing
sales, product and marketing tactics and strategies: This can be achieved by
enabling companies to perform what if analysis so they can understand the impact
of changing price, sales promotions, marketing events, advertising and product mix
on demand lift and profitability to make optimal future demand shaping decisions.
This usually refers to the shaping of unconstrained demand (i.e. demand shaping
independent of supply constraints).
2. Supply plan/supply supportability analysis: This refers to how much can be
made based on existing capacity, where, when and how fast can it be delivered.
3. Demand shifting (steering): This refers to the ability to promote another product
as a substitute if the product originally demanded was not available, and/or move a
sales and marketing tactic from one period to another to accommodate supply
constraints. It is especially useful if demand patterns or supply capacity changes
suddenly to steer customers from product A to product B, or shift demand to a later
time period.
There are two types of demand shifting.
Demand shifting at the point of sale occurs when a company influences a
customer to purchase an alternative product using sales and marketing incentives
when a product is out-of-stock, or back-logged.
Demand shifting at the point of supply is when the operations planning and
manufacturing teams negotiate with the sales and marketing teams during the
sales & operations planning (S&OP) process to shift unconstrained demand into
the future due to supply capacity constraints.
6/26/2014 Market-Driven Demand Management | Companies & Executives content from IndustryWeek
http://www.industryweek.com/articles/marketdriven_demand_management__27036.aspx 4/5
Many executives said their companies are beginning to invest in demand sensing
and shaping processes along with enabling technology. However, in almost every
case they described demand shifting rather than true demand shaping.
Dell is a good example of a company that leverages the concept of demand shifting.
Dell packages to order and uses a demand forecast to determine the quantity of the
components that make up a wide variety of laptop configurations to allow them to
accept customer orders through their website and assemble the laptop within three
to five working days. By using demand shifting at the point of sale, Dell can shift
demand away from laptop A to laptop B due to a shortage of components that make-
up laptop A.
For example, let's say you decided to go online to the Dell website and purchase a
Dell Inspiron 15 laptop. You may find a sales promotion pop up saying for today only
you can purchase a Dell Inspiron 17 laptop with a bigger screen, more processing
capacity and a bigger hard drive with expanded memory plus additional software for
a reduced price. What may have happened is someone under forecasted demand for
the components that make up the Dell Inspiron 15 laptop. Dell inserted a sales
promotion in an attempt to shift demand away from the Inspiron 15 laptop to the
Inspiron 17 laptop to keep a key customer until the components for the Inspiron 15
become available.
6/26/2014 Market-Driven Demand Management | Companies & Executives content from IndustryWeek
http://www.industryweek.com/articles/marketdriven_demand_management__27036.aspx 5/5
1. http://www.sas.com/
In contrast, demand shaping happens when companies use sales and marketing
tactics like price, promotion, a new product launch, sales incentives or marketing
programs that orchestrate demand to increase market share or share of wallet. The
use of these tactics increase demand elasticity. Many times, companies believe they
are shaping demand, but find that they are really just shifting demand (moving
demand from one period to another).
Moving demand from one period to another and selling at a lower margin without
improving market share and revenue growth creates supply chain waste. The first
step in the market-driven demand management process is sensing market
conditions based on demand signals, then shaping demand using programing like
price optimization, trade promotion planning, new product launch plan alignment,
and social/digital/mobile convergence. Demand sensing reduces the latency of the
demand signal by 70%- 80% to understand and see true channel demand. Demand
shaping, in contrast, combines the tactics of price, promotion, sales and marketing
incentives and new product launch to increase profitable demand lift, which
increases profit margins, market share and revenue.
Charles Chase is principal solutions architect at SAS
[1]
and Michael Newkirk is product
marketing director, Supply Chain Solutions at SAS.