Business owners and managers operating in a wide variety of industries need to create a complete supply chain management strategy. Such a strategy allows a company to achieve its full potential regarding production and profits. A supply chain management strategy should take into account the principles of demand planning. Demand planning is about keeping up with current demand and anticipating future demand. This is essential to making the right decisions on the supply side and thereby optimizing production.
The following are five advantages that an effective demand planning strategy can provide your company.
Keeping customers satisfied
Satisfying customer demands is important for retaining customers. If you cannot keep up with demand, customers may turn to a competitor. With demand planning, you’re anticipating the needs of your customers. This keeps your existing customers satisfied and loyal to you as their supplier. Keeping customers satisfied can also improve your reputation in the industry and help you attract more customers as time goes on.
Avoiding idle inventory
Idle inventory will cost you no matter what industry you’re in. Idle inventory costs you by taking up your storage and warehouse space. If your product is perishable, idle inventory can eventually lead to wasted production costs and efforts. Demand planning helps determine how much inventory you have to produce to meet your needs. This helps you to avoid overproduction and idle inventory.
Improving labor management
Demand planning helps you to manage labor at your facilities. At most companies, labor costs are among the most expensive overhead costs. Therefore, companies need to avoid being overstaffed.
With demand planning, you can avoid unnecessarily high labor costs. Demand planning helps you determine how many employees you’ll need for a given period of time. This helps prevent you from overhiring and paying staff members who you don’t really need.
Preparing for future cash flow ups and downs
Demand planning does more than simply help you plan for inventory production and labor. Demand planning also helps you calculate current and future revenues. If you know how much demand you can expect, you’ll know approximately how much revenue you should bring in. This means that you can more precisely calculate the expected cash flow.
When you’re better informed about what to expect regarding cash flow, you can better anticipate and deal with fluctuations in cash flow to keep your company financially healthy.
Maximizing profits
You’ll miss out on potential profits if you don’t have enough supply to keep up with demand. With demand planning, you can make sure that you don’t miss out on sales because you don’t have the needed inventory available. That’s why demand planning helps your company to reach its full potential and maximize its profits.