USE OF DEMAND PLANNING TO PREDICT FUTURE BEHAVIOR

Nowdays, organizations are competing in extremely competitive markets. In the case

of manufacturing companies or companies that focus on the retail business, one of
the most common ways to compete with others is to handle the best possible price.
In order to do this, engineers in all companies look for ways to work in the most
efficient and effective way. This part is where the concept of demand planning
comes in.

Demand planning can be described as the process of analyzing, evaluating and

projecting the future requirements of customers within an IT environment, using
statistical analysis, best practices, and past and current demand cycles to evaluate
future customer demand. It examines historical sales data, customer orders,
shipments, current sales, and market indicators to better predict demand patterns
based on market changes, enabling companies to make smart decisions about
inventory and production levels.

As mentioned at the beginning, the success of a supply chain is often linked to its
efficiency, which can be traced back to the ability of managers to conduct accurate
forecasting when it comes revenue and inventory. Using demand planning, inventory
and human resources can be properly planned and managed well in advance and
with fewer surprises. In contrast, without proper demand planning, supply chains
wind up dealing with production delays, inventory surpluses and strained
relationships across the various disciplines that make up an organization.

The use of technology in industrial processes, and in general, in the productive

operations of the market is of vital importance, since it provides tools that contribute
significantly to the most sensitive indicators for companies. Tools and methodologies
such as data analytics, specifically the use of time series for forecasting purposes.
The idea is that we can defined the behavior of some variables based on past data
of the same variables, so we could make programing and planning strategies in
order to optimized the results we already forecasted. With the given tools, we must
model the future behavior of a dependent variable based on the possible and
feasible values of an independent variable. In some way, in the last years, industrial
processes have taken importance in part because all of these analytics and
forecasting methodologies so it improves the industrial competition so we can all see
the economic and social profit.

The behavior of food demand is one of the most important operational issues in
terms of prediction and planning. An adequate series of processes, together with
sufficient theoretical bases and mathematical practices, can achieve a great
competitiveness of companies dedicated to this specific market, as well as in the
vast majority of logistics, storage and chain operations, supplies and production.

In the case of perishable foods, the implementation of strategies and mechanisms is

very important. By using tools that allow forecasting or modeling the behavior of
demand for subsequent planning, you can optimize the use and storage of resources
and products, improving the economy and business logistics.

Perishable foods require special care to ensure adequate storage and condition over
time of these products, which is why the implementation of time series models in the
preparation and planning of the volume of requirements and demand is so crucial
and its level of importance in the industry is increasing. According to studies, the
demand for perishable products remains constant over time and therefore, storage
and supply processes are the key factor in the matter. Data analytics strategies
address uncertainty and improve the supply chain in the process.

Detailing in the study, a company providing refrigeration and freezing services

focused on storage of perishable products in cold stores is analyzed. In the process
of control and monitoring of inventories in the storage of cold stores, said company
does not use quantitative methodologies that support the volume of income and
expenses of products in the mentioned chambers. The estimate is based on the
experience of the managers, which presents, in some cases, disorganization in the
movement and in general the logistics of perishable products, which end in decisions
and actions such as placing product pallets in the aisles, causing times prolonged in
the access and location of them, as well as increased working times, falling into
strenuous and very long working hours.
The cold storage chamber with the greatest volume of demand in income and
expenses over time is chosen, according to the cost factors of interest for the
company to carry out the practices of forecasting methodology of the own products
through time series. Using the data, the relationship of the variables of storage,
capacity and administrative cost of the products is made and the forecasts are made
using the techniques of weighted average and exponential smoothing as required by
the data.
As a conclusion, the analysis of the results obtained allows the planning of actions
and strategies that satisfy the demand for discharge of the analyzed products, as
well as the tools and personnel required for their storage and mobility of the
products. It is very interesting to note how the processes of the present study are
improved based on the application of planning and demand forecasts, obtaining
results at levels of logistics and sensitive productive operations within perishable
foods and its own behavior through the time.
“The aspects of the demand to consider are: predictability of the demand, life cycle,
variety of products, delivery time and service requirements” (Holmstro, 2007). As we
can see these factors are closely related to the commercialization of the product and
it is where we can ask ourselves, what can a company do in relation to having an
intelligent strategy for its demand? And the answer is to have a demand planning.
From what we read in different articles this is used as a key process to improve the
competitiveness and productivity of companies, on the other hand, demand planning
is a strategy that seeks to observe in detail the behavior of the market and also of
the sales in order to estimate or predict values ​or behaviors in the future.

One of the tools used by “demand planning” are demand forecasts, which is used to
make a future estimate of the quantity of products that the market is going to request
making marketing easier, for this we must have Keep in mind what kind of products
the company manages, since there are products whose demand is more difficult to
predict such as innovative products, as well as functional products for which an
efficient supply chain that focuses on delivering must be developed products at the
lowest possible cost for customers.

In our opinion, forecasts are one of the most useful tools for a company since they
provide us with a series of advantages such as the reduction of unnecessary
inventories, reducing the level of missing, the depletion of resources due to
unnecessary manufacturing, therefore also reducing the losses of the company and
allows for better customer service.

On the other hand, we see that some companies want to reduce uncertainty or
forecast by demand planning, some of the articles presented several examples of
companies that used the tool "demand planning". One of these companies was
Mattel, Inc. This company developed a strategy to manage the uncertainty of
demand in the toy business. The solution is called rolling mixing strategy, what is
done is to increase the variety of products, by constantly introducing slightly different
versions of the same product at least twice a year which generates an environment
of changes and increases sales. This change also allows the need for additional
space on the retail shelf to disappear in the presentation of new products and allows
the forecast to be eliminated.

Another of the methods used in the articles to implement demand planning was the
implementation of a series of steps that were Long-term configuration planning,
Medium-term master planning, Short-term execution planning, all These strategies
were designed in such a way that the company under study would show better
notables and so it was; In general, for all the articles l demand planning brings new
methodologies, these must have the characteristics of the company in order to have
a real impact and that we know that the loading or sales processes have great
variability.

Having look at examples of demand planning in manufacturing and commerce, the

last research paper to mention is one done to organizations in the retail business. A
problem with limited space arises when retail companies want to increase their
product variety, thus, managing assortment and shelf quantities is a core decision in
this sector. A retailer needs to define the assortment size and then assign shelf
space to meet consumer demand.

The author says that the most popular approaches for estimating demand
substitution in assortment planning are multinomial logit models (MNL) and
exogenous demand models (ED). The difference lies in that while the MNL is a
discrete consumer choice model that assumes that consumers are rational models
directly specify the consumer reaction, the ED models directly specify the consumer
reaction. Both of these models are mostly used in inventory models. The MNL
models are advantageous since they are based on expected customer behavior and
customer utilities, but require extensive customer data and limited shelf space is not
reflected. Within the stochastic ED models, limited shelf space is taken into account
and they are more flexible compared to MNL models and account for realistic
assortment problems with varying prices or pack sizes.

Finally, the researcher found out that total shelf space is a managerial decision
determined by different overarching parameters. He concluded that assortment
under limited shelf space has a significant impact on retailer profits. Reducing shelf
space leads to lower assortment sizes and shelf quantities, and a significant
decrease in profits. An increase in shelf space of 30 percent leads to a profit
increase of 17 percent and an increase in assortment size of 28.4 percent.

In conclusion, demand planning is of the utmost importance for companies as it

allows them to have a strategic control basin, since it allows them to look to the
future on how the market will behave. This can be used by companies of all kinds,
both manufacturing and retail, as well as companies dedicated to electronic
commerce.

There are many models that can be used to forecast demand, it is up to the engineer
to choose the one that best suits and best serves him taking into account the
production process of his company. Already having the forecast comes the most
important part, analyze the results. Based on the results obtained, demand will be
planned, which will influence decision-making regarding infrastructure, inventories,
production, marketing, human resources and others. Therefore, the person in charge
of planning the demand must be able to design a good, solid and consistent plan that
can optimize the process and obtain the highest possible profits.
References

Juarez, A. C. contreras, & Zuñiga, A. catya. (s.f.). (2016). Analysis of

time-series on the forecast of the demand of storage of perishable
products. ​ICESI.​ ​Vol. 32, Issue 141​, 387-396
Holmstrom, R. K. (2007). Selecting the right planning approach for a product .
Emerald​, 3-13.
Sternbeck, A. H. (2013). Demand and supply chain planning in grocery retail:
an operations planning framework . ​Emerald​, 512-530.
Hübner, A. (2017), "A decision support system for retail assortment planning",
International Journal of Retail & Distribution Management​, Vol. 45 No.
7/8, pp. 808-825.
Swierczek, A. and ​Szozda, N. (2019), "Demand planning as a tamer and
trigger of operational risk disruptions: evidence from the European
supply chains", ​Supply Chain Management: An International Journal.​
Michigan State University (MSU). (2019). How Demand Planning Can
Improve the Supply Chain. [online] Recuperado de:
https://www.michiganstateuniversityonline.com/resources/supply-chain/
how-demand-planning-improves-supply-chain/