What is demand management, and do you need it?

Alicia Raeburn 撰稿人特寫照片Alicia Raeburn
January 8th, 2024
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Demand management is how you oversee and manage customer demand. It involves understanding what your customers want, plus the necessary steps to fulfill those wants. This helps you plan for upcoming demand, and make sure you’re in a place to meet it. In this article, we’ll show you how to use demand management to serve your business.

Do you ever feel like customer requests are coming out of nowhere? Or that you can’t keep up with orders? Not knowing your product’s demand can throw you for a loop, causing unnecessary stress and even hurting your business if you don’t have the resources to respond. 

With demand management, you can use past data and current trends to predict, manage, and plan for customer demand. This boosts customer satisfaction, because buyers are getting what they want before they even have to ask for it. Here, we’ll show you why demand management is so important and how to use it in your business.

What is demand management?

Demand management is the process of managing customer demand. Essentially, demand management looks at the logistics of demand—what your customers want, and how to get it to them. When you’re managing a business, planning ahead for demand means you can plan for potential bottlenecks and volatility, so you’re able to react more quickly and keep the supply chain in motion.

In the manufacturing process, demand management is often done after supply chain management (when you manage your procurement and suppliers) but before portfolio management (when you build out projects to take action on your management plans). Demand management is very cross-functional, because you’re bridging the gap between consumer demand, supply teams, inventory, marketing, and customer service.

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Demand management example

Here’s an example. Let’s say you’ve identified that women’s clothing, on average, doesn’t have usable pockets. Memes about it go viral and people routinely complain about the issue—but this doesn’t mean there’s a demand for this type of clothing. At this stage, it’s just hearsay. 

To verify this information and potentially incorporate it into new products (i.e., add pockets), retailers could use demand management to gather data and analyze the demand for clothes with pockets. If they find there is demand, they can then develop a plan for implementing these findings in their company. This includes designing an operational strategy to create more clothing with pockets—such as connecting with supply companies, coordinating with the design team, and relaying the information to manufacturing departments.

Why you need demand management

Why is it important to understand what your customers want? Demand management shows you what will sell, and then helps you create a plan to produce those products. Whether you’re a service provider or manufacturer, demand management can help you:

  • Boost customer satisfaction. Ensure customers get what they actually want (not what you think they want).

  • Reduce potential bottlenecks. Connect with procurement teams to be sure they can react to projected demand, and plan accordingly. 

  • Shape your operations. Demand management strategies can help you shape operations so they’re focused on meeting customer demand in a sustainable way.

  • Reduce costs and waste. When you have a better understanding of what customers need, you can adjust pricing and manage manufacturing accordingly.

  • Boost efficiency. In planning demand, you can identify gaps and plan for potential challenges.

Read: Create an action plan that drives results

Demand management vs. demand planning

Demand planning is a part of demand management. In demand planning, you look at past data to create projections and plans for where demand will go in the future. This includes reviewing sales over specific time frames or identifying consumer trends.

Demand management vs. capacity planning

Capacity planning works in tandem with demand management to coordinate the business resources required to meet projected demand. Demand management determines what the demand is, then capacity planning ensures you have the resources available for it.

Demand management vs. demand generation

Demand management looks at the logistics of demand—what people want, and how to get it to them. Demand generation is a marketing term that describes the practice of increasing demand for a product or service. You can think of demand management as reactive (responding to customer demand) and demand generation as proactive (creating customer demand).

7 steps of the demand management process

The goal of your demand management process is to understand the market and the demand chain first, and then develop an operational strategy to meet the market where it is. Once you have your demand strategies, you can create project portfolios and use portfolio management to execute them.

Here’s how the process works:

1.Review past data

Analyze past performance data to see what your customers were excited about in recent months and years. Look at the wins—what products exceeded your expectations, and what conditions were in place then? Then review what didn’t perform as well and look for opportunities to improve those products or services or scrap them entirely.

2. Analyze the current market 

Understand what’s happening right now by reviewing current market conditions and trends. Look at your competitive advantage (or lack thereof) to see how you stand up against similar products and services in your industry. Collect and analyze data on your competitors, what’s happening in the world at large, and relevant trends so you can make an informed decision about what to do next.

3. Estimate demand 

Use the data you collected in the previous steps to estimate your upcoming and future customer demand. This is demand forecasting, and it’s how you can make informed decisions about what to produce, when, and for whom. These estimations will then form the basis of your strategies.

4. Develop demand strategies 

Use your forecasting and data to create a demand strategy and action plan. This is where you brainstorm ways to use the knowledge you’ve gathered, and then make a plan to incorporate it into day-to-day operations. 

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5. Incorporate into business planning 

Demand management is meant to assist with the project and portfolio planning process. It serves as a prioritizing guide, showing you what to focus on in your upcoming work. From demand management, you’ll create initiatives and target outputs that will then impact customers in real-time.

6. Coordinate with supply planning 

Once you understand what the demand is for a product or service, you then need to plan how to get it. Here, work with your procurement team to see if you can source the necessary supplies to meet projected demand. Because you’re planning ahead, you can look for potential challenges or bottlenecks in your supply chain, and create potential solutions before they become a problem.

7. Optimize your process 

Once the demand management lifecycle is complete, start again. This time, focus on optimization—how can you better improve your demand management process so that you have the most effective demand management system for your business? Your demand management process isn’t static—it should change and grow with your business needs.

Demand management best practices

When it comes to demand management, a few best practices can have a big impact:

  • Know who your ideal customer is. If you don’t know them, you can’t market to them, and you can’t know what they want.

  • Automate your processes. Automation reduces the amount of time you spend on repetitive tasks. For example, you can automate sales tracking and reporting so you can quickly collect data on past and current demand.

  • Use systems built for cross-collaboration. Demand management is hugely cross-collaborative. For it to be effective, you need to have systems in place that actively promote this kind of collaboration. Tools like project management software can help you coordinate your work across teams, organize your demand management tasks and processes, and help you build the ideal project portfolio management system.

Challenges with demand management

  • Supply vs. demand: Supply chain issues can impede demand management, and are  sometimes outside of your control. Creating a change management plan can help you quickly course correct—potentially saving you from any negative impact—in the event that you do hit roadblocks with the supply chain.

  • Forecasting is still just a guess: Even though it’s an educated guess, forecasting is still an estimation process, which makes it somewhat of a risk. If things don’t go as planned, you might have additional costs or issues on your hands. To mitigate that risk, try to plan for multiple scenarios, and always incorporate data into your forecasting process.

  • Siloed teams: If you don’t have the proper tools and cross-collaborative systems in place, you’ll spend lots of time running from team to team to gather the information you need. Using tools built for collaboration, such as project management software, can help you stay connected with stakeholders throughout the demand management process. 

  • Implementation: You need your leadership and colleagues' buy-in for demand management to work. Once you gather data and create a plan, you’re going to need others to implement it or it won’t be as impactful. To ensure they’re on board, use project plans to outline exactly how your demand management system works, and why it’s so important. This helps you show leadership the value of your work, so they’re willing to invest in it before you start.

Customer demand is a crucial part of building and maintaining a successful business. Because of its impact, it can feel intimidating to tackle customer demand. But it’s possible, and with some organized processes and thoughtful guidelines, you can create a demand management system that connects you even more deeply with your customers.

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