Making sense of Demand Sensing

With the increasing focus on demand-driven supply chains, more companies are starting to hear about the importance of demand sensing to counter market volatility. Media, analysts and most importantly, manufacturers report how sensing demand provides the agility to capture growth by responding to unexpected sales opportunities, free cash flow by cutting inventory and lower cost to serve.  As industry buzz picked up on demand sensing, so too has the number of software providers now claiming to offer demand sensing solutions.  In much the same way that companies have “green-washed” solutions to appear more sustainable, solution providers are co-opting and applying demand sensing language to a range of offerings.  Unfortunately, this “sense-washing” causes considerable confusion in the marketplace.

So just what is demand sensing?  Here are the key attributes that define demand sensing and some helpful questions to discern whether you are being sense-washed:

1. Reconciles multiple demand signals to create daily demand predictions

Demand sensing IS NOT about making demand signals visible, e.g., collecting point-of-sale (POS) data; it IS about predicting the most likely size of future orders based on those demand signals.  And it needs to function for all items at all locations – every day. Unlike business intelligence tools that look through POS data to find on-shelf availability problems, demand sensing processes masses of data to improve the operational performance for the core business. If the proposed project scope does not include your entire business, this is the first red flag. Make sure to get references for national and global deployments.

2. Automatically creates and publishes forecasts directly to planning systems for execution

Reflecting current supply chain realities in fast-moving markets requires the most accurate forecast possible, so the forecast has to be adjusted every day to reflect the latest demand signals.  Since it is not humanly feasible to review forecasts every day for every item at every location, forecasts need to be more than just accurate and current – they must also be consistent so as not to disrupt supply chain operations.  Automation and safeguard logic are hallmarks of every demand sensing solution.  Ask your prospective vendor to explain how this works.  Furthermore, all this data (pulled from your ERP system and, optionally, downstream data from multiple retail partners) needs to be processed within a very short time slot every night.  Inquire about engine efficiency.  Scaling to meet the needs of your entire business is very different than reporting for one or two retailers.

3. Delivers a step-change in forecast accuracy and performance for the entire business

If you are not getting more than a 30% reduction in forecast error  across your entire business, it is not demand sensing.  The step-change is real.  In a recent study encompassing one third of the North American consumer packaged market, demand sensing reduced average forecast error by 40%.

In the spirit of full disclosure, Terra Technology provides Demand Sensing (capitalized because our product was named before demand sensing became a category and buzzword).  But regardless of whom you speak with, start by asking the above questions and you will be headed in the right direction.

Robert F. Byrne, CEO Terra Technology