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How demand sensing helps in better inventory management

June 16, 2022


Supply chain management is becoming tricky due to market variabilities that change the demand-supply equation, further leading to unnecessary inventory waste and stockpiling. Understanding the needs of the customer is essential in order to make informed decisions and optimize inventory across the value chain.

How can companies manage inventory and reduce stock-outs, inventory holding cost, and revenue losses?

This is where the role of an intelligent demand sensing solution comes into play.

Demand sensing – An approach beyond traditional demand planning

Demand sensing uses AI/ML technologies to help businesses forecast the immediate future wants of the customers and curtail the unnecessary loss of goods by predicting demand accurately. It can thus curb the shortage of products besides other correlated issues.

This approach to short-term forecasting trends instantly helps companies better guess what the consumers want, when, and where. The parties involved can forecast the latest sales data and make improvements to generate more profits.

There are two aspects of demand sensing which are:

Short-term forecasting: It controls an elevated level of data granularity to examine daily demand information for the end customer and instantaneously find out the changes in demand behavior.

Increasing supply chain visibility: This is done by identifying patterns in point-of-sale (PoS), promotion, social media, NPI, weather, IoT, internet search, and economic data to make near-term developments to your forecast and inventory positioning.

Both methods cut down demand insecurity and allow crucial adjustments to the estimation without anticipating the next forecast cycle.

Hence, it is fair to conclude that demand sensing comes to the rescue of businesses to organize, standardize, and generate a more helpful supply chain and inventory management landscape.

Both methods cut down demand insecurity and allow crucial adjustments to the estimation without anticipating the next forecast cycle.

Demand Sensing in inventory management

Inventory management is harmonizing the service-level desired goals and the financial limitations for a substantial distribution of goods with the picture of demand and supply unpredictability in mind.

The inventory requires optimization that has primarily two parts:

Safety stock is the immediate function of forecast inaccuracy and service level, while cycle inventory is optimized by linear programming.

Demand sensing thus leverages real-time data to enhance forecast accuracy, thus decreasing the safety stock quantity, working capital, higher inventory movement, and lower inventory carrying cost. However, for efficient functioning, demand sensing and inventory optimization approaches should be implemented simultaneously.

How can organizations optimize inventory with demand sensing?

Lower demand latency: Demand sensing helps businesses get the appropriate information quickly by repurposing the PoS (real-time information, product sold, quantity, date and time, region) data for better sales forecasting without distributors’ insights.

Ideal operation of current inventory stocks: Demand sensing helps businesses optimize the existing stocks and balance their supply by considering the new consumer demands.

Planning inventories for new products: With new products continuing to supersede the existing product demands, it is the perfect time to implement demand sensing tools so that the businesses can meet the necessity for new products with the proper amount of the previous developments in a stockpile.

Demand sensing – A powerful solution for the future

Additionally, for businesses to gain the upper hand over their competitors, supply chain professionals should be able to identify the latest trends in the market and anticipate potential consumers’ demands along with their fluctuating preferences. However, this is not always possible with the assistance of traditional demand planning methods as it has certain limitations in predicting the future supply-demand accurate insights. Demand sensing is an invaluable resource and way of managing the inventory, primarily replenishment, the supply chains.

Therefore, organizations must leverage this intelligent solution to reduce the lead times and move other inventory optimization into the next century.

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