Forecasting market-driven demand

Market-driven demand management utilizes data from market and channel sources to sense, shape, and translate demand requirements into an actionable demand response bidirectionally from market to market. A true market-driven forecast is an unconstrained view, or a best estimate of market demand based on channel data. Demand shaping is based on campaigns to combine price, new product launches, trade and sales promotions and incentives, advertising, and marketing programs to impact what and how much customers will buy. 

Using what-if analysis, demand forecasters can shape unconstrained demand based on current sales and marketing activities as well as external factors affecting demand. This includes weather, special events, and economic conditions to optimize volume and revenue while minimizing marketing investment. Figure 3.7 illustrates the four key steps in the market-driven demand management process. 

Market-driven demand management is supported by demand-driven forecasting principles that have a significant impact on a company, whether the company sells products or services. Companies that have implemented a market-driven forecasting process have experienced four key benefits ... 

This journey starts with outside-in thinking and focuses on identifying the market signals and translating them into the drivers of demand. Market-driven forecasts focus on accurately predicting what customers will buy. This is in sharp contrast with the traditional demand processes that determine what companies will manufacture or ship. The input signals are from the market. There are many possible inputs weather, events, seasonal response, social sentiment, or competitive pressures. 

In each stage of the market-driven capability model, the role of demand changes requiring a redefinition of forecasting processes. Additionally, at each stage of the demand process, a supply chain leader can chose to constrain the forecast (reducing volume requirements based on channel or supply-side constraints) to better manage the supply chain. 

Today, too few companies are thinking about the use of social data to improve the demand forecast to become market driven. In interview after interview with pioneers, we have been looking for this change but so far, it has not happened. What is the difference between a market-driven and marketing-driven approach It is distinguished by three elements ... 

Historically, the terms demand and forecasting were synonymous. It was passive. Not so anymore. In market-driven value networks, demand becomes a new and more powerful signal. Demand will be translated and orchestrated market-to-market bidirectionally. 

P D ratio According to the APICS Dictionary, lOtb edition, P is the manufacturing lead-time. D is the customer required delivery time. If the ratio exceeds 1.0, the customer order will be delayed or production will start as a result of a forecast (make-to-stock). The demand-driven supply chain approach argues that different segments of the supply chain can be driven by either forecasts or actual demand. In general, actual demand is more desirable than forecasts. In this book, we use cycle time to refer to processes for manufacture and distribution and lead-time as a market-driven requirement for delivery. 

Passenger car production was 86 757 vehicles in 1988 and increased to 415 226 vehicles in 1993. In 2003, the total output of cars increased to 853 000 vehicles due to the strong demand from the consumer market. Truck demand will continue to be driven by the growing demand from distant transportation and family utility applications. The total output of trucks increased to 910 000 vehicles in 2003 and will further increase to 1 143 000 by the year 2008. With the development of city traffic, demand for buses will remain strong. The total output of all kinds of buses was 700 387 vehicles in 1998, which is forecast to increase to 945 000 vehicles in 2008, growing 3.04% per annum. Demand for motor vehicles will remain strong. 

Caustic Soda to Chlorine Balance. In 1988, the ratio of U.S. caustic soda to chlorine consumption was 0.96 1 (see Fig. 39). Since 1968 this ratio has ranged from alow of 0.88 1 (1978 and 1981) to a high of 0.98 1 (1969). No single factor can explain these variations, since caustic soda and chlorine, with few exceptions, have different markets and are therefore not driven by the same economic forces. This ratio is expected to trend upward over the next five years, however, since caustic soda consumption in the United States is forecasted to grow somewhat faster than chlorine consumption. It is expected that this ratio will remain within the range experienced in 1970—1990. Because caustic soda is co-produced with chlorine at a theoretical ratio of 1.1 1, a U.S. consumption ratio below that level results in excess avaHabihty of caustic soda. This material is typically shipped offshore to fill a significant export demand, and in 1988, for example, net U.S. exports of caustic soda amounted to 7.1% of production. 

Christopher (2000) also states that to be truly agile, a supply chain must possess four distinguishing characteristics, being one of them Market sensitive, which means that the supply chain is capable of reading and responding to real demand or being demand-driven. The problem is that most organizations are forecast-driven rather than demand-driven. In other words, because they have little direct feedforward from the marketplace by way of data on actual customer requirements, they are forced to make forecasts based on past sales or shipments, and convert these forecasts into inventory. 

Regarding market-related factors, product demand volatility specifies to what extent the products is made to order or to stock. Thus, if volatility is high, forecasting is relatively difficult and products are typically made to order. Conversely, low volatility means the items can be forecast driven. 

In the future, organisations must be much more demand-driven than forecast-driven. The means of making this transition will be through the achievement of agility, not just within the company but across the supply chain. Responsiveness also implies that the organisation is close to the customer, hearing the voice of the market and quick to interpret the demand signals it receives. 

Logistics and supply chain management have conventionally been forecast-driven rather than demand-driven. In other words, the focus has been to look ahead over a planning horizon and to predict demand at a point in time and then to build inventory against that forecast. As markets become more volatile and turbulent... 

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