Demand sensing is rapidly becoming a must-have capability for supply chain resilience and responsiveness. This comprehensive guide will provide detailed research and analysis to help you successfully adopt demand sensing.
What is Demand Sensing and How Does it Differ from Forecasting?
Demand sensing utilizes a range of statistical, machine learning, and AI techniques to detect subtle shifts and patterns in leading indicators. This allows businesses to predict near-term demand with a high degree of accuracy.
Demand forecasting leverages historical data to estimate future demand over longer time horizons. It lacks the granularity to anticipate near-term fluctuations.
For example, demand sensing analyzes real-time POS data trends to understand that sales of rain jackets are spiking upwards due to an approaching storm system. This insight allows the business to rapidly respond to the uptick in demand. In contrast, the next seasonal forecast would not account for this acute fluctuation.
Key Business Benefits of Demand Sensing
Adopting demand sensing delivers the following advantages:
Increased Supply Chain Resilience
By providing granular visibility into emerging demand shifts, sensing empowers businesses to quickly adapt to meet changing customer needs. For example, during the COVID-19 pandemic, a drop in POS transactions for a retailer would have signaled falling consumer demand. This data can drive proactive supply chain adjustments.
Optimized Inventory Levels
Demand sensing provides critical inputs for inventory optimization models. By aligning stock levels to predicted demand, businesses can minimize excess inventory buffers. Lenovo reduced finished goods inventory by 31% by implementing demand-driven inventory optimization.
Enhanced Decision Making
Sensing arms planners with better demand visibility to optimize supply plans. It also improves collaboration across sales, marketing, and operations by aligning activities around a shared demand forecast.
Best Practices for Implementation
Follow these best practices to drive maximum value from demand sensing:
Adopt a Data-Driven Culture
A key success factor is fostering a data-driven culture across the organization. Training helps employees leverage demand insights for better decision making.
Focus on Fast-Moving Products
Prioritizing sensing for high-volume items where fluctuations significantly impact revenue is advised. PepsiCo focused its initial sensing efforts on core beverage lines.
Monitor Multiple Demand Drivers
Incorporate both internal data like POS and inventory and external factors like weather events into algorithms. The Weather Company provides detailed weather data to retailers to sense location-specific demand shifts.
Leverage Ensembles of Algorithms
Combining outputs from a range of techniques like ARIMA, regression, and neural networks yields more accurate forecasts than any single method. Ensembles mitigate individual algorithm biases.
Align Incentives to Sensing Adoption
Consider linking incentives for department heads to usage of demand sensing insights. This drives engagement across the organization.
Overcoming Demand Sensing Challenges
While delivering significant upside, demand sensing also poses implementation challenges:
Data Quality – Inadequate master data and data integration issues can undermine accuracy. Investing in data governance and ETL pays dividends.
Stakeholder Buy-In – Early involvement of business leaders in planning helps secure adoption. Clear communication of benefits and training also ease resistance.
Legacy Systems – Technical complexity of integrating sensing models across legacy systems may require upgrades or interfaces. Starting with a pilot circumvents this.
Organizational Silos – Lack of cross-functional coordination impacts ability to act on demand insights. Aligning KPIs and leadership priorities overcomes this.
The Future of Demand Sensing
Gartner estimates that 50% of large enterprises will implement demand sensing by 2023, up from less than 10% in 2018. Rapid technical advances in AI, ML, and cloud platforms are fueling adoption. As sensing becomes ubiquitous across industries, it will evolve into a core differentiator for leaders. Now is the time to capitalize on sensing for supply chain excellence.