There are decades where nothing happens and weeks where decades happen, said a tall leader. The last few years, beaten down by covid-19, seems to reflect these exact sentiments. The pandemic upended businesses globally through disrupted supply chains, decreased consumer demand, and a shift to remote work. The relative stability of the markets, which we took for granted, simply vanished.
Business planning that hinged on traditional demand forecasting methods got obsolete overnight due to the volatile and unpredictable nature of the economy. Just surviving the day to see the next sunrise was a great achievement. While many businesses simply folded down like a pack of cards, others found opportunities for growth in the midst of adversity. While we have put difficult those days behind us, finding an equilibrium between production and demand still poses to be the biggest challenge to many businesses even today.
Thankfully, human history is peppered with stories of how we braved one crisis after another, overcame obstacles, rose above challenges, adapted to new realities, and shaped a path towards recovery and growth. The combination of human ingenuity and resilience is once again displaying full-steam aggression, sparking collaborative efforts, accelerating technological advancements, and fostering a spirit of innovation. Simply consider how wiser we go with forecasting, demand sensing as an example, but before we do that, we may want to reflect and appreciate how we got here.
Industrial Revolution was an era that made a profound impact on human civilization. It marked a significant shift from predominantly agrarian societies to economies turbo-charged by manufacturing and industrialisation. This period saw the rise of mass production techniques powered by machinery and technological advancements. While increased production had its benefits, it also gave rise to the issue of overproduction.
Businesses, especially those led by the sales and marketing divisions, responded vigorously to the business environment by exploring push marketing techniques to stimulate demand for its products or services, creating an artificial demand to absorb the excess supply. It involved clever advertising, sales promotions, direct selling, and other promotional tactics to create awareness and generate demand for the products or services.
The progression towards excellence continued, and businesses started taking more intelligent planning approaches. They adopted Sales and Operations Planning (S&OP), as a cross-functional process that aims to align the sales and operations functions within an organisation to ensure a synchronised approach to meet customer demand while optimising internal resources.
This further evolved into Integrated Business Planning (IBP), an approach that extended beyond S&OP, incorporating areas like strategic planning, financial planning, demand planning, supply chain planning, and other functions into a unified process aligning the entire organisation towards common goals. The IBP often leverages integrated planning tools and technologies to support data analysis, scenario modelling, collaboration, and reporting. These tools provide real-time visibility and data accuracy, and facilitate informed decision-making.
While the challenges of our world, not very long ago, were well described by the VUCA acronym, conditions have become even more challenging. Thinkers have extended our refreshed collective understanding into BANI, a new acronym that encapsulates our evolving reality within words Brittle, Anxious, Non-linear and, Incomprehensible. BANI helps companies consider the chaotic and completely unpredictable impacts that can majorly impact their operations. From Corona and climate change to inflation and armed conflict, companies must focus more on coping with completely unpredictable crises.
We believe Demand Sensing is the call of the hour, as a hyperlocal approach towards forecasting. Demand sensing uses artificial intelligence and real-time data to make forecasts, unlike traditional forecasting. Businesses, particularly those operating in fast-moving consumer goods (FMCG) industries and supply chain-intensive sectors, are the front-runners in its adoption. It eliminates one of the biggest friction points within their integrated business planning process, the latency. Demand sensing is enabling these businesses reduce the time gap between an event and their responses.
Demand Sensing adds many more listening posts to feed intelligence into the IBP process, increasing the breadth and depth of input parameters. While the traditional forecasting processes depended only on internal, and that too just the structured data, Demand Sensing enables businesses to also leverage external and unstructured data into the mix. In addition to historical sales data, demand sensing models also use data on macro and micro-economic indicators, market access, economic density, weather, urbanisation, connectivity, social media trends, lifestyle trends, geolocation, connected home, hyperlocal events, et al.
The market, as we knew it, clearly ceases to exist anymore. Technology-based ecosystems are clearly the fertile grounds of the evolving digital economy, from which new markets are springing to life. First, we must accept and fully embrace the concept of ‘segment of one’, an approach that treats each customer as a unique segment, tailoring products, services, and marketing efforts to meet their specific needs and preferences. It is a departure from traditional mass marketing approaches that target broader customer segments based on common characteristics.
And even if the broader segmentation carries weight, the onus of defining one has clearly moved away from the marketer to the consumer. Second, we have to treat Consumer communities much more seriously. They have taken centre stage in the marketplace created by the digital economy as groups of individuals who share a common interest or affinity for a particular brand, product, or industry. These communities serve as platforms for consumers to connect, interact, share experiences, and engage with like-minded individuals and the brand itself. As businesses, we need mechanisms to listen in and subscribe to these digital ecosystems in real-time and with high fidelity.
Now, for a moment, consider the traditional rear-view-looking approach of demand forecasting, and it is not difficult to see why it is getting progressively blunted with every passing day. With such a perspective, we will surely miss out on almost all of the external factors, such as customer needs, market trends, and competitive dynamics. We do not want to completely write off demand forecasting though, for this tried and tested model still holds the potential to throw light on demand across a longer timeframe.
Our recent experiences have convinced us to consider Demand Sensing is a must-have arsenal, especially to gain a richer perspective of short-term demand. Nihilent’s artificial intelligence-powered SaaS platform, the RESENSE, has equipped many of our clients to do just that: sense short-term demand in a granular fashion and deliver actionable insights to business leaders. For instance, Dominos, our beloved pizza brand and one of Nihilent’s most valuable RESENSE clients, improved their availability by 40% while keeping daily wastage below 1%. This led to increased sales, reduced overall costs, and, most importantly, an upliftment in consumer experience. Any business across any industry seeking to improve forecasting accuracy, optimise inventory management, and enhance supply chain responsiveness can benefit from such demand-sensing products.
No doubt we have collectively gained decades of wisdom in just a year! For businesses who aspire to compete and win in a connected digital economy, an upgrade to the Integrated Business Planning process is urgently warranted, starting with the augmentation of demand forecasting with demand sensing. This critical upgrade will allow businesses to cultivate resilience, adaptability, agility, and a mindset that embraces complexity and uncertainty and deliver exceptional customer experiences in an increasingly digitalised and interconnected landscape.
Let us begin with Demand Sensing. You will agree that well begun is half done!
Author:
Deepak Prabhu, Vice President – Consulting and Design Thinking, Nihilent
