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Demand Latency is a major cause of Supply Chain underperformance.
Supply chains in most companies follow a pretty uniform planning process, starting with a monthly Demand Planning process, followed by monthly Supply Planning. This process was designed when uncertainty around demand was much lower.
We have now seen how demand forecasting done for a future month gets error-prone and unreliable by the time we approach the month. Demand fluctuations and demand shifts leave the supply plan unsatisfactory, resulting in continued firefighting.
The root cause is the demand change which has happened between demand forecasting and actual consumer demand manifesting at the market place. The technical term for this is ‘Demand Latency’, which connotes how stale our forecast is by the time the demand actually materializes.
The struggle will continue until we find a way to reduce Demand Latency in the planning process. Forecast should be done as close to actual demand as practical, after allowing for supply lead time. It should also be done as frequently as the new demand data flows in. How do we operationalize it?
Demand Sensing tackles it head on and helps in bringing down Demand Latency very significantly.