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Why is bottom-up granular demand sensing so much better for Supply Chain planning and execution?
Most FMCG companies depend on aggregate demand forecasting for their supply chain planning. Many of them also use it for day-to-day execution. It is an elaborate process, often an integral part of their S&OP or IBP process. While it does help in medium and long term decisions, it falls way short of the requirements for near term planning and execution.
On the other hand, companies using the bottom-up demand sensing methodology at the most granular level catch the shifts in demand patterns much faster, and they can adjust their supply plans in time to avoid stockouts as well as inventory pileups. Why is it so?
If we analyze consumer demand at the granular level, we will notice many distinct patterns at a product, channel, and territory level. Many of these patterns either cancel out or get masked at the aggregate level. However, the intensity of each of these individual patterns changes significantly when a demand driver is introduced. Estimating future demand using aggregate forecasting methods misses out on these nuances, especially in a dynamic scenario when a plethora of demand drivers undergo a change on a continuous basis.
If you haven’t switched to bottom-up granular demand sensing, demand volatility may continue to bother you with the resultant stockouts and excess inventory pile ups!