What Is at the Heart of Retail and Supply Chain Planning?
Thu Jan 16 2025
Author
Noah Xiao
What Is at the Heart of Retail and Supply Chain Planning?
In retail and supply chain planning, every decision revolves around one central question: what will customer demand look like in the future? Whether you’re planning pricing strategies, marketing campaigns, inventory levels, or workforce needs, you are either trying to create more demand, or taking actions according to a targeted demand.
So, demand forecasting is at the heart of it all.
Traditionally, although these planning activities may seem related, they were often loosely connected. For instance, a team working on a new promotion wouldn’t necessarily consider the surge in demand it might create, or the additional orders required. This lack of coordination in planning leads to inconsistencies and redundancies, which can waste resources and inevitably harm the business.
Planning to Shape Demand or Meet It?
Broadly speaking, all planning activities in retail and supply chain management fall into two categories:
Driving Future Customer Demand These are activities designed to influence customer choices and behaviours, such as:
- Pricing adjustments
- Promotions and discounts
- Product assortment planning
- Marketing and personalisation strategies
- Network optimisation
Adjusting Supply and Services to Meet Demand These activities ensure businesses can fulfil anticipated demand effectively, including:
- Inventory management
- Order and replenishment planning
- Workforce scheduling
- Production planning
The common thread? They all orbit around a demand forecast. By understanding and embracing this interconnectedness, organisations can streamline their planning processes and achieve better outcomes.
As shown in the graph below, demand forecasting acts as the core that links all planning activities aimed at shaping demand with execution activities designed to meet demand.
Demand Forecasting at the Heart
The Demand Forecast: More Than a Number
Demand forecasting should be more than just an educated guess about future sales. It must become a living, actionable input that both informs and adapts to planning activities. Here’s what makes an effective demand forecast:
- Accuracy is Non-Negotiable Inaccurate forecasts lead to poor decisions. Overestimating demand means excess inventory, wasted resources, and markdowns. Underestimating demand results in stockouts, missed sales, and dissatisfied customers.
- Understand the Demand Drivers To plan effectively, we need to quantify the impact of key demand drivers. For example:
- How will changing the price of a product affect demand?
- Will introducing a new product attract new customers, or will it cannibalise sales from existing products?
- What uplift can a promotion generate, and will it sustain demand or create short-term spikes?
Notice the feedback loop in the graph. This reinforces the importance of using insights from execution—like inventory turnover or production outcomes—to continuously refine forecasts. Such reinforcement isn't necessarily something humans are naturally skilled at, but AI excels at this. By analysing data over time, AI can precisely quantify the impact of each demand driver.
Why Integrated Planning Around Demand Works
When planning activities are built around a robust demand forecast, organisations unlock significant advantages:
- Efficiency: With a clear understanding of how demand responds to various actions, decision-making becomes faster and more aligned across teams.
- Proactive Decision-Making: Instead of reacting to surprises, teams can simulate scenarios and confidently choose actions that optimise outcomes.
- Collaboration: Viewing all planning activities through the lens of demand fosters a shared framework for cross-functional collaboration, breaking down silos.
The graph demonstrates how demand forecasting connects seemingly distinct planning and execution tasks, ensuring decisions on pricing, promotions, inventory, and workforce are all aligned.
Making It Happen: The Way Forward
To put demand forecasting at the centre of planning, organisations need two key capabilities:
- Impact Quantification Invest in tools and models that connect actions to demand outcomes. For example:
- A pricing model that shows how a 10% discount will boost sales volume by 15%.
- An assortment model that predicts the customer reach of a new product.
- Enhance Accuracy Accuracy is the cornerstone of effective demand forecasting. By leveraging advanced technologies and robust data analytics, organisations can fine-tune their forecasts to reflect real-world patterns more closely. This precision minimises risks, reduces wastage, and ensures the alignment of supply and demand activities. Regularly auditing forecasting models and incorporating diverse data sources—such as market trends, customer feedback, and historical sales—can significantly boost accuracy.
- Embrace the "Demand Forecasting at the Heart" Culture and Change Shifting to a culture where demand forecasting is central requires both mindset and operational changes. Teams need to understand the pivotal role forecasting plays across all planning activities. This involves breaking silos and fostering cross-department collaboration to ensure that forecasting insights inform every decision. Continuous training, transparent communication, and the adoption of unified forecasting tools can support this cultural shift and drive more consistent, aligned strategies across the organisation.
- A Feedback Loop Forecasts must adapt as new data becomes available. This requires integrating ongoing data from promotions, customer behaviour, and market trends, enabling forecasts to evolve dynamically.
How We Can Help
At jahan.ai, we offer a cutting-edge solution called jahanForecast. Built from the ground up to synchronise seamlessly with all planning activities in retail and supply chain management, jahanForecast delivers forecasts that are not only accurate but also highly explainable. Our platform ensures that businesses can align their strategies across departments, eliminate redundancies, and reduce inefficiencies. With jahanForecast, you gain actionable insights tailored to your specific operations, driving better decision-making and fostering a truly integrated planning culture.
To find out more, check out our website and handbook that will help you start your demand forecasting journey.
Closing Thoughts
In today’s fast-paced and competitive retail and supply chain landscape, demand forecasting is not just a tool—it’s the foundation. When we align all planning activities around a single, accurate, and dynamic forecast, we unlock the potential to drive demand efficiently, meet it effectively, and achieve strategic goals.
Let’s embrace demand forecasting as the central pillar of planning and execution. The more precise and actionable our forecasts are, the more effectively we can shape and meet the demands of the future.
What’s your approach to integrating demand forecasting in your planning activities? Let’s discuss in the comments!
#demandforecasting #machinelearning #ai #architecture #jahanai
At jahan.ai, we build end-to-end AI twins for retail and supply chain businesses. We take the concept of a digital twin, a virtual replica of business processes, further with advanced AI, which not only mirrors these processes but also automatically optimises them. In this way, we support businesses in driving efficiency, going beyond their potential.