Supply chain planning leaders can use consumption data to generate strong insights to improve service without negatively impacting inventory and cost.
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The nuances of consumption data for demand planning
Consumption data refers to the sales of products beyond the part of the value chain you control — the sales of customers or the sales of customers of your customers. When organizations gain access to and consider using this data, they often expect it to be linearly correlated with sales data. If this were the case, consumption data would enable rapid adjustment of demand planning to reflect changes in consumer behavior. In reality, however, there may not be a one-to-one correspondence between the two.
Nonetheless, supply chain planning leaders can use consumption data to generate valuable insights to deliver better service without harming inventory or cost.
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Enhance demand planning with four strategic uses of consumption data
Unlock the full potential of your demand planning by leveraging consumption data through these four impactful strategies. Each approach offers unique benefits, allowing you to implement them in any order for maximum flexibility and effectiveness.
No. 1: Predict consumption as the single source of demand
End-to-end (E2E) supply chain synchronization uses actual consumption as the driver of the entire value chain, which means that predicting consumption can help reduce demand volatility, optimize inventory and speed up recovery from supply chain disruptions. While this use of consumption data is effective for practitioners of or those who aspire to E2E synchronization, it requires strong partnerships with customers and alignment with the inventory strategy, meaning it may not be the right fit for all organizations.
No. 2: Validate sales and consumption trends alignment
Trends in consumption and sales data can help your organization understand if inventories are increasing, decreasing or staying consistent along the value chain. Any misalignment between the two sets of data — for example, if sales increase while consumption decreases — is an early indicator that you will see a big decrease or increase in sales. This knowledge allows you to prepare for potential downturns and avoid inventory buildup.
Granular consumption data can help organizations understand lower-level trends and make smarter portfolio decisions, such as different product family volumes across multiple SKUs.
No. 3: Measure performance of initiatives
Consumption data can help supply chain planning leaders with demand sensing — detecting when and why changes in demand have occurred with:
Demand-shaping initiatives. Consumption data helps organizations measure the performance of demand-shaping activities, such as promotions or changes in price. Organizations can feed this data into the sales and operation execution process to rapidly adjust supply and demand plans and avoid inventory stockouts or overstocks.
Innovations or portfolio changes. Consumption data helps organizations assess new products or marketing initiatives, providing early visibility into their performance. This information can be used to adjust supply planning directly or as input for other planned portfolio changes.
No. 4: Train machine learning (ML) algorithms
Modern supply chain AI and ML algorithms can use a variety of data sources as input, leading to more sophisticated and accurate forecasting models. Feeding point-of-sale consumption data to these AI- and ML-enabled algorithms leads to more accurate demand predictions. However, the number of patterns the algorithms can find in the relationship between consumption data and your sales depends on multiple factors and dictates whether or not and the extent to which the data will influence and improve your baseline forecast.
Demand planning FAQs
What is demand planning?
Demand planning is the process of predicting customer demand for a company’s products and services to optimize the balance between market opportunity and supply network capability. The demand planning process uses historical data, market trends and other information to guide decisions about inventory, production and the supply chain.
What is consumption data?
Consumption data is information about how an organization’s customers use or consume the products or services on offer. This information is closely related to (yet distinct from) sales data, which measures the number of products or services sold to customers. Comparing sales and consumption data can help businesses understand their clients’ post-purchase uptake of products — for example, how quickly the product is used after being sold.
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