Most PMOs recognise how demand management is not only time-consuming and complex, but is central the the business strategy.
We’re here to help you go through what demand management is, why its important for your business and how to make sure you’re doing it right.
What is Demand Management?
Demand management (DM) is a planning methodology that helps predict, manage and plan the demand for products and/or services. It is the process an organization puts in place to internally generate new ideas and identify new projects that align to the strategic priority of the business.
DM is all about striking the balance between the new and the old. Innovation and adaptability is becoming critical to business success and DM allows business to prioritize and adapt in ways that are within their capacity and using their resources as effectively as possible.
For demand management to be successful, the final output should help the organization select and prioritize a vital, strategically aligned portfolio. The process should enable the organization to capture its real strategic commitment and combine it with ongoing activities.
Why is Demand Management important for your business?
When done right, demand management can become a secret weapon for your business decision making process.
In the business world, we often talk about ‘opportunity cost’. But what’s the point of talking about it if we are not properly applying the concept and adapting for it.
DM is the essential tool which allows you to gather, analyse and make informed decisions on the most viable options the business can take given its limited resources. It allows you to be realistic in your business’s capabilities, balance the opportunity costs, and achieve the best expected outcome.
DM is more than just a tool, but can also be a critical factor for success in your portfolio.
Where is Demand Management in the portfolio management process?
As we can see from the above diagram, DM is the second step within the portfolio management process and thus holds a very critical position. DM informs what is know, selected and enacted within the business strategy.
Though DM is usually focused internally, it also has room to take into account external factors, such as the general strategy of the organization and the overall market situation.
New ideas and projects proposed are evaluated by their alignment with the already set strategic direction of the organization and the activities that are currently in the pipeline.
What is an example of demand management?
As a planning methodology that helps to predict, manage and plan the demand for products and services, DM can be used at both macro and micro levels.
At the macro level, a good example would be the financial regulation of money markets by the government by setting interest rates.
On the other hand, at the micro-level, a cellular provider may reduce demand during peak hours by providing free weekend and night use.
Components of Demand Management
We have already defined what demand management is, now let’s move our attention to the different components.
The Business Case
First up is the business case (BC). The business case is important as its structure needs to be in coherence with the demand management process.
Then comes budgeting which is the process that defines and approves the number of resources available and needed to implement the new strategy designed by demand management.
Component and Project Selection
The next step is to prioritize and select the components required to implement the strategy. A major factor that plays a part here is the coherence of the components with the general strategic direction of the organization. I.e. a phone manufacturer is not going to start making frozen pies as this would not align with the strategic direction or capital mix of its core business.
Then comes portfolio governance which helps to define accountabilities, responsibilities and roles. This part of the process also helps to define reporting and communication.
After this comes portfolio implementation that allows the organization to evaluate the components that have been selected.
Portfolio Reporting and Reflection
Once done, reporting comes in where the project, program or operation status is reported as well as the status of the whole portfolio. This step in the process also reports the success and achievement of the strategic objectives and the benefits produced.
It is important to also take reflection by way of a strategy and portfolio review. This is the time to assess the relevance of the strategy in the current market conditions and look at the benefits realisation component, i.e. has this strategy yielded a positive or negative benefit for the business?
Demand Management Do’s
In order to have effective demand management, here are a few tips to follow:
1. Effective Demand Management needs transparency
It is vital that all your key suppliers have a transparent idea about your predicted demand. This will help them secure inventory for timely response in accordance with your demand projections. As a result, you will be able to better respond to customer demand
2. Effective Demand Management always engages with alternate sources of supply
If you have multiple sources of supply, make sure that you are always in touch with your secondary supply sources. If you do not have secondary sources, make sure to explore potential opportunities to make your demand management a smoother process.
3. Effective Demand Management requires constant updates to inventory policy and planning
It is vital to update your inventory policy and planning. There should be regular updates in the policy and planning in accordance with the changing market conditions to ensure that the business is remaining agile and flexible to changing patterns in demand. Moreover, there should also be plans and policies in place for uncertain situations such as a pandemic.
4. Effective Demand Management is always aligned with supply management
Having proper demand management alone will not do the job for you. What an organization needs is properly aligned demand and supply management so that there can be quick adjustments made if there are disruptions in either.