What is the role of demand shaping in supply chain planning?

Demand shaping is the result of taking direct action to influence demand with the intention of increasing or decreasing sales of particular products, territories and so on to better fit management objectives, inventory availability or production plans.

Demand is shaped through marketing and sales actions, including discounts and promotions, changes to pricing or sales incentives, or changes to distribution that change availability. A plan for demand shaping is typically a result of the supply-demand coordination process embodied in sales and operations planning (S&OP).

With S&OP, when an updated forecast becomes available each month, the demand team works with the forecast to develop a demand plan that includes the expected effects of external factors, like demographics and economic conditions, as well as any expected changes in conditions, like pricing changes or competitors' actions. The supply team then builds a production and inventory plan to meet the demand requirements while making the most effective use of all available resources.

The S&OP process culminates with a joint meeting of the entire team, including both supply and demand, to work out changes on either side of the equation to come up with a better plan that improves customer service, makes better use of resources or maximizes profit -- preferably, all three.

The supply team can offer to make changes in the production schedule to better match demand. The demand team can specify potential changes in demand shaping to influence demand in a direction that could help production achieve better results. It is this give and take that makes S&OP such a powerful tool for manufacturers by enabling both sides of the business to work together to achieve an overall best strategy for future company operations.

The concept of demand shaping is based on the reality that companies can and often do take actions that will affect demand. It is not unusual for companies to shape demand inadvertently by, for example, making changes to prices without fully understanding what effect that will have on sales.

As part of a formal S&OP process with appropriate measurements and monthly updates included, demand shaping is elevated from a shoot from the hip intuitive approach to a real business tool that can be fine-tuned and applied strategically with specific targets that are intimately tied to corporate objectives.

Once formalized and tuned to specific objectives, the result of demand shaping can be measured in the same way that production is measured against their objectives as stated in the master production schedule. Putting demand and supply on more or less equal footing, with separate but coordinated measurements, levels the playing field and eliminates a lot of the finger-pointing that often happens when things don't go quite as planned.