Ans: Demand Planning
The biggest cost to companies is NOT the cost of employees, or raw material, or sales or even advertising.
The biggest cost to companies is the imbalance between the demand for their products and the companies ability to meet the demand.
Unfortunately, many companies tend to ignore this biggest cost and work on ten times smaller issues!
When firms sell their products, their goal is to provide customers with the exact amount of demanded goods.
Providing fewer products would result in less income, while an oversupply might incur extra costs in sales expenses.
Thus, companies intend to forecast the exact amount of sale goods. However, such a task is a complicated challenge.
Furthermore, without financial support, firms can rarely complete any organizational process.
Forecasting demand is a complex activity because it involves a large number of variables that are usually external to the firm. For instance, customers might change their desire to acquire goods from the company without giving previous notice. Additionally, customers might drastically change their previous consumption behaviour, making it impossible to forecast future trends with historical data. Furthermore, the demand for goods is affected by macroeconomic variables that are sometimes impossible to foresee.
However, as difficult as the task seems, demand planning is a crucial activity in Supply Chain Management (SCM) due to its impact on income and expenses.
In the context of SMEs, demand planning is even more relevant.
Due to their size, SMEs are usually required to minimize selling expenses. SMEs tend to have less liquidity and smaller credit lines than larger organizations, making efficiency a must.
Successful demand planning for SMEs can give them a competitive advantage as it might help them to reduce their costs and maximize their potential sales. In other words, a firm that’s successful at demand planning might be able to have a leaner and cheaper production distribution process, allowing them to set competitive prices for their goods.