Markets move fast, meaning you always need to be one step ahead of the game so you’re ready to give your customers what they want. That’s where demand management comes into play.

What does demand management look like? Take an ecommerce nail polish shop that’s optimizing its inventory levels. It might research trending styles and create new products in line with what’s hot. Then it might advertise these products with a custom marketing campaign, optimize its distribution channels to reach audiences where its social media posts perform best, and even tweak its production capacity in the offseason.

As a business owner, when you accurately forecast and manage customer demand, you can cut back on overproduction while also preventing shortages. Proper forecasting can help you keep the ideal inventory level so your customers don’t have to deal with annoying out-of-stock notices. 

Learn more about demand management and how you can use it to your advantage.

What is demand management?

Demand management is the process of managing customer demand. It involves everything from planning and forecasting to generating and meeting demand for your products and services. It sits at the intersection of supply chain management, marketing, and operations. The goal is to align demand forecasts with production planning so you have just the right amount of inventory in stock.

Think of demand management as a bridge: One side is what customers want (and when they want it), and the other is what your business can realistically deliver. The job of demand management is to balance those two sides—to avoid stockouts, overstocks, and the ripple effects they cause across your business. 

People often confuse demand management with demand planning, but they’re different tasks. Demand planning is actually part of the demand management process and focuses more on forecasting and preparing for future demand. Demand management also incorporates elements of shaping demand, aligning supply, and making supply decisions based on capacity planning and constraints. 

How to operate the demand management process

1. Analyze historical data
2. Evaluate current market conditions
3. Forecast future demand
4. Determine your demand strategies
5. Finish supply planning
6. Define your own demand management best practices

The good news is that your business probably already does one or more parts of the demand management process. Several of the steps below are basic components of stocking and selling inventory. But by putting all of these demand management strategies together, you’ll have a better idea of how to forecast future demand and meet customer expectations.

1. Analyze historical data

Planning for the future requires an understanding of the past. This means gathering historical sales data from the past year to identify gaps, patterns, or trends. You might see things like:

• Seasonal spikes and dips
• Regional differences in consumer demand
• How past promotions affected buying behavior
• Which products consistently over- or underperformed

This isn’t something you need to crunch manually. You can use data analytics tools like Shopify Analytics to find trends on your behalf. For more comprehensive demand management, you might consider software like Oracle NetSuite, SAP Integrated Business Planning, Anaplan, or Kinaxis to centralize demand data and extrapolate insights. 

The main goal here is to find what products your customers loved and why. In the subsequent steps, you’ll use this form of predictive analytics to figure out how to replicate those conditions to improve future sales.

2. Evaluate current market conditions

Now that you know the factors behind your previous success, it’s time to move to the present. What do conditions look like currently? You’ll want to take a look at a few different factors:

• Market trends. Are consumer preferences shifting? Are competitors launching similar products? What will give you a competitive edge?

• Consumer insights. What are people saying on social media, in product reviews, or via customer service channels?

• External factors. Are there current supply shortages or political changes that could affect production or product interest?

• Competitor data. How are your main competitors tackling the current market?

You can use tools like Google Trends, industry reports, and social listening platforms (like Brandwatch or Sprout Social) to collect these insights. Sales and customer-facing teams can also provide frontline feedback. All of the real-time data you collect in this stage will inform your actions in the next step. 

3. Forecast future demand

You’ve got info on the past. You’ve got info on the present. Now it’s time to forecast demand. There are three core forecasting methods you can use:

• Qualitative forecasting. This method of demand forecasting involves using expert opinions from leaders in your field and market research to make predictions.

• Quantitative forecasting. You’ll use statistical models (like time-series or regression analysis) based on historical data to predict upcoming demand.

• Hybrid forecasting. Use this combination of both forecasting measures to account for real-world changes and improve forecasting accuracy.

No matter which demand forecasting method you select, you’ll want to look at things like product life cycles, promotion calendars, and distribution and lead time constraints. Other things, like regional demand differences and capacity or supply chain limitations, can also affect your potential output. Even though you’ll have a lot of hard data to work with, sometimes you’ll need to make educated assumptions about what you think the market will do.

4. Determine your demand strategies

Forecasting tells you what’s likely to happen, and now, it’s up to you to craft demand strategies based on these predictions. There are several ways you can go about this, but some ways include:

• Demand shaping. Adjust pricing, offer bundles, or shift promotion timing to influence buying behavior around peak seasons.

• Channel prioritization. Decide which distribution channels get inventory first based on profitability or strategic importance.

• Customer segmentation. Tailor offers based on factors like customer geography or behavior.

• Inventory positioning. Place high-demand products closer to key fulfillment centers or high-volume locations.

To better understand how this might work in practice, imagine your forecast shows a spike in demand for a certain product. Generally, that’s great news, but if your production capacity is limited and you aren’t able to meet the projected demand, you might respond quickly by limiting promotions for that SKU or pushing customers toward substitutes.

5. Finish supply planning

With your demand forecasts and strategies nailed down, now comes the final piece of the puzzle: supply planning. This is when you’ll turn your projections into actionable operations.

First, you’ll need to think about whether your current staff can handle your projected load. If you don’t think they’ll be able to, you might plan ahead with temporary hires. You’ll also need to make sure you have the room for new stock levels, both in the budget and in your warehouse. Your demand management efforts should prevent you from tying up cash in excess inventory.

Part of this step is also looking for bottlenecks in your supply chain. Share your demand plan with suppliers early to avoid last-minute price hikes or delivery issues. If they won’t be able to handle your future customer demand, consider negotiating new deals or even looking for new suppliers.

6. Define your own demand management best practices

Demand management best practices evolve. Build in regular reviews to make sure the futures you’re forecasting are actually coming to pass. You can do that by comparing your actual numbers to your projections and seeing how far off they were. You’ll also want to take a look at key metrics like inventory turnover, order fulfillment, and customer lead times to spot any issues early on.