Many companies have a goal in forecasting and demand planning of getting to the point of effective use of so-called "causal factors" - the actual incremental drivers of demand beyond baseline customer demand. These causal factors can range from the weather to advertising to macroeconomics and everything else in-between, and would greatly enhance a company’s ability to improve its forecast accuracy as well as potentially increase sales – if they could be used effectively.

As we wrote in our recent issue of the SCDigest Letter on Demand Planning, to date more companies have had this as an eventual goal than have actually been able to use causal factors effectively - but that is starting to change.

With all that in mind, we like the concept of "decomposing demand," as introduced to us for the Letter by JDA Software, and illustrated in the Letter and in the graphic below. (To download the full SCDigest Letter on Demand Planning and access a wealth of other information, go to our new Demand Planning Resource Center.)

Source: Supply Chain Digest Letter on Demand Planning, based on
Graphic Provided by JDA Software

The goal with this approach is to not only predict “how much” as part of the demand planning process, but also to understand the “why” of different demand levels - and use that insight to craft programs that can increase demand.

While some companies have tried to incorporate dozens of causal factors into their demand planning processes, experts say focusing on a smaller number (3-10) of the most powerful demand drivers may in the end produce better results.

Demand planning vendors are offering increasingly sophisticated tools to decompose those demand drivers, and you can expect to see more vendor focus on this area over the next few years.

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