Demystifying the Unified Demand Signal

A unified demand signal is a holistic view of demand across the enterprise. The most effective instance of a unified demand signal combines a stable, unbiased demand forecast across the geography, product, and time hierarchies. Admittedly, it’s a mouthful. Let’s unravel it.

The forecast’s stability means no extreme projections across the geography, product, and time hierarchies. This allows different functions, which operate at various levels of the geography and product hierarchy at different time horizons and granularities, to utilize the same consolidated forecast.

An unbiased forecast is not consistently wrong in one direction. Consistent over- or underestimation of demand often leads to out-of-stocks and shrinkage through excess inventory. While accuracy is important, an unbiased forecast is a critical starting point.

Further, a unified demand signal starts with a true, unconstrained view of demand. We use “unconstrained” to describe what we believe the true demand is, assuming unbounded inventory. Then, adjustments are made based on constraints related to inventory, supply chain capabilities, resource availability, or allocation decisions (channel or location).

For example, a retailer selling iPhone 16s will only get a limited number of each model and popular color. Similarly, a department store receives a limited assortment and supply of certain brands (e.g., Tory Burch, Ralph Lauren). On the other hand, a grocery store can find multiple suppliers of whole chickens and produce, but they may be constrained by labor to process/prep them for the stores. The initially unconstrained demand is adjusted based on those types of constraints.

To enable enterprise collaboration using a single view of demand, the forecast must be consumable in key metrics at the right units of measure for each functional area. Demand must be dynamically spliced across geography, product, and time hierarchies. The most advanced systems that support a unified demand signal include a KPI translator that allows all business functions to view, plan, and collaborate on their areas’ target KPIs and see the impact of decisions in near real-time—whether in units, cases, revenue, margin, labor hours, facings, or distribution center slots—at any hierarchical level or time granularity.

Here’s where deep mathematics and science come into play. The signal is created by combining a company’s historical data with demand driver information such as digital spending, macroeconomic variables, pricing, downstream sales data (sometimes purchased), and even data from highly disruptive events—for example, a global pandemic.

Now, let’s add artificial intelligence, which continues to monitor the right level to model, and machine learning, which improves the forecast by comparing the science- and data-driven estimate to actual outcomes.

The final component is the ability to simulate internal and external demand drivers (constraints, costs, etc.), allowing the business to understand their effects across the enterprise and their impacts on financial metrics.

Now that there’s a unified demand signal trusted across the organization, the power of collaboration comes into play when that signal is informed by functional insight from across the organization.

As many have realized, artificial intelligence is far from perfect. Each functional area knows the nuances to be incorporated into the forecast, and adjustments should be made to accommodate those idiosyncrasies. However, this should not be done in isolation. Working transparently across functional departments ensures all stakeholders understand where changes must be made and, more importantly, why those changes are required. Put simply, the unified demand signal contains inputs from people across functional areas and aligns the organization to a common view of demand.

Examples could include supply disruptions due to container shipping issues (such as the collapse of the Francis Scott Key Bridge) or one-off promotional events.

Once changes are understood and incorporated into the forecast, the company can confidently operate under a centralized, unified demand signal. Each functional area can perform its activities marching to the same proverbial drumbeat. This forecast ties to category and item promotional and pricing decisions that drive replenishment and store operation decisions. Each function consumes the elements and level of detail required for their actions and decisions.

The most important benefit is agility. In a market facing global disruptions combined with the intense acceleration of omnichannel, agility becomes increasingly important. It is extremely difficult to adjust to disruption when operating on a dozen or more demand signals across the enterprise. A centralized, unified demand signal allows companies to react quickly to an ever-changing landscape.

Other benefits of using a unified demand signal include reporting simplification, improved communication throughout the company, a better understanding of the needs of other functional areas through more standardized collaboration, and better data management and governance.

With a unified demand signal, there is no questioning what one system uses for data vs. another or if the assumptions driving the forecasts differ. Those conversations are mitigated or, more likely, eliminated, and the organization can focus on more strategic activities.

Further, the combination of AI forecasting and human insight is consistently evolving. As a result, more mundane and predictable planning tasks can be automated, allowing employees to concentrate on higher value-added tasks. The transparency of the inputs to the AI forecasting process is key for employees to concentrate on the attributes not covered by the forecast and make more effective decisions.