# Demand Sensing & Shaping

Traditional demand planning operates on a monthly cycle — but the real world doesn't wait for your next S&OP meeting. Demand sensing picks up signals between cycles, while demand shaping proactively steers demand toward outcomes the business wants. 🛰️

Together, they close the gap between the plan and reality.

# What Is Demand Sensing?

Demand sensing is the use of real-time or near-real-time data to detect changes in demand patterns and adjust short-term forecasts — typically within a 0 to 12 week horizon.

Where traditional forecasting asks "based on history, what will demand be?", sensing asks "based on what's happening right now, what is demand doing?"

# Data Sources

Signal	Example	Latency
POS / sell-through data	Retail scanner data, distributor withdrawals	Daily to weekly
Order pipeline	Open orders, order conversion rates, backlog trends	Real-time
Web / digital signals	Search trends, site traffic, cart abandonment	Real-time
Leading indicators	Housing starts, weather forecasts, commodity prices	Varies
External data	Social media sentiment, competitor pricing, event calendars	Daily

# How Sensing Differs from Traditional Forecasting

	Traditional Forecasting	Demand Sensing
Horizon	3–18 months	1–12 weeks
Update frequency	Monthly	Daily to weekly
Primary input	Historical shipments	Current demand signals
Model type	Time-series, causal	Pattern recognition, ML, signal processing
Granularity	Product family / monthly	SKU-location / daily-weekly

# Where Sensing Fits in the IBP Cycle

Demand sensing does not replace the monthly demand plan — it refines it between cycles. Think of it as a short-term overlay:

Monthly IBP cycle produces the consensus demand plan (medium-term).
Weekly sensing adjusts the near-term execution forecast based on latest signals.
Supply execution responds to the sensed forecast for replenishment and scheduling.

This two-speed approach lets you maintain strategic alignment (monthly plan) while staying responsive (weekly sensing).

# Practical Example

A consumer goods company notices that POS sell-through for a seasonal product is running 15% above forecast three weeks into the season. The demand sensing engine flags the deviation, automatically adjusts the 4-week execution forecast upward, and triggers an expedited replenishment order — all before the next monthly planning cycle.

Without sensing, the planner discovers the gap at month-end during the S&OP review, by which time stockouts have already occurred.

# What Is Demand Shaping?

Demand shaping is the deliberate use of commercial and operational levers to influence the timing, volume, or mix of customer demand — aligning it with supply capabilities and financial objectives.

Rather than passively forecasting and reacting, shaping asks: "Can we move demand to where it's more profitable or more feasible to serve?"

# Shaping Levers

Adjusting price to shift demand in time or across products. Markdowns accelerate demand; premium pricing dampens it. Dynamic pricing automates this at scale.

Trade promotions, advertising, and campaigns to pull demand forward or drive trial. Requires close coordination with demand planning to avoid the bullwhip effect.

Steering customers toward alternatives when a product is constrained. Works best when the substitute is already in the assortment and offers comparable value.

Reserving available-to-promise (ATP) inventory for high-priority channels or customers. A supply-side shaping lever that effectively rations demand.

Directing demand toward channels with better margin or available capacity — e.g., shifting online vs. retail, or domestic vs. export.

# When to Shape vs. When to Respond

Not every demand situation calls for shaping. Use this framework:

Situation	Recommended Action
Demand exceeds supply capacity	Shape: pricing, allocation, substitution
Excess inventory nearing shelf life	Shape: promotions, markdowns, bundling
Demand is stable and supply is healthy	Respond: execute the plan as-is
New product launch underperforming	Shape: increase marketing, adjust pricing
Unexpected demand spike from external event	Respond: sense and adjust supply, don't fight the signal

Key principle: Shape when you have lead time and levers available. Respond when the event is already in motion and supply must adapt.

# Practical Example

A building materials manufacturer sees that Q3 demand for a high-margin product line is forecast 20% below capacity. Rather than accept the gap, the commercial team launches an early-buy promotion offering volume discounts to distributors who commit to Q3 orders by end of Q2. The result: demand shifts forward, factory utilization improves, and the company avoids the margin erosion of a Q4 fire sale.

# Connection to the S&OP / IBP Cycle

Both sensing and shaping plug into the broader IBP cadence:

Demand Review — Shaping initiatives are proposed and evaluated alongside the statistical baseline and consensus adjustments.
Supply Review — Sensing outputs inform short-term supply execution; shaping decisions feed capacity and procurement plans.
Integrated Reconciliation — The financial impact of shaping scenarios (e.g., promotion ROI, margin trade-offs) is evaluated against the business plan.
Executive Review — Leadership approves significant shaping commitments (pricing changes, large promotions) as part of the integrated plan.

The best IBP processes treat sensing and shaping not as ad-hoc activities, but as disciplined, repeatable steps with clear ownership and measurable impact via forecast accuracy and FVA tracking.

# Further Reading

Demand Planning — The foundational process that sensing and shaping extend.
Forecast Accuracy — Measuring whether sensing and shaping actually improve outcomes.