Demand planning is a supply chain management process to estimate how much of your inventory your customers will buy. It is all-encompassing including account distribution, location of inventory, seasonality, retail solutions, and external factors such as bad weather events or a global pandemic. Demand planning boosts your bottom line.
Some use Demand Planning and Demand Forecasting interchangeably but they’re not the same.
Demand Forecasting leans heavily on historical sales data, usually from the prior 12 months. The forecast is developed as an estimate of anticipated customer Demand going forward in the near future.
Forecasting is a prediction. As with any metric or model, it is possible to make changes to the forecast going forward. You can fold in real-time events or issues such as a disruption in the supply chain or bad weather It’s good to have a business mindset that forecasts can be adjusted and it’s a positive step to better success.
Demand Planning is the actual operational work done to bring the guest work of the forecast into reality. Using the forecast and a general template, you’ll check each segment of the supply chain and make any necessary corrections in operations to meet the goal. The result is higher efficiency and lower costs.
Further, Demand Planning takes the forecast as a general checklist to be certain there are available raw materials, warehouse capacity, inventory levels, delivery options and so on.
Demand Forecasting is valuable as long as you stay open to the idea that plans and the general market are going to change. Combining forecasting with planning gives you the best shot at rising to the top no matter the bumps along the way.
When assembling your forecast and then Demand Planning here’s a partial list of important sectors you need to address:
- Capital expenditure
- Employee turnover
- Profit margins
- Cash flow
- Capacity planning
- Risk assessment & Mitigation plans
It’s best to bring managers to the table from the sectors that need to work together cooperatively to deliver the best results to the customer. Those would be your sales and operations teams. Sharing plans and information increases efficiency.
While different departments may have slightly different goals in mind, generally workers can agree keeping a smoothly running supply chain is vital for any business to survive and thrive.
Imagine you’re running along according to the Demand Forecast. The operations team makes decisions based on how much demand there is. The forecast may need to be adjusted here if there are considerable over or under numbers.
Demand Planning will have the decision-making process spelled out on how to meet market demand. Rather than being on the offensive, you’re prepped and ready to act.
It’s nearly impossible to create a 100% accurate forecast and that’s not a failure. You have a goal in mind and a plan in place to make adjustments quickly. Finding places to change the forecast along the way using your Demand Plan is a recipe for greater success than you had in mind at the start.