What is Demand Planning? Key Steps Involved in Forecasting for a Supply Chain
Demand planning involves using past demand patterns and forecasts in order to reliably predict demand for different items throughout the supply chain. When implemented, this useful tool can help companies more accurately forecast their revenue streams, match inventory levels with anticipated demand levels, and increase their products’ profit. Most importantly, it can better inform your sales and operation (S&OP) process.
Demand planning plays an integral role in creating an effective S&OP strategy. By using this multi-step process, companies are better prepared to anticipate various kinds of demand and factor those demands into the supply chain management process.
Such planning enables companies to make sure they have the supplies ready to meet any expected demand changes. It also gives them more information to provide their manufacturers, so the manufacturers can be better equipped to know what, when, and how much they’ll need to produce. In other words, it ensures that the company has the capacity and materials available to meet projected demand. It also informs future demand based on available supply.
While different from forecasting alone, demand planning does include forecasting as a key component, so the two processes are closely tied together. And smart demand planning can be a useful tool in eliminating bias from forecasting. Because people generally tend to over-forecast, demand planning can provide a more realistic prediction of demand by using qualitative data.
Demand planning is a multi-step process that involves several key tasks. Understanding the work required within each step will allow you to create the most accurate, up-to-date forecasts that will better inform your S&OP plan. Below, we dive further into these steps:
- Use past sales data to create a statistical forecast. This information paints a portrait of past demand patterns and allows a company to better understand its own demand fluctuations from a historical perspective, which in turn will better inform its future forecasts.
- Work with customers to determine when they anticipate greater demand and by how much. Since historical data alone can’t predict future trends, it’s important to collaborate with manufacturers, distributors, and customers to get a complete picture of your demand vs. supply. Companies can then use that information to factor into the planning process.
- Manage and combine your forecasts. It’s important to have forecasts that reflect the most current data to make the most informed decision. Implementing a system for updating and managing these forecasts will allow you to gauge your progress and make it easier to eventually combine these separate forecasts into one consensus forecast.
- Re-examine the data. Hold a review meeting with key personnel and staff to reanalyze the numbers and make sure that your teams have the capabilities and capacity to reconcile demand with available supply.
By following these steps, you’ll be on your way to implementing an effective demand planning process. This important tool will ensure you’re able to balance demand with supply––maximizing your profits and streamlining your operations. Plus, demand planning can strengthen your partnerships with both your customers and distributors alike.