Demand planning

In the current global economic environment, supply chain-focused companies must implement effective Sales & Operations Planning and Sales & Operations Executions (S&OP, S&OE) processes to maintain a competitive advantage.

This is the area in which supply and demand planning play a crucial role. Although the two functions seem to overlap, it is important to understand how each one contributes to the success of the operations of a company.

What is the difference between demand planning and supply planning?

In a nutshell, demand planning is the forecasting of customer demand while supply planning is the management of inventory stocks to meet the forecast objectives. Let’s take a deeper look at the different components of demand planning versus supply planning and how they can be integrated.

Planning request

Demand planners combine datasets from sales history, market inputs (e.g., advertising, social media, etc.), retailer/distributor actions (e.g., promotions), and other seemingly insignificant conditions such as weather or school openings, all of which are useful in predicting customer demand.

There are two types of demand forecasting. The unconstrained demand forecast, which is focused on raw demand potential without considering possible constraints such as capacity and cash flow. On the other hand, the constrained forecast, which considers the constraints of operations that are part of the business.

The point is to employ both types of demand forecasting to allow the company to ease customer orders and offer its customers the best value for money while keeping the cost of supply to a minimum. Better demand forecasting reduces the amount of inventory held to meet service targets, thereby reducing costs.

Demand planning solutions are essential for effective forecasting because they enable processing of aggregated data from different departments and reveal purchasing patterns and trends.

Supply planning

Supply planning seeks to meet the demand plan by satisfying the company’s financial and service objectives. The factors that are taken into consideration are all those related to inventory management and logistics aspects.

These components include open and planned customer orders, available quantities, lead times, minimum order quantities, safety stocks, production leveling, and demand chasing.

Supply planning software can automate the input of the demand plan and all component data, subsequently generating a master production plan. Once the supply plan is in place, a review of capacity and its impact on resources is conducted and revisions are made accordingly.

Both demand and supply planning are equally crucial and work symbiotically to ensure efficient service delivery. The use of big data sets for supply and demand planning solutions can produce more accurate forecasts and plans that will increase the return on investment.

The Demand Plan outlines the realistic volume of demand that the company aims to achieve over its forecast horizon, taking into account the supply plan and sales budget, in order to properly determine the resources needed for production and the set of business actions to be taken for sales.

The demand plan is an output of the Sales & Operations Planning process to which both the departments dealing with demand (marketing and sales) and those engaged in its implementation (production, logistics and purchasing) contribute. In fact, the plan is obtained from the cross-analysis of demand, which is established by sales opportunities in the market, and supply, particularly the possible limitations of production and distribution that depend on the logistics-production structures. Production, distribution and supply plans, established in the short to medium term, then depend on it.

For manufacturing companies, the process of analyzing and understanding demand (Demand Planning) is one of the most important actions for optimizing materials management and fulfilling sales orders, along with the process of demand management.

The Demand Planning process consists of some characteristic macro-processes, including:

  • Analysis of historical demand, product and customer features;
  • Definition of the sales forecast over time (Sales Forecasting);
  • Definition of the demand plan, sales budget and supply plans (Demand & Supply Planning).

The goal of Demand Planning processes is to manage the commercial demand effectively throughout the different stages of its life cycle.

Indeed, being able to make reliable demand forecasts allows a more accurate and optimized inventory management, as well as an improvement in the level of customer service and an overall reduction in operation costs. However, there are still few companies with specific personnel, belonging to different departments and committed to the forecasting process, who are able to develop a single, company-wide shared demand forecasting plan.

In recent times, a new professional figure has taken hold within increasing numbers of companies to operate within their Supply Chain. This figure is the Demand Planner, a professional who can fill different functions depending on the context in which he or she is hired.

Usually this role is filled by a industrial engineer with the task of conducting sales analysis and forecasting. It is also his or her responsibility to manage the products and services that are offered to customers.

What does the demand planner do?

One of the aspects that the Demand Planner must take most into consideration during his or her activities is the shelf life of a product. This term is used to identify the length of time the individual item remains on the store shelf before being sold.

With this in mind, it is inevitable to think about how important the role of this figure can be. But, above all, to the fact that he or she must be as skilled as possible in the field in which he or she works. Indeed, among his or her duties we find the management of product quality, which must remain unchanged throughout the time of storage in the warehouse, and the monitoring of stocks.

The Demand Planner, moreover, can benefit greatly from the use of technology. His or her duty to keep a close eye on market analysis, sales, and purchasing planning requires skills in information technology and technology in general.

Moreover, in recent times, a growing number of companies are deciding to rely on systems based on Artificial Intelligence. Indeed, thanks to progress in this area, crucial help can be obtained during the stages of stock procurement, monitoring each department and planning activities in a flexible and efficient way.

In addition, the machine learning modality provided by Artificial Intelligence makes it possible to recognize, anticipate and predict possible changes in market demand. This makes all stages of the inventory planning and price management process faster, more accurate and intuitive.

The latest market analyses have seen how end customers are increasingly oriented toward purchasing products tailored to their needs. As a result, it was possible to detect a partitioning of demand into multiple sections, each with a specific request. This trend presupposes a radical change from the trends of recent decades.

The Demand Planner assumes a strategic role in this sense. Indeed, it is his or her responsibility to analyze the latest market trends in real time, as well as to identify specific products for each type of demand. In order to achieve good results in this regard, he or she must not only dwell on the study of the data acquired, but also on the cross comparison with the end consumer.

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