In the current global business environment, supply-chain-focused businesses must implement an effective Sales -and Operation Planning process to maintain a competitive edge.
Within this overarching business game plan, is where demand and supply planning fall. Though the two functions seem to overlap, it is important to understand what each one contributes to a business’s successful operations.
What Is The Difference Between Demand Planning And Supply Planning
In a nutshell, demand planning is forecasting customer demand while supply planning is the management of the inventory supply to meet the targets of the forecast. Let’s take a deeper look at the different components of demand planning vs supply planning and how they can be integrated.
Demand planners combine data sets from historical sales, market influences (example: advertising, social media e.t.c), retailer/distributor actions (example: promotions, spiffs e.t.c), and other conditions such as weather or schools opening to forecast customer demand.
There are two kinds of demand forecasting. Unconstrained demand forecasting focuses on raw demand potential without factoring in possible constraints such as capacity and cashflow. On the other hand, constrained forecasting takes into account the limitations of the operations part of the business.
The point is to employ both types to enable the business to facilitate client orders and give their customers the best value for money while keeping the supply cost to a minimum. Improved demand forecasting reduces the amount of inventory held to meet service targets thus reducing costs.
Demand planning solutions are essential to effective forecasting as they make it possible to process aggregate data from the different departments and reveal buying patterns and trends.
Supply planning seeks to fulfill the demand plan while meeting the financial and service goals of the business. Supply planning factors in all aspects related to inventory production and logistics.
These components include open and planned customer orders, on-hand quantities, lead times, minimum order quantities, safety stocks, production leveling, and demand chase.
Supply planning software can automate inputting the demand plan and all the component data thereafter generating a master production schedule. Once the supply plan is in place, a review on capacity and its impact on resources is carried out, 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, supply, and demand planning solutions can produce more accurate forecasts and plans which will increase return on investment.