Businesses seeking to get the most value from their supply chain have a lot to deal with these days. To be competitive in today’s environment, your company must employ the best sales and operation planning process possible. To be successful, it’s key to understand all of the functions of your operations and the tools at your disposal. This article will discuss demand planning versus supply planning by defining both terms and how they differentiate from one another.
In general, demand management is the process of forecasting customer demand. Demand planners combine data sets from historical sales, market influences, retailer or distributor actions, and other conditions that may affect demand, such as social influences, school schedules or weather impacts. They use this data to forecast customer demand.
There are two types of demand planning: unconstrained and constrained. In unconstrained demand forecasting, the planner focuses solely on raw demand potential. This means they won’t factor in possible constraints such as capacity and cash flow. Essentially, how much could you sell if supply wasn’t an issue. Constrained forecasting, however, does take these factors into account, creating a more realistic approach.
Businesses should employ both unconstrained and constrained demand planning to give their customers the most value and keep supply costs down. When your business improves its demand forecasting, you also reduce the amount of inventory you hold to meet service targets, reducing costs. Bringing both together is essential in supporting executive Sales and Operations Planning as current, and future resources as considered in relation to demand.
There are four elements of demand planning that businesses should take into account:
- Appropriate Product History: What you’ve sold in the past may indicate what you will sell in the future. This element involves choosing the best historical period and the right conditions but can be helpful in forecasting.
- Internal Trends: Also using historical data, businesses determine trends based on another sales pattern in the product or group of products.
- External Trends: Some factors that may influence a business’s ability to meet its goals include competition, socio-cultural factors, legal, technological changes, economy, and political environment.
- Events and Promotions: When businesses run events or promotions, there will often be an increase in sales. Demand planning must account for this as well.
Demand planning solutions enabled by Blue Ridge Global will help you effectively forecast and allow you to take a proactive approach to your supply chain.
While demand planning involves forecasting customer demand, supply planning determines how a business will fulfill that demand while still meeting its financial and service goals. Therefore, supply planning should factor in various aspects related to inventory production and logistics. These factors may include on-hand quantities, open and planned customer orders, minimum order quantities, lead times, production leveling, safety stocks, and demand.
There are five functions of supply chain management:
- Acquisition: This step involves purchasing raw materials needed for the final product. Purchasing supplies is essential for manufacturing to take place and should include having visibility to your suppliers and their suppliers.
- Business Operations: This is where demand forecasting comes in. At this step, you need to know how much product must be produced, to calculate the demand and decide how much inventory you will need.
- Transportation and Logistics: This component organizes the parts of planning, buying, manufacturing, storage, and transportation to ensure items reach the end customer.
- Management of Resources: Here, businesses ensure that enough resources are available and optimally distributed.
- Workflow of Information: Exchanging information keeps supply chain management on track. This process ensures a standardized system is in place across all departments.
Many businesses will use supply planning software to automate inputting a demand plan and all its data into generating a master production schedule. Then, once the supply plan is created, they will review its capacity and impact on resources and revise it as needed.
Get the Best Tool for Demand and Supply Planning
When it comes to managing your business’s inventory, being proactive is critical. Use proven science and carefully-crafted intelligence to help manage your products with Blue Ridge Global’s Planning tools. We offer demand planning and supply planning tools that will help you all across your supply chain process, so you can get from manufacturing to delivery with ease. Learn more about what we can do by requesting a demo today!