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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 your operations’ functions 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.

What is Demand Planning?

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, this method estimates how much you could 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 — you can consider your current and future resource requirements in context with demand.

Important Considerations in Demand Planning

Businesses should take these four elements of demand planning 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, and it can be helpful in forecasting.
  • Internal trends: Also using historical data, businesses determine trends based on another sales pattern in one product or a group of products.
  • External trends: Some factors that may influence a business’s ability to meet its goals include competition, sociocultural factors, legal issues, technological changes, the economy and the political environment.
  • Events and promotions: When businesses run events or promotions, sales often increase. Demand planning must account for this as well.

Accurately forecasting demand can be complex, and it is a top inventory management challenge for many supply chain professionals and warehouses. Blue Ridge’s robust demand planning solutions will help you effectively forecast demands, allowing you to take a proactive approach to your supply chain and warehousing operations.

What is Supply Planning?

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 of 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 and should include visibility into your suppliers and their suppliers.
  • Business operations: This is where demand forecasting comes in. At this step, you should know how much product must be produced. That way, you can 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 enough resources are available and optimally distributed.
  • Workflow of information: Exchanging information keeps supply chain management on track. This process ensures a standardized system across all departments.

Many businesses use supply planning software to automate the process of inputting a demand plan and generating a master production schedule. Once the supply plan is created, they will review its capacity and impact on resources and revise it as needed.

Supply Planning vs. Demand Planning

Demand and supply planning are complementary processes. Demand planning aims to predict how much of a product you’ll need, while supply planning outlines how you will meet that demand with your available resources. Demand impacts supply and vice versa. You can’t meet demand without sufficient supply. Likewise, you can’t ensure adequate supply and use it effectively without knowing your demand. You will need both types of planning to meet production goals.

A primary difference between these types of planning is the type of data available. Much of the information used for supply chain demand planning is internal, like the organization’s sales trends and history, but some data comes from outside the company. External sources might include larger consumer trends or demand data. Supply planning relies almost entirely on internal data and involves analyzing your production capacity, time constraints, supply costs, storage requirements and other influential factors.

Since supply planning uses more defined, internal data points, it is typically more concrete and reliable. It provides a practical analysis of how you’ll meet production requirements. Conversely, demand planning involves some hypothetical information. While some algorithms can be more accurate than others, forecasting is always a prediction — which comes with risk. Plenty of factors can throw off a prediction, but supply planning and its practical calculations are less volatile.

Ultimate Goals of Supply and Demand Planning: Predictions vs. Optimization

Another way to look at supply planning versus demand planning is to consider the ultimate goal of each one. Demand planning offers predictions, while supply planning offers optimization:

  • Predictions: Demand planning in supply chain and warehousing operations considers a vast range of factors and influences. It aims to create a forecast with as much reliability as possible. Although these predictions inform supply planning, they also support other business decisions, such as when to offer certain promotions or pursue partnerships.
  • Optimization: On the other hand, supply planning establishes how you’ll meet the forecasted demand within operational constraints and objectives. This process considers the facility’s available resources and characteristics to create a plan that prioritizes factors like efficiency, cost savings and speed. The focus of supply planning can vary widely depending on the company’s goals. A company that wants to reduce costs for an upcoming project might buy materials with a slower fulfillment option. For a company with a tight deadline, this approach wouldn’t work.

Balancing demand and supply forecasting is essential for ensuring appropriate stock levels without storing extra inventory, but striking that balance looks different for every business. High-quality data is a key component of both planning types, making analytics and robust supply chain management software especially valuable.

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’s planning tools. Our powerful Demand Planning platform offers fast and accurate forecasting tailored to your unique production line. Pair it with the Supply Capacity Planning program to optimize your approach. We offer tools that will help you all across your supply chain and warehousing process, so you can get from manufacturing to delivery with ease.

Learn more about what we can do by requesting a demo today!