What is Demand Planning?

In this article, learn about:

• The differences between a demand forecast, supply plan, and demand plan

• Key elements needed to create an accurate demand plan

• Best practices to improve your demand planning process

Demand planning helps businesses predict how much inventory to produce, store, and ship to various regions based on point-of-sales data, inventory management, and accounting for anomalies.

Demand planning helps identify potential expansions to your product line or supply, as well as potential threats to your sales. Demand planning also helps cut costs by avoiding things such as overstocks and pricey expedited shipping. With proper demand planning, you can solve problems with your warehouse logistics by predicting how much product should be shipped, where it should be shipped to, and when it should be shipped.

Most importantly, your customers may require your plans to closely match actual sales. For example, Walmart requires you to be within a 20% error margin between your forecast and your sales before they apply chargebacks. With all this in mind, it pays to have a good demand plan!

The Differences Between a Demand Forecast, a Supply Plan, and a Demand Plan

In an ideal world, demand forecasts, supply plans, and demand plans would align perfectly. However, in the intricate landscape of supply chain management, these concepts serve distinct yet interconnected roles.

A demand forecast asks, "How much does my customer want?" It estimates future customer demand based on historical data, market trends, and other predictive factors.

A supply plan, on the other hand, asks, "How much product should I produce or procure?" It considers manufacturing capacity, supplier lead times, and inventory levels to ensure supply meets anticipated demand.

Related Reading: What is a Supply Plan? 

Finally, a demand plan bridges the gap between the two. It not only answers the question of customer demand and production needs but also factors in broader business goals, potential risks, and evolving market conditions to create a comprehensive strategy that prepares for both expected and unexpected shifts in demand.

Demand Forecast

Demand forecasts start with historical data to predict how sales will look in the future. This creates your demand forecast model, representing your past and future sales data. A demand forecast indicates how much each customer expects from you. 

Supply Plan

A supply plan is used in warehouse and manufacturing settings to determine how much product should be created and stored. Supply plans also predict how much product your customers will order from you. These are not based solely on historical sales data but also consider seasonal sales highs or lows, discounts, and similar changes.

Demand Plan

Demand plans attempt to tie demand forecasts with supply plans to create an intuitive, cohesive model. Demand plans are more fluid than demand forecasts or supply plans. They take historical sales data and account for spikes and dips in sales due to variables you input, such as abnormal weather changes, promotions, viral marketing, and other factors that simple automated point-of-sales analyses cannot identify.

What is Needed to Create a Demand Plan?

Creating an accurate demand plan starts with robust data. You need a comprehensive historical record of your products along with detailed point-of-sale (POS) information, which can be segmented by order number, region, season, or any other variable that impacts the supply chain. These insights are crucial in today's increasingly complex supply environments.

Walmart and Sam's Club use the Global Replenishment System (GRS), which tracks sales history for the past two years to build forecasts. To learn more about GRS, visit Retail Link > Academy > 6. Replenishment and Supply Plan > Forecasting & Supply Planning > GRS---Global Replenishment Solution.

Demand Planning Best Practices

1. Leverage Historical Data and Market Trends 

Your demand plan should be based on historical data and market trends. Analyzing past performance alongside evolving market conditions can help you make more accurate predictions and stay agile.

2. Look at Your Data, Then Look at It Again

Clean, standardized data is essential for accurate forecasting. Ensure that all information is properly organized---group similar products, account for variations like pack sizes, and verify data consistency. Double-checking your data will help avoid costly errors.

3. Loop in Key Departments

Demand planning works best when it's a collaborative effort. Bring in insights from sales, marketing, and operations to ensure that your forecast accounts for all relevant factors, from promotional plans to production capacities.

4. Access More Data

The more data you have, the better your forecasts. Use tools like SPS Commerce and SupplyPike to access broader datasets, including POS information and real-time supply chain analytics, to refine your demand plan and make it more robust.

5. Reevaluate and Adjust as Necessary

Demand planning is not static. Continuously monitor the performance of your forecasts, and be ready to adjust them based on real-world results. Regularly reevaluating your plan helps you stay aligned with actual demand and reduces the risk of stockouts or overstock.

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