Demand vs. supply planning: Learn about the differences
Demand planning helps companies predict future demand for goods, while supply planning enables companies to order enough goods. Learn more about how the two differ.
Customers are a demanding bunch -- they want what they want, when they want it, and in the amount they desire.
That reality underscores the importance of demand planning and supply planning. Both of these supply chain management processes help a company forecast the ideal inventory of products or services to meet the demands of partners, customers and other stakeholders.
Learn more about demand planning versus supply planning and the differences between the two.
What is demand planning?
Demand planning helps companies predict, understand and manage the future demand for goods. It's the "what" companies need.
The first step for demand planning is that the demand planning team gathers information about the likely future demand for products. The information includes previous customer insights, market intelligence, new product launches, promotional activities and seasonal trends.
The demand planning team then feeds the data into statistical models and forecasting tools to learn the demand for specific products at various times throughout the year. The output of these tools feeds into the supply planning process so the company will order enough inventory.
Some of the benefits of demand planning include improved forecasting accuracy, better inventory management, potentially improved customer satisfaction and stronger cash flow management, as companies will potentially have less money tied up in unsold inventory.
What is supply planning?
Supply planning helps companies order and retain enough products to meet the demands of their customers. Supply planning takes place after demand planning teams have figured out customer needs and fed that data into the supply planning process. It's the "how" a company will meet inventory needs.
The first step of supply planning is the supply planning team using the output from demand planning to calculate the amount of each product that they will need to order. The supply planning team uses this data to schedule production runs or product orders from the company's suppliers, which will help ensure the company will be able to manufacture and transport its finished products.
Once the company or its logistics provider receives the products, the products are stored in inventory until a store or customer purchases them.
Some of the benefits of supply planning are potentially improving relationships with suppliers because of fewer last-minute changes and reducing operational costs because the company will not order extra inventory.
The differences between demand planning vs. supply planning
The main differences between supply and demand planning are the ways in which they help companies meet customer needs and their areas of focus.
Demand planning focuses on research and forecasting. The demand planning team carries out the process in order to predict and understand the needs of customers, then sends that data to the supply planning team. Supply planning focuses on operations and fulfillment. The supply planning process uses demand planning data to ensure that the predicted needs are met by ordering and distributing the right amount of products.
However, demand planning and supply planning have their similarities as well. Both are crucial for supply chain management. They both also require accurate and timely information in order to benefit organizations.
Paul Maplesden creates comprehensive guides on business, finance and technology topics, with expertise in supply chain and SaaS platforms.
