What Is Demand Planning?
Filed Under Blog
Demand planning is to some extent exactly what it says; it is a system, which often forms part of wider sales and operational planning process (SIOP process)), that is used to draft relatively accurate forecasts as to the demand that will exist for a company’s product or services. It uses software to ensure that the information is all up to date and that all relevant data can be accessed.
The forecast in its most basic form is generally based on a number of key criteria, such as the contracts that exist, the sales orders that are plans, any proposed demands that may arise from future events and also threats that may interrupt demand. However it can be much more detailed than this and a very in depth analysis of the likely demand can be carried out if that is what the business needs. So it is a flexible system that can be adapted to the different needs of businesses.
Demand planning, when it is at its most detailed, is often described as being a blend of both technology and a business process because fundamental to demand planning is that it provides a methodology that will clearly identify the needs of the customer (the end user) and it provides a framework of stakeholders who will be responsible for carrying out all the planning required to meet the needs of the customer and to manage their expectations.
The methodology is a 5 step process and although there are different types of demand planning, the fundamentals are the same. The customer is the key focal point of demand planning, but the customer could be in retail, in government or a public sector agency. The important part is looking at what the customer will need, then how this can be provided and any threats that may exist to the process of meeting the likely demand.
The forecast is often referred to as a B2B application because it is usually shared with suppliers. Whereas traditionally this type of information would have been viewed as too sensitive to be shared with suppliers, now it is common practice to share the information with suppliers.
This is simply because the suppliers need to be aware of what demand is likely to be, then they can ensure that they meet this need, without any interruptions or hiccups within the supply chain. For this reason, demand planning is seen as an integral part of supply chain management and if done properly, when forecasts are accurate, it can ensure that the supply chain is stable and flexible enough to meet demand.
Demand planning is thus a way of helping to stabilise the supply chain and stability is the backbone for any good supply chain.
Opponents of demand planning (of which it has to be said, there are a few, but not many) specify that it is not possible to forecast what will happen in the future. However this ignores the very concrete fact that at least some planning has to go into meeting demand, otherwise the supply chain will simply be unable to meet huge rises in demand and then the whole supply chain looks to be in jeopardy. So some planning is always required.
For demand planning to be effective it does need to be backed by management, since there are implications throughout all supply chain teams and all suppliers need to be aware of all the forecasts and the implications for them. This means that the supplier will not be able to plead ignorance if they cannot meet demand at some point in the future and the forecast clearly indicated that demand was likely to be high at that point.