Demand planning is a multi-step operational supply chain management (SCM) process used to create reliable forecasts. Effective demand planning can guide users to improve the accuracy of revenue forecasts, align inventory levels with peaks and troughs in demand, and enhance profitability for a given channel or product.
For many companies it can be the demand plan that either makes or breaks it and it is majorly important that each company has a good plan in place. Starting from the supply chain to the supplier then distributer-manufacturer-retailer-logistics and then finally to the consumer. Traditionally within the supply chain context, there are three types of forecasting which are:
- Demand Forecasting: This is the investigation of the companies demand for an item or SKU, to include current and projected demand by industry and product end use.
- Supply Forecasting: Is a collection of data about the current producers and suppliers & technological and political trends that might affect supply.
- Price Forecast: This is based on information gathered and analyzed about demand and supply. Provides a prediction of short- and long-term prices and the underlying reasons for those trends.
In many profitable business portfolios you will find a well thought out demand planning which reflects off of 7 key reasons to forecast within the company’s supply chain. These 7 reasons are:
- Increasing customer satisfaction
- Reducing inventory stockouts
- Scheduling production more effectively
- Lowering safety stock requirement
- Reducing product obsolescence costs
- Managing shipping better
- Improving pricing and promotion management
Although it may not be the exact same for every business, the main principles will still be adhered to and the core reasons can be seen throughout all businesses. Every business is looking for ways to cut on costs but at the same time see a large return on investment at the end of the day. Therefore, the demand planner has the difficult job of creating and maintaining forecast models for their customers, incorporating business intelligence and forecast information gathered from sales, marketing, finance etc.
The demand planners are often seen as the integration tool into the sales and commercial organization. This position leads the dialogue each month for their respective customers and products with key counterparts in Sales and Marketing.