Demand Planning and Forecasting- Differences and Best Practices

Monitoring customer transactions and purchase trends are necessary for businesses to estimate and prepare for future demand and sales.

The terms demand planning and forecasting are used synonymously when referencing supply chain management. However, these two processes are different in many ways and essential in helping each other function.

What is Demand Planning?

Demand planning is the procedure of assessing a demand forecast for a specific product and executing a supply chain operation to ensure all fronts are prepared.

An adequate demand plan lets a business know when a spike in sales is projected to happen, how it will affect profits, and how to adjust the inventory accordingly.

This allows all project management team members to efficiently work together to boost revenue and the bottom line.

What is Demand Forecasting?

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On the other hand, demand forecasting is the actual process of predicting the rise and fall in demand and sales for different items and services. Typically, forecasting demand is practiced on advanced software that tracks inventory management and customer transactions to ensure users are making data-based decisions.

Planning demand and supply chain preparation are only successful if the forecasting process provides accurate data and analyses. Therefore, access to real-time integrated information from all stages of the supply chain planning is vital.

Benefits of Demand Planning and Forecasting

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Monitoring the supply chain and sales operations not only tracks business expenses and performance but allows them to forecast demand and begin preparations for future seasons as well. Effective operation planning (OP) can drive revenue, profits, and the bottom line while limiting expenses and streamlining tasks such as scheduling and staffing.

Proper demand management can provide businesses with several advantages, including-

  • Enhanced Financial Planning
Forecasts should consider sales volume, product type, and time of year to adequately save and schedule billing on production, purchase orders, and other logistics. This prevents any penalties or having to use credit rather than capital, saving on the accrued interest.

Most importantly, forecasting allows management to keep stock levels at a minimum while still meeting customer demand to reduce inventory costs and boost profits. OP also ensures that all suppliers are chosen and ready to fulfill orders, leaving no room for guessing or additional expenditures.

  • Improved Staffing
Understanding seasonal demand spikes and slow times allow businesses to assign the optimal number of staff members to limit labor costs appropriately and operate at maximum efficiency. Companies can also determine if extending their hours of operation during the busy season would increase their profits, requiring additional employees or contractors.

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  • Targeted Sales Marketing
Even during slower seasons, companies can implement targeted advertisements to boost sales. With advanced forecasting and demand planning, marketing teams can develop low-cost campaigns to run during slow seasons. This can drive sales for chosen items so that management can invest additional capital in more extensive promotions during peak demand.

  • Enhanced Supply Chain Management
With detailed schedules, companies can use strategies such as the just-in-time inventory planning method, which initiates production and delivery right before expected sales to limit holding costs. Strategic inventory control not only reduces business expenditures but also reaches inventory optimization by maintaining appropriate stock levels.

Detailed OP allows management to accurately spread out stock across the warehouse and retail locations to ensure customer orders can be met. Logistical planning is also streamlined by allowing enough time to contact the distribution centers and drivers ahead of production.

The demand planning process can either promote or digress business performance, depending on how thorough each phase was planned out. Inaccurate data or ignored elements can lead to repercussions, such as-

  • Decreased Customer Satisfaction
  • Increased Operational Expenses
  • Stockouts and Back Orders
  • Increased Inventory Costs
  • Ineffective Supplier Negotiation

Best Practices for Demand Planning and Forecasting

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Planning supply chain operations based on demand forecasting is no easy task. Demand planners must have a thorough understanding of all processes, from production to stocking shelves, and ensure the forecasting data is accurate.

The best practices to guarantee successful demand planning and forecasting include-

  • Review Business History - Reference to past sales, production, investment, and market trends allows planners to see how different demand forecasting actions performed. With this information, management can innovate or mimic past efforts to improve the planning process.
  • Collect Internal and External Data - Qualitative and quantitative information such as consumption statistics, trade investments, production value, and weather trends from internal and external sources add considerable value to planning. Access to this information ensures planners leave no stone left unturned.
  • Utilize Planning Software - Demand forecasting software handles all of the calculations and algorithms necessary to predict sales accurately. Unlike traditional planning methods, such as spreadsheets, this advanced solution provides users with various functions and tools to handle large amounts of data. For example, advanced software integrates data from POS systems to track customer purchases and demand trends. These solutions also monitor employee schedules and weather alerts to streamline all logistical operations.

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  • Implement Business Process Automation - Many organizations implement business process automation (BPA) to increase data accuracy and operational efficiency. BPA uses various software to perform standard tasks with limited or no human intervention, increasing production, and preventing human error. By utilizing BPA, demand forecasting planners can ensure their data is accurate, and processes are streamlined.
  • Implement Data Integration - By using a system integrator, businesses do not have to collaborate data between several existing systems manually. Instead, data integration uses software to optimize information exchange between services, providing real-time figures. Access to updated information ensures that the demand forecasting software and OP process are using relevant data.

Demand planning and forecasting give businesses a competitive edge by allowing them to prepare for future customer demand. Having accurate, updated information on hand is essential to calculating future sales and developing an adequate supply chain management plan. Successful forecasting can help drive sales and profits, even during slow seasons.