A lot of people get confused between demand planning vs. supply planning. They believe these two are opposing views and that thereís a choice between them. This couldnít be further from the point. Demand planning and supply planning are intertwined. What you do in demand planning affects decisions in supply planning.
In this article, we will explain demand and supply planning, why we use it, and when to apply it. Letís get started.
Demand planning is a process in supply chain management that helps companies project future demand. By understanding future demand, a business can customize company output successfully to produce more products or provide more services to meet the projected demand.
Supply planning is taking what you achieved through demand planning and outlining an entire process, including everything that gets the product from A to B. So, this means weíre looking at manufacturing, distribution, and procurement while considering material availability and capacity constraints.
The demand process is essential for any company. Youíre making pivotal decisions with big price tags that can make a huge difference. You donít want to produce too little or too much of a product or service that outweighs the actual demand.
Other benefits of demand planning include making your company more productive, increasing agility, improving customer satisfaction, and reducing overall operating costs.
Demand planning is essential from the get-go. The perfect time is pre-production. You want to ensure you know what you need to produce in order to meet the demand. When you go in blind and produce too much, youíre left with excess stock, devaluing your product or sitting with the excess product on hand, ruining your capacity for future production. On the other hand, when you produce too little, your prices increase, and customer sentiment declines as they find you unreliable and expensive.
There are several reasons why supply planning is critical for any company. For starters, it reduces overall operating costs. When you supply plan, youíre finding the best ways to achieve set goals for production and shipping. You know how much of the product you need; therefore, you can plan ahead for how that product gets where it needs to go. You also are able to plan for manufacturing issues to avoid them altogether, like material shortages, waste, etc.
Other benefits of supply planning include interconnected supply chains, integrated and cooperative logistics, a better supply chain, improved movement of goods, and improved quality of life within the warehouse.
You can start working on supply planning before you even complete demand planning. It will be early stages of development which youíll build on later and solidify once youíve completed the necessary demand planning. This is an evolving process that you continuously work on and implement.
Now you know why these arenít competing ideas but intertwined practices all companies should follow when dealing with supply, demand, and supply chains. You can plan better with the right demand planning software. Check out John Galt for the best supply chain planning tool youíll ever need!