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Demand Planning Versus Supply Planning

Posted by [email protected] on Oct. 11, 2021  /  Subscribe 0

Folks in supply chain and logistics management understand what the difference is between demand planning versus supply planning. It's like the chicken and the egg, except we know which one comes first—demand planning. Supply planning takes what demand planning has seen in its crystal ball and figures out how to order, inventory, and deliver what the demand planning bunch has decided will be the product demand and sales. It might not seem like much of an issue, but it's become quite the topic of discussion after the pandemic.

Big Deals

Even before the pandemic showed up, errors in inadequate planning cost companies a significant loss of revenue. In 2001, Nike's marketing department lost out on $100 million in sales of a hot product due to poor demand planning. And in 2014, Walgreens missed out on $1 billion in revenues due to the same reasoning. When the pandemic hit, Amazon had to scramble to get enough product on its shelves to supply its customers, losing millions of dollars in revenue by the hour! This isn't something new and undefined in supply chain activity, but it's something that has reached critical mass for many companies, large and small.

What the Future Holds for Demand and Supply Planning

New software applications have refined the processes of demand and supply planning and enable supply chain professionals to anticipate future requirements better. For demand planners, there are two ways to analyze the future. The first way is called unconstrained forecasting and refers to determining the total market demand for a particular product or service. Think of calculating how many units could be sold to the entire marketplace everywhere. The second way is called constrained forecasting and considers the limitations of the company's production capacity, finances, and distribution capabilities, among other things. Historical sales data is helpful, but demand potential is only part of the picture for a growing company.

And the Winner Is...

The connection between unconstrained and constrained forecasting is pretty evident for anyone who has to try to predict what will happen on both the materials acquisition end of the business and the materials processing side of the house. Both the demand and supply calculations must be conducted in balance with each other. Main considerations for successful planning include:

• Production batch size calculations
• Average order quantities
• Production lead times
• Backorder cycles for production
• Production extension costs to meet additional demand requirements
• Increasing production capacity to meet demand or finding third-party manufacturers to assist with potential high-demand issues.
• Storage, inventory, transportation, and other handling considerations.

Keep Up With the Ever-Changing Supply Chain Industry!

Despite being inexorably connected, demand and supply planning can often be in conflict with each other. Manufacturing Resource Planning (MRP) applications help smooth out the differences between the two departments, but keeping up with ever-evolving computer solutions can be a real challenge. Fortunately, some resources can help supply chain professionals gain the knowledge they need to keep their companies competitive and ahead of the game. Certification as a Demand-Driven Planner Professional will ensure that the latest technology, protocols, and processes can be employed to achieve better forecasting results. If you're new to the world of supply chain and logistics, being a Certified in Production and Inventory Management (CPIM) course graduate will help open new doors and opportunities to expand your knowledge for better professional growth and employment opportunities.

Know Where You're Going

Demand and supply forecasting reflect what can be achieved when proper planning takes place. Many functions in a business are involved in determining what can and should be done, such as:

• Sales and operations (Sales/Ops)
• Finance
• Vendor capacities and turnaround times
• Transportation concerns for both production material deliveries and finished product movement to distribution points.
• Regulatory changes and safety protocols.

Timing Is Everything

Like everything else in life, timing is everything and the time to educate yourself about demand planning versus supply planning is at hand. Companies worldwide are trying to figure out the solution to this critical puzzle. They are always looking for professionals who can help them smooth out production, improve production cycles or service delivery, and accurately predict where the company should go to find additional revenues and profit. If you're a supply chain professional or want to be one, these are two areas where demand is always high and will continue to be for the foreseeable future.

Become Certified with Houston’s ASCM Chapter

Houston’s ASCM Chapter offers certifications and resources for supply chain professionals. Whether you need to build a higher-performing supply chain, earn career-changing credentials, or grow your network, ASCM Houston Chapter can get you there. Understand how to push your supply chain further through our comprehensive ASCM training programs and certifications: Certified in Planning and Inventory Management (CPIM), Certified Supply Chain Professional (CSCP), Certified in Logistics, Transportation, and Distribution (CLTD), and Demand Driven Planner Professional (DPP). 

Expand your career opportunities with Houston’s ASCM Chapter certification courses. Contact us today to transform your tomorrow. 

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