Demand Planning vs Supply Planning

Let’s face it, there are few businesses that are not globally involved today.  Even the crafter working in their basement will have a website or sell on a platform that will ship anywhere in the world.  In this environment, supply chain issues abound.  It is important to understand where you can develop processes and strategies to keep you competitive in the marketplace.  That brings us to demand planning and supply planning.

Demand planning is estimating how much product to create to meet the customers’ requests.  Supply planning is how you order and maintain the products necessary to meet your orders in a timely manner.  These two are companions and yet are different.

Demand Planning

demand planning vs supply planning
photo credit – freepik

Demand planning involves looking at circumstances and historical data.  It relies on creating a need or desire for the ultimate product through advertising, word of mouth, social media, tagging on another company’s promotions.  Depending on the product, it can also involve seasons, fads, and other elements that will create a demand (need or want) for what you want to sell.  

In order to decide what the demand will be, you need to forecast or predict the volume the customers will order.  It takes two elements:  raw demand and constraints.  The raw demand is what people want regardless of how much or how little you have to sell.  The constraints are how much you can produce considering operating costs, capacity, cashflow, and other factors.  Both demand and constraints are part and parcel of how you conduct your business.  You need to keep up with demand by forecasting of trends and patterns. Visit https://johngalt.com/ to learn more.

Some business owners and managers will opt for one type of demand forecasting over the other.  In reality, a combination of the two is necessary for a successful operation.  It creates efficiencies for short term operations but allows for adjustments in long term projections.

Demand planning is critical to the operation of a business when it has developed to the point that it can handle emergency or short-turnaround requests while still filling the standard orders that arrive on a regular basis.  The ability to pivot in the workplace will improve customer satisfaction and increase your standing in the global market.  Dovetailing sales and operations means reduced expenses in static inventory and redundancies.  This will increase the bottom line.

Supply Planning

Supply planning is how much raw materials and labor are involved in producing the volume at a price that will be acceptable to the public and still make you a reasonable profit.  

Supply planning involves inventories, production, and logistics.  That means you need to have a sufficient amount of materials on hand (or in shipment) to create the product; the staff or machinery; lead times to receive, make and ship; minimum orders; safety stock, and others.

Proper planning allows you to decrease costs with an improved inventory system that includes using your storage area to its best to allow for easy and quick access to the materials as well as a decrease in damage.  

It will improve efficiency by creating logistics that will allow you to analyze current conditions and handle fluctuations, including shortages and short shelf life of products, when appropriate.  That means recognizing when shortages are imminent to avoid slowdowns in production.  

Those in charge of supply planning develop strong relationships with their suppliers and cooperative working arrangements to advance the success of your company.  This will develop into a strong supply chain network that will eliminate delays and increase profits.

Collaboration

demand planning vs supply planning.
photo credit – freepik

The trick is to have these two departments work together for the overall benefit of the company.  This has traditionally been a stumbling block.  The idea is that data and input from both sides will develop into a program that both will agree to and follow for the benefit of the company.  That doesn’t happen as much as you would think.  

Generally, executives prepare budgets for each department and then separately use the allocated funds to operate their respective departments.  This meant that each department would prepare its own spreadsheets that would need to be combined and integrated into the overall strategic corporate plan.  Each department would also have its own strategies and methods that would often conflict rather than coordinate.  Unfortunately, this creates a competitive atmosphere, with each department battling for a share of the budget and each feeling that it is the more important element in the overall success of the company.

One way is to combine the two areas into sales and operations.  This can help form a cohesive unit to decide on inventory levels and forecast needs and direct the materials to the production or assembly areas and then to the shipping points.  

Another option is to find some really good software that will correlate data to help allocate resources and set up schedules to facilitate the smooth operation of your business.  

Enterprise Resource Planning

One popular method is to use of Enterprise Resource Planning (ERP).  This is a centralized system to operate both sides of the equation and avoids wasting resources.  In addition, an ERP program will identify trends and patterns.  

With planning software, your company has the opportunity to establish a single source of data that all departments can access.  It can eliminate each department spending time to enter data and another department coordinating all the sources into a single spreadsheet.  With this aid, you can develop a single plan that serves both the demand and supply sides, create efficiencies, provide more accurate data, and can integrate it into a single corporate development plan.

Since both the demand and supply planning elements are intertwined and necessary for the optimal production and distribution of products, use of a computer program to coordinate and integrate the two elements is a recipe for success no matter what your management style or overall concepts may be.

Originally posted 2023-01-12 14:52:38.