Supply Chain Modeler Blog

The Difference between Demand Planning and Forecasting

Demand Planning
Demand Planning

Do you know the goals of business? To maximize the profits! But, how do we settle this from the perspective of a supply chain? Let’s find out several key aspects required in a supply chain to contribute the company’s goals.

We already know that demand planning is very important to ensure that every operation is well-timed, efficient, and cost effective. We have to make sure that the product availability can maximize the profits in the marketplace and recognize the inventory is a sell off since it is tethered with capital. Various information (well-timed, accurate, useable, qualitative and quantitative) is necessary in effective demand planning so it can forecast our selling products properly. The final goal is to collect some useful information for the S&OP process in order to make sure that we are planning demand properly.

Among any supply chain planning applications, we can say that demand planning is the most miscomprehend as well as frustrating one. The aspects shown below are crucial in succeeding our demand planning and forecasting function.


To make it simple, managing and planning for customer demand is what we call as Demand Planning. If we manage and plan the inventory supply to meet the demand of customer, we call that as Supply Planning.

So, this will be about Inventory Supply versus Customer Forecast.

Of course everything will not be that simple. Things are the same with Demand and Supply Management. There are several pieces of a puzzle we need to solve to create a successful Demand and Supply Management.

Understand the Demand for our Products

This can go far from the basic type of demand we are looking for. There might be dependent and independent demand, inter or intra plant demand, and service parts demand for any given items. Independent and service parts demand are the types we usually forecast. But just in case, we need to plan all types of demand in our supply chain processes to ensure the availability of our products.

Demand voyatility is one of the top pain points we must deal with. Generally, if we know more about the demand for our products, our forecasts will become better. To illustrate it, the demand voyatility created by the bullwhip effect will be amplified since it shifts through the supply chain. Despite of being a big issue, this actually can also be our opportunity to collaborate and share information. These two ways will lead us to a better understanding about what your demand is.

Understand What Demand Planning Is and How Forecasting Fits into the Process

Demand Planning

Demand Planning refers to the use of forecasts and experiences in estimating demand for different items at different points in the supply chain. Generally, we have to know the answers for some questions. Those questions are like  who is in charge of the forecasting, what are our products, where are they in the lifecycle of their product, what is the pattern of their demand, do we know the variability or volatility in the marketplace, and who is preparing the extra information needed for ensuring a proper forecast? And, there may be more questions we need to answer depending on every company as an individual.

As an example, there is a company that always forecasts some big product lines. This act leads them to increased inventories as well as lower inventory turns. While it is unclear whether the company sees this as a problem or not, this demand planning process can help us in understanding what their inventory goals should be and the reasons behind them. Also, it can assist us to know what kind of forecast considered as the appropriate one by studying the analysis and the forecast tracking.

Key steps in demand planning include:

  • Import the old sales data
  • Compose the statistical forecasts
  • Import the customer forecasts
  • Collaborate with customers
  • Manage the forecasts
  • Build the consensus forecasts
  • Create supply and demand collaboration
  • Secure the constrained forecasts
  • Provide confirmation to customers
  • Double-check the data and adjust the planning accordingly.

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