Demand planning and supply planning are often confused with one another. While these two practices are closely related, they are quite different. Demand planners and supply planners must work together closely, but only the smallest businesses will not have separate departments for demand planning and supply planning. It can be challenging for these separate departments with very different functions to work together efficiently, but the advent of integrated business planning has certainly helped many businesses in this regard. Read on to learn more about the differences between demand planning and supply planning.
The Most Important Differences
Demand planning involves predicting consumer demand to guide supply chain operations. Supply planning, on the other hand, involves managing inventory to meet the forecasted demand. Supply planning does rely heavily on the demand forecasts that come from the demand planning department, and supply planners often take their lead from the demand planning department.
The Functions of Demand Planning
Demand planners must take into account data from many sources when coming up with their forecasts. These sources may include past sales data, the effects of advertising and marketing, the actions of distributors and retailers, and even political and social events. Both of the types of demand forecasting make use of these sources.
The two types of demand forecasting include unconstrained demand forecasting and constrained demand forecasting. Unconstrained demand forecasting is more of a thought experiment that imagines what the maximum demand potential could be without limitations like the company’s cash flow and production capacity. Unconstrained demand forecasting can help give the company a goal to shoot for, though it may be unattainable. Constrained demand forecasting does take into account the business’ limitations in meeting the demand for their products.
Most businesses employ both types of demand forecasting, as both can be useful. Some businesses will only use constrained demand forecasting, though businesses that use integrated business planning almost always employ both unconstrained and constrained demand forecasting. Utilizing both types will help a business operate more efficiently in the short term while also allowing them to scale their operations in the future.
The Functions of Supply Planning
The function of supply planning is to meet the demand forecasts as efficiently as possible. This requires managing all aspects of inventory production and logistics. These aspects may include planned and received orders, the current inventory, the lead times for manufacturing the products, minimum order quantities, chasing demand, leveling production, and managing safety stocks.
How Integrated Business Planning Can Help Supply Planners & Demand Planners Work Together
Getting the supply planning department and the demand planning department to work together efficiently can be a challenge, but integrated business planning makes it much easier. Integrated business planning uses data and input from both departments to come up with a single plan that both departments are working toward. This ensures that everyone is on the same page in both their long-term and short-term objectives. Also, it establishes lines of communication between the two departments that will be useful in various situations.
