Forecasting, demand planning, supply planning, execution – sounds like a perfectly planned heist, right? Well, in the business world, it’s not about stealing but rather satisfying your customers’ cravings. And just like any successful heist, a comprehensive demand and supply planning guide is necessary to pull it off. So, let’s put on our black turtlenecks, grab our blueprints, and get to planning.
Table of Contents
What is Demand and Supply Planning?
Demand and supply planning may sound like a daunting business technical term, but in reality, it literally means exactly what the name implies.
Demand Planning refers to forecasting the demand for a future period, usually a year, to plan production and avoid shortages. Supply Planning refers to mobilizing inventories to ensure adequate production to meet the forecasted demand.
Collectively, Demand and Supply Planning is, therefore, the inclusive process of forecasting customer demand and managing inventories to ensure the fulfilment of the forecasted targets. Furthermore, demand Planning is proven to support Supply Chain Planning as the two processes are inextricably linked to each other.
There are many methods and strategies to demand and supply planning, and entrepreneurs should know the fundamentals. Even if they can hire a specialist for the job, this is the knowledge that every entrepreneur should have in their toolbelt as a rule of thumb.
Why Demand and Supply Planning Matters
Think of the supply chain as a conveyor belt with workers posted at every key juncture, from producing products in a factory to transporting them to warehouses and stocking in-store shelves. The conveyor belt would eventually fall apart if you had no idea how much product you need to make and how fast it needs to be produced to keep up with demand. Without that data, you’re as good as a submarine without a sonar, sailing blindly and hoping for the best.
For a practical example, consider that you are making 500 units of a product, and it takes you a week to produce and stock it for consumers to buy. However, Your consumer base loves the product so much that you have 700 customers wanting the product every 3 days. Just doing the simple math, you leave upwards of 400 paying customers on the table per week just because you did not look at the numbers and figure out how much you would need and how fast.
Demand and supply planning is the most important business process to focus on for businesses dealing in physical products, such as the retail and CPG industries. Of course, most business processes can be augmented and optimized later, but demand and supply planning is something entrepreneurs need to be knowledgeable in from the moment the business makes its first sale.
The Demand and Supply Planning Process
The first step to demand and supply planning is forecasting. Just like how a weather forecast predicts what the weather will be like at a particular time of day through analyzing historical patterns and empirical data, a demand forecast predicts, or forecasts the future demand for a product, by various different methods of data analysis. These include:
- Time-series analysis: A time-series analysis involves analyzing historical sales patterns and data to identify trends, seasonal patterns, and similar recurring patterns. Learn more about time-series analysis through this comprehensive guide by Towards Data Science
- Regression analysis: This type of analysis involves using statistical models to identify the relationship between different variables, such as sales and marketing spend, and using this relationship to predict future demand. Hubspot provides an easy step-by-step guide to regression analysis.
- Causal analysis: Causal analysis involves identifying the factors that influence demand, such as consumer behavior or economic conditions, and using this information to make predictions. Logility provides a great overview of causal analysis here
Regardless of which data analysis strategy you adopt, the end goal remains.: How much product will the business require over a specific period to keep up with consumer demand?
By making use of these models, and preferably conducting all three kinds of data analysis, you can gain very clear insight into your consumer demand and can move on to the next step in the process:
Breaking the complete process into two manageable halves makes it much easier to understand. Demand planning is the part of the process where you figure out how exactly you will fulfill the demand that you predicted in the forecasting stage.
Demand planning, also called the production planning stage, is entirely about the production phase of the supply chain. Several factors influence demand planning, including lead times, inventory levels, capacity constraints, and production schedules.
Lead times are the amount of time it takes to procure or produce a product, and they must be factored into the demand plan to ensure that products are available when needed.
Inventory levels must also be considered, as excessive inventory can tie up working capital, while insufficient inventory can lead to stockouts and lost sales.
Capacity constraints and production schedules must also be considered when creating a demand plan. In addition, if production capacity is limited, it may be necessary to prioritize certain products or delay the delivery of others. Production schedules must be aligned with demand forecasts to ensure that products are produced in the correct quantities and at the correct times.
By looking at all of these factors, whichever applies to your business’ context, you can draft a mostly accurate demand plan, and ensure that you have enough products ready to fulfil the demands of all the customers that may walk through your store’s doors at a given time. Generally, suppose it’s possible to do so, it is also a good idea to account for some extra stock of a historically popular product, as demand may increase from season to season.
With the demand plan out of the way, it’s time to tackle the other half of the process: supply planning.
Once the production line is set to work based on a demand plan to meet the forecasted product demand, it’s time to focus on the other half of the equation: supply planning and logistics.
Think about the whole process until now as a chain of plans being made, with every successive plan working to fulfil the previous one. The demand plan is designed to meet the demands in the forecasting stage, and the supply plan is designed to meet the demands laid out by the demand plan.
The supply plan’s main objective is to ensure that the required materials, products, and services are available in the right place at the right time and at the lowest cost possible. So, it’s all a game of inventory management and logistics from this point onward.
First comes material procurement, which leads us to supplier lead times. You need raw materials to manufacture your product, and you have to factor in the time it takes for your supplier to fulfill your material requirements. This time is called supplier lead time.
Next, you have to factor in the production time calculated in the demand plan and add the supplier lead time into the mix to obtain an accurate time frame of how long it takes to get a product from raw material to packed and on a shelf in a store.
All of these planning steps must be conducted in light of the costs of the whole operation; transportation, production, and inventory management costs must be factored in to figure out the best possible way for the business to continue production to meet demand while keeping costs balanced so as not to adversely affect profitability.
Finally, we come to execution. After you have drafted both a demand and supply plan, it’s time to implement those plans. Execution of the supply and demand plans involves a range of supply chain activities, which include:
This is where you put the supply plan into motion. Procurement involves negotiating prices, lead times, and other terms with suppliers, and ensuring that materials are delivered on time. Maintaining good relations with suppliers can do wonders for supplier lead time, and can even get you discounts and other perks if you are on good terms with suppliers and vendors.
With the supply plan fulfilling the needs of the demand plan, it’s time for the demand plan to start fulfilling the business’ product needs as per the forecasted demands.
Production is where the demand plan goes into effect and involves:
- Scheduling production runs,
- Ensuring that the required materials and labour are available, and
- Monitoring production to ensure that it is completed on time and to the required quality standards.
Transportation and logistics support throughout the supply chain process. This involves scheduling production runs, ensuring that the required materials and labor are available, and monitoring production to ensure that it is completed on time and to the required quality standards. Cost control is also immensely important, with the rising cost of gas in the world. Transportation is one of the most difficult aspects to balance, as no matter how fast or how much product you produce, you are constrained by transportation costs only to be able to stock a limited amount.
Lastly, it comes down to inventory management. Expertise Accelerated publication titled “Effective Inventory Management in 10 Easy Steps” is a great crash course for entrepreneurs unfamiliar with inventory management, and breaks it down into simple steps for execution.
Inventory management involves managing the inventory levels of raw materials, work-in-progress, and finished goods, based on the supply and demand plans. This involves monitoring inventory levels, identifying any excess or shortage of inventory, and taking corrective action to optimize inventory levels.
Executing the demand and supply plan means mastering these supply chain management skills and implementing the plan. If done right, you will see that your customers never have to leave the store empty-handed, and you will never leave money and opportunity on the table again. However, demand and supply planning are by no means and one-and-done deal.
Demand and supply planning is a continuous process that requires ongoing monitoring and adjustment to ensure it remains effective. For example, as new data becomes available, or as external factors change, the demand and supply plans may need to be revised to ensure they remain aligned with business objectives.
To support continuous improvement, it is important to establish key performance indicators (KPIs) for demand and supply planning and to track these KPIs over time. Some common KPIs for demand and supply planning include forecast accuracy, inventory turnover, on-time delivery, and order lead time.
Exploring the Role of Emerging Technologies like AI and ML in Demand and Supply Planning
Emerging technologies like Artificial Intelligence (AI) and Machine Learning (ML) are transforming the way businesses plan their demand and supply operations. By leveraging big data and advanced analytics, AI and ML enable companies to:
- Identify patterns,
- Forecast demand more accurately,
- Optimize inventory levels,
- Respond to changing market conditions in real time.
These technologies can also help businesses identify potential bottlenecks in their supply chain and proactively take steps to mitigate them.
By incorporating AI and ML into their demand and supply planning processes, companies can achieve greater efficiency, reduce costs, and ultimately deliver better customer experiences. As AI and ML continue to evolve, they will become increasingly essential tools for businesses looking to stay ahead of the competition and meet the ever-changing demands of the marketplace.
Expertise Accelerated as Your Demand and Supply Planning Facilitator
With all that said, mastering demand and supply planning, and supply chain management, in general, is no easy feat. It takes years of experience in the industry to build up a sense of demand and supply planning. In today’s highly competitive business climate, entrepreneurs just do not have the luxury of taking it slow and steady.
You have to dive in headfirst, hit the ground running, and not stop for anything if you want to stay competitive today. Especially in the retail and CPG sector, the competition is cutthroat, and industry giants own a monopoly in the market.
Luckily, entrepreneurs don’t have to wait that long to get their supply chain up to snuff, thanks to Expertise Accelerated’s outsourced demand and supply planning services. EA offers US businesses the opportunity of a lifetime by providing them access to highly qualified supply chain management professionals, at a fraction of the US cost.
That’s right, EA presents you with the option to hire from its immensely talented pool of remote supply chain management experts, all trained and tailored to meet your business’s unique needs by EA CEO Mr. Haroon Jafree, a veteran of the US CPG industry with an eye for offshore talent.
Demand and supply planning is a critical function in any business that deals with physical goods, and involves a careful balancing act between supply-side capabilities and demand-side expectations. By following the steps outlined in this guide, businesses can develop effective demand and supply plans that optimize inventory levels, production schedules, and transportation costs, while ensuring that products are available when and where they are needed. Continuous improvement through ongoing monitoring and adjustment is also key to ensuring that demand and supply planning remains effective.