Demand planning and supply planning are both key elements of a successful supply chain management strategy as part of the Sales and Operations Planning (S&OP) process. They are complementary and dependent on one another, but they aren’t the same thing. Let’s go over the key differences and nuances of these vital business functions.

What is demand planning?

Though different organizations may add to the following steps, in general, effective demand planning will include, at a minimum:

• Gathering data from external and internal sources on all factors known to predict or influence demand. This may include sales trends, product launches, marketing campaigns, supply chain issues, influence of competitors, labor force problems, and global or social events that may impact demand. Historical year-over-year data and seasonal demand trends should be included, as well as product life cycles, inventory levels, and market volatility factors.
• Analyzing inventory, sales, production, and all other relevant data. The demand planning team takes the collected data and analyzes it in order to identify anything that may influence demand over the next period. This step should also include a vetting of previous demand plans and forecasts, and reconciliation with actual sales data over the past months. The team will attempt to identify the reasons for any discrepancies.
• Building a demand forecast and plan. The demand forecast is a highly data-informed prediction of future demand over the selected period based on the data gathered and analyzed in previous steps. Demand forecasting looks at the projected, pure consumer demand for a company’s product/services in the absence of any supply issues or operational constraints. The demand plan is then reviewed and approved by team or company leads before being presented to the supply planner.

What is supply planning?

Supply planning is a complex, multi-step process detailing exactly how an organization will attempt to meet projected customer demand over the next period. Different businesses and team leaders may use various terminology, but in general, an effective supply planning process will include some form of the following:

• Analysis of the demand plan. Before a supply plan can be created, the supply planner or team will examine the demand plan/forecast. The approved and reviewed demand plan will set the goals for the supply plan.
• Thorough review of current inventory. The supply planner examines current inventory to determine how much of the forecasted demand can be met with existing product.
• Materials acquisition/procurement. Effective supply planning incorporates all steps in the procurement process, from locating raw materials, components, or products, to identifying vendors or suppliers, to negotiating pricing and contracts, to setting delivery quotas and timelines, to following up on all deadlines. Supplier and vendor management is a key component of supply planning.
• Capacity and manufacturing planning. Supply planners evaluate whether the company has the available capacity to produce or obtain the supply adequate to meet the forecasted demand. Any limitations on capacity should be examined and removed where possible, and production needs to be scheduled. Any outside sourcing or manufacturing must be accounted for.
• Inventory management. The supply plan must take into account any inventory needs, problems, or factors that can impact available supply.
• Distribution or fulfillment planning. Distribution problems such as delivery bottlenecks, labor issues, or other logistical concerns can adversely impact supply. An effective supply plan will address these factors and include suggestions for resolution.
• Preparing and presenting the supply plan for approval. Utilizing the above information, the supply planner then prepares a detailed plan for exactly how and when the company will meet the projected demand over the forecasted period. If there are any concerns or limitations that prevent the supply from filling all of the expected demand, they will be elaborated. During the (usually monthly) S&OP meeting, the supply planner will present the supply plan to the group for vetting and approval, and any problems can be addressed.
• Monitoring and adjusting the plan. Unforeseen internal and external factors can impact available supply. The supply planner must regularly monitor the approved supply plan and processes, note areas of discrepancy or necessary updates, and adjust the plan where necessary.

How does supply planning differ from demand planning?

Demand planning and supply planning are both necessary processes designed to work in concert to balance customer demand with inventory or supply, while minimizing unnecessary spending, delays, surpluses, shortages, and unhappy customers. Supply planning cannot exist without demand planning, and demand planning must occur first in the modern business’s organizational paradigm. So, why is this?

Conceptually, demand planning might be considered more speculative or theoretical, since it involves projecting or forecasting future anticipated customer demand. But this process, however “prophetic” it may seem, must always involve the collection and analysis of hard data, and be tempered by real-world experience compared to previous forecasts. If demand planning rests perhaps more on the theoretical side, then supply planning is the practical flip-side of that coin. Supply planning as a concept is more logistical and concrete, and deals with real-world problem-solving in an attempt to resolve supply and inventory issues informed by actual experience and current information.

Demand planners analyze data and prepare a forecast that is limited specifically to projected customer demand, in a theoretical vacuum, so to speak, without being influenced by or attempting to resolve internal supply chain issues or other factors that may impact the company’s ability to meet this demand. It’s then the job of the supply planner (or team) to take the forecast prepared during the demand planning process and determine what is actually possible to achieve with the resources available, within the constraints of the company’s overall strategy. Without the demand plan, an accurate supply plan can’t exist. And without an effective supply plan, the demand plan is just wishful thinking.

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