If you have worked in Sales Planning or Operations Planning, you have heard the terms “demand forecasting” and “demand planning” often used in your workplace. You may even have heard these two terms used mutually; however, these two concepts are not equal. It is important to know the difference between the two to provide the correct context and avoid any confusion in your next supply chain management meeting.
What is Demand Forecasting?
Forecasting is, to put it simply, a prediction of events that are yet to happen. Demand forecasting, then, is the process of predicting future demand levels over a certain period of time. This is done by using historical data and information, such as charts, statistics, and other analyses. By predicting the demand level, businesses can then make more informed decisions for their success.
Why is Demand Forecasting Important?
Accurate demand forecasting is beneficial in a few different ways. First, having an accurate prediction of demand levels can allow a business to better plan and schedule the production of their goods or services. For instance, a cold medicine producer can schedule the making of more of its medicine so that it will be on store shelves by the time the cold season rolls around. This company has used demand forecasting to more wisely produce its medicine.
This means that this company will also save money through its demand forecasting. Not only does a peak season mean an increase in sales, but with demand forecasting, the company can also budget better for factors like suppliers and holding costs. Foretelling demand levels can also let a business know when they need to increase resources, such as staff and equipment, so that the company can continue to run smoothly.
What is Demand Planning?
Demand planning entails not only projecting the demand levels over a specific time in the future but also involves the planning and customization of the business that follows successful demand forecasting. Demand planning takes into account the demand forecasting report and then is the process of reacting accordingly to that report. Without demand planning, demand forecasting would be pretty useless information.
Why is Demand Planning Important?
Successful demand planning is the ultimate plan from the very beginning stages of demand forecasting. If it is done correctly and effectively, demand planning can help the company make a better profit and can also help improve customer relations. By successfully planning for fluctuating demand levels, a company can optimize its inventory levels and staff and equipment availability. These are factors that customers not only notice but also appreciate. Customers will be excited when a company has planned accordingly for an increase in demand. That means that they can count on their favorite products still being on the shelves.
Long story short, though the terms “demand planning” and “demand forecasting” are often used interchangeably, they are not equal. Demand planning is the process that takes place after the demand forecasting has been completed. The results of demand forecasting will decide the method of demand planning. These two things are indeed closely related, but they are not synonymous.