What Is Demand Planning & Why It Matters?

Demand planning helps a company better reduce operational costs, meet its financial goals, plan for growth, perform effective inventory management, and maintain high customer service levels. Demand planners play a crucial role in sales & operations planning (S&OP), supply chain management, and supply chain planning.

Establishing a successful demand planning process can help ensure forecast accuracy and, more importantly, help create an insightful demand plan on which to base business decisions. 

What is Demand Planning?

Demand planning is a form of business planning and data analysis that uses a statistical forecast to determine future demand for products, components, and/or raw materials. Demand planners work with various departments to create their demand plans and share business insights.  

As a subset of overall business planning and, specifically, sales and operations planning (S&OP), effective demand planning could not occur without cooperation from: 

  • Sales teams
  • Marketing 
  • Operations
  • Finance 

What Is Demand Forecasting?

An accurate demand forecast will drive the demand plan, but it’s not the only component. Rather, demand forecasting relates to predictions and business insights derived from the sales, operations, and finance teams’ information.

Some of the factors that go into demand forecasting include: 

Demand forecasts can vary widely across different time periods based on the introduction of new products, the popularity of existing product lines, and the sales lifecycle. Demand forecasting and demand planning go hand-in-hand, with accurate forecasts leading to better demand plans. 

What Is the Role of a Demand Planner?  

A demand planner derives effective demand planning strategies and then works with the sales and operations teams to execute those strategies to create accurate forecasts. 

But it doesn’t stop there. Demand planning involves more than just statistical forecasting. The demand planner will question the data and look for ways to increase demand to match overall company sales goals and other financial forecasts, including annual run-rate revenue predictions. 

The demand planner will be adept with demand planning software and understand how to sift through data to ensure it is up to date, accurate, and relevant. 

Demand planners know how to recognize demand signals, including internal signals such as sales forecasts, historical sales data, and sales lifecycle changes. 

They may also use sophisticated demand planning software to analyze external factors that include: 

  • Social media trends
  • Seasonality
  • Customer demand 

The best demand planning strategies focus on outliers in a report. For instance, taking action on just 20% of the items in a demand plan can yield 80% of your improvements. Recognizing demand patterns over time can also generate more accurate predictions. 

Why Demand Planning is Important

Demand planning affects many aspects of a company’s sales, operations, and finance departments. It should be integrated with the management process across departments for more reliable business insights. 

Demand planning is important for companies to: 

  • Maintain adequate inventory levels – Every order you can’t fulfill results in lost projected revenue. Whether you strive to maintain adequate stock for just-in-time delivery or gain access to your supply chain’s raw materials, demand planning plays a crucial role in inventory management. Keeping too much stock can wreak havoc on cash flow, while having too little can lead to unhappy customers. 
  • Budget more accurately – Similarly, your finance department can’t allocate budget funds properly without understanding future demand. 
  • Prepare for the unexpected – Demand planning can help you spot trends in the marketplace that may otherwise go unnoticed, allowing you to plan better. You may put new promotions in place, increase inventory on certain products, or launch new products ahead of competitors to match blossoming trends. 

Benefits Of Forecasting Demand Accurately

Effective demand planning begins with accurate demand forecasts. The demand planning process combines statistical analysis with actionable business insights delivered by demand planners. 

When it all works together, often with the help of machine learning software that can help manage and sort data and recognize demand patterns, a company reaps several rewards. Accurate demand forecasting can help a business: 

  • Improve cash flow – Accurate demand planning allows you to plan for just-in-time delivery, improving your cash flow. Having solid demand expectations may also allow you to negotiate better terms or even bulk pricing with supply chain partners. If you can accurately predict demand for specific inventory, you can ensure it’s in stock when you need it, putting money in your pocket faster. You also won’t have to lay out funds for raw materials or inventory you don’t need at that moment. Instead, you can manage every aspect of your supply chain to meet your sales cycle and match customer demand.
  •  Reduce operational costs – Similarly, recognizing demand patterns allows you to reduce operational costs that may stem from rush shipping materials from suppliers. You won’t have to pay employees overtime to scale your manufacturing capabilities to meet customer demand.
  • Manage inventory more effectively – Managing inventory does more than just improve cash flow. It can affect your company’s bottom line. When you can successfully spot demand patterns, you can make sure you’re buying or producing enough of the right inventory and scaling back on merchandise with less demand.

    Since consumer trends come and go quickly in this age of social media, having inventory on-hand for a fast sale directly and positively affects revenue. If a customer can’t purchase a product from you, they may not wait. They will just shop elsewhere. Inventory management is crucial. Ecommerce retailers and brick-and-mortar shops, as well as manufacturers, wholesalers, and distributors, all feel the crunch of demanding consumers accustomed to next-day shipping and instant gratification.
  • Maintain high customer service levels – Demand planning plays a crucial role in supply chain management. Whether you need inventory on hand or spare parts to quickly repair or replace broken items, having the product to fill customer demand leads to happier customers.

    Likewise, being able to fulfill orders quickly can lead to word-of-mouth sales, often driven by social media influencers who share their positive experience with friends and followers.
  • Be prepared for business growth – If your demand plan points to blossoming sales trends, it may help prepare your management, operations, and finance departments for a stage of rapid business growth.  
  • Meet financial goals – When the above factors all come together to create a seamless supply chain ready to meet customer demand and manufacturing operations prepared to scale, companies can meet financial goals more effectively.

    If your demand planning falls in line with your sales forecasts, both predictions should ultimately match your annual revenue figures. Because demand planning works to help reduce costs, improve cash flow, and increase revenue, it becomes one of the most critical factors in a company’s financial success. 

Get Demand Planning Software

The right demand planning software integrates with your Customer Relationship Management (CRM) software and other third-party software, including your: 

  • accounting software
  • social media management platforms
  • marketing software and content management system (CMS)
  • email marketing platform
  • e-commerce platform

By aggregating and analyzing data from disparate platforms and using machine learning to tie it all together, demand planning software can deliver more relevant and accurate demand plans with actionable insights to drive your S&OP. revVana excels at delivering easy-to-understand reports, financial data, and demand plans to accelerate growth and help you achieve your revenue goals. Why not take a test drive of revVana demand planning software today?

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