What is demand planning and why is it so important?

Demand planning is a process in supply chain management that helps companies plan future demand for a product or service and execute an operational strategy to successfully adjust the output accordingly, balancing sufficient inventory levels with customer demand. Demand forecasting is a vital part of production planning, usually impacting strategic, long-term decisions that affect budgeting, financial and capacity planning, sales and marketing, and capital expenditure.

Effective demand planning often requires forecasting methods to accurately predict demand, like sales and consumer trends analysis, seasonal data, statistical forecasts, and demand history. Demand management works through several functions integrated into supply and demand processes, including demand planning, supply planning, sales, and marketing.

The increasing use of IoT sensors and exponential advances in machine learning, together with the availability of Cloud-based software and the growing functionality of mobile devices, enhance the ability of demand planners to share real-time data and quickly react to changes in supply and demand.

The growing sophistication of demand forecasting and the global aim toward entirely digitized business processes gradually connects more supply chain stakeholders, providing finer-tuned control over the goods’ movement supporting demand-driven supply chain management.