Have you ever walked into a store, desperate to buy your favorite product, only to find an empty shelf? Or maybe you’ve noticed some stores slashing prices to clear out excess stock. Chances are, we’ll see this happen right after Valentine’s Day.
These situations show the importance of demand planning. It is one of the wonders of the supply chain world. I touched on it briefly in a different blog post, but this time, we’re embarking on a deeper exploration.
In this journey, we’ll discover:
-what demand planning is
-why it matters
-how to start with demand planning
Ready to dive in?
What Demand Planning Is
At its core, demand planning is the process of predicting how much of a product customers will buy in the future so a company can have the right amount of stock at the right time.
It may sound easy or common sense, but it is complex. Many times, there are unrealistic expectations from demand planners. That’s why I shared on LinkedIn the infographic with the captain of a ship—to highlight what demand planners can and cannot control.
As the image suggests, there are aspects demand planners cannot control:
– sudden market shifts
– unexpected seasonal changes
– competitor moves
– economic fluctuations.
These are the storms and waves that come without warning, challenging the journey.
However, demand planners should focus on what they can control to steer the ship in the right direction. They rely on tools and strategies like:
- Building a strong forecast model to anticipate demand trends.
- Continuously making forecast adjustments and fine-tuning as new data emerges.
- Encouraging cross-functional collaboration with teams like sales, marketing, and operations to align plans and mitigate risks.
In simple terms, demand planning is about preparing for the unpredictable by leveraging data, tools, and cross-functional collaboration to ensure businesses have the right products available at the right time, balancing customer needs and operational efficiency.
Why It Matters
It matters because it provides significant benefits:
Prevents Stockouts
Imagine a snack company underestimating demand for a new flavor of chips.
Retailers quickly run out of stock, leaving frustrated customers who turn to competitors.
A well-planned demand forecast would have anticipated the surge and ensured enough stock was available.
Reduces Excess Inventory
Overestimating demand is not good either.
A company that produces too many limited-edition holiday snacks might end up with unsold stock after the season, forcing heavy discounts or write-offs.
Demand planning helps avoid this by accurately predicting how much will actually sell.
Improves Cash Flow & Profitability
By stocking the right amount of inventory, businesses free up cash that can be used elsewhere.
Less waste, fewer markdowns, and better sales mean higher profits.
Enhances Customer Satisfaction
When customers can consistently find their favorite snacks on the shelf, they trust the brand more and are likely to return for repeat purchases.
Demand planning ensures availability without overstocking.
How to Start with Demand Planning
Below I have included key steps with examples.
Step 1: Gather Data
- Sales history, promotions, market trends, customer feedback
- Example: An ice cream brand looks at past summers’ sales to predict next summer’s demand.
Step 2: Forecast Demand
- Use historical data + business insights
- Example: A soda company sees that sales spike during hot months and slow down in winter.
Step 3: Collaborate Across Teams
- Work with sales, marketing, finance, and supply chain teams. Find your allies.
- Example: A demand planner discusses with marketing to account for a new ad campaign.
Step 4: Adjust & Monitor
- Demand changes—so update forecasts regularly
- Example: A grocery store revises its orders after noticing an unexpected drop in milk sales.
In summary, demand planning is like creating a travel plan with the flexibility to adapt to weather changes, delays, and detours. While you can’t predict everything, a solid plan combined with strong collaboration allows you to navigate the journey successfully—even when the waves are rough.
