Best Practices for Improving Supply Chain Demand Planning

The supply chain is critical to ensuring manufacturers have the raw materials, components, and other supplies necessary to produce finished goods. But the materials and widgets are only the tangible elements critical to manufacturing processes. Manufacturers need to also ensure procurement, logistics, warehousing, AR/AP (accounts receivable/accounts payables), and other activities of the supply chain processes are handled effectively to avoid supply chain and production interruptions.

Supply chain management (SCM) is the coordination of these materials and activities to keep production operations running smoothly, efficiently, and profitably. Drilling deeper, supply chain demand planning is a component of SCM that uses forecasts to better predict demand for different products. That information is then used to keep inventory levels at a sufficient level, as well as ensuring adequate labor and equipment resources are available to meet customer needs and to set realistic expectations for delivery.

Read on to learn more.

What is Demand Planning?

Demand planning is used by manufacturers to forecast, predict, and anticipate which products customers will likely purchase in the future. Just as sales forecasts predict potential sales and revenue, demand planning predicts potential demand by customer, region, product, product line, and more.

Demand planning uses several pieces of information to increase the accuracy of demand forecasts:

  • Known orders make up the foundation of demand planning.
  • Pre-firmed orders, or orders likely to close, are added.
  • Historical trends are considered, such as typically high- or low-demand periods, seasonality, market trends, and more.
  • Internal plans or strategies related to production, capacity, profitability, engineering, product development, and more.
  • Changes in customer buying habits and business strategies, customers’ market traction, and trends of customers’ customers can also be included to gauge future demand.
  • Promotions, discounts, and pricing adjustments (up or down) are also considered and can help influence demand.

Combining the above elements with statistical analysis, artificial intelligence, and other analysis techniques can give manufacturers a more accurate demand forecast to drive subsequent planning efforts.

What is Demand Planning in Supply Chain Management?

Demand planning is a critical element of efficient supply chain management. If SCM helps keep materials running smoothly, demand planning in SCM informs production, inventory, procurement, and other teams so they can keep their part of the supply chain running smoothly as well.

Once a manufacturer has a good idea of demand through demand planning, operations teams can work to ensure capacity aligns with that demand and the supply of materials can support the capacity to meet the demand. Capacity planning strategies are another key component of manufacturing and maintaining an intimate balance between the two is necessary for successful SCM.

Effective demand planning in SCM helps manufacturers deliver completed products on time, shipped when and where the customer desires, and meet the customer’s expectations. To do so requires that the right amount and type of inventory are in stock to fill capacity and meet the respective demand.

How Does Supply Planning Relate to Demand Planning?

Supply planning and demand planning in SCM are both components of a holistic supply chain management program. Demand planning manages operations to meet forecasted demand. Supply planning manages vendors, logistics, inventory, and more to ensure operations has the right quantities of raw materials to meet the forecasted demand of customers.

the materials used in the manufacturing process. MRP helps calculate material quantities, maintain inventory levels necessary to meet demand, and synchronize delivery of materials in time to meet demand, all in the pursuit of meeting customer expectations at the minimum resource and cost.

The Role of Demand Forecasting in Supply Chain Management

Where demand planning in SCM informs upstream operations, demand forecasting is the analysis of customer and market information to predict future demand. These terms are sometimes used interchangeably, but that is incorrect. Demand planning uses a demand forecast to make decisions and build capacity, production, procurement, and other plans.

Demand forecasting uses known orders, expected orders, historical trends, seasonality, market trends, promotions, and other information to predict future demand. Manufacturers are making a highly educated guess of future demand.

Forecasting, especially demand forecasting for manufacturing, is a complex analysis that requires expertise, data, and raw computing power to improve accuracy. Simple “guessing” and estimations in a spreadsheet can return a demand forecast, but it is highly likely to be highly inaccurate. Inaccuracies that over-estimate demand can lead to wasted capital in the form of excess raw materials and carrying costs of excess inventory. Under-estimated demand can lead to decreased revenue, lower profitability, decreased customer satisfaction, and potential financial penalties when orders cannot be fulfilled or are delivered late. Frequent short of late shipments can result in loss of customers—another dimension that must go into future demand planning.

Many manufacturers rely on sophisticated demand forecasting tools developed using decades of experience in supply chain process optimization. Rootstock, for example, partners with to seamlessly integrate sales opportunities and order history with inventory, production capacity, and all other relevant information to generate real-time, AI supported demand forecasts for better demand planning in SCM.

Better demand forecasting can also be used to drive more effective business decisions for manufacturers. A significant increase in demand could require investments in adding capacity, building new manufacturing plants, or outsourcing some or all of production. Shifts in demand forecasts can also help reduce risks associated with suppliers, offshore sourcing, and more.

What is a Demand Plan?

A demand plan is the result of a manufacturing demand forecast and serves to drive the supply plan. Using the demand forecast, manufacturers break down the data to granularly assess demand by product, product line, manufacturing process and location, sales territory, region, customer, profitability, and more. A demand plan in SCM then uses that information to orchestrate operations, workforces, capacity, and supplies to produce a production schedule. A demand plan can also help manufacturers determine the production approach best suited to meet demand, such as make-to-order, make-to-stock, etc.

An effective demand plan will contain the granularity necessary to guide logistics, production, and other managers as they plan their areas of operations. Demand plans will further inform procurement of upcoming needs, who can then alert suppliers with orders well in advance of need. When done well, a demand plan gives every component of the complete supply chain and demand chain the information needed to drive efficient operations.

A demand plan should have the following information:

  • Demand forecasts by products, product line, regions, customers, etc. to set high-level expectations.
  • Supply materials and quantities needed, and dates required to align orders with lead times.
  • Inventory levels required by day, week, and/or month.
  • Preferred suppliers and/or capacity requirements.
  • Manufacturing process capacity requirements and related labor, equipment, and other needs, with accompanying dates, durations, and locations.
  • Material handling requirements to ensure inventory is at production lines when supplies are needed.
  • Quality and inspection
  • Packaging and related requirements.
  • Delivery expectations, lead times from manufacturing to customers, and distribution and shipping requirements.
  • Shipping capacity requirements by mode, region, etc.


What Does a Successful Demand Planning Process Look Like?

Demand planning in SCM relies heavily on complete and accurate data to generate accurate forecasts so that manufacturing operations run efficiently to effectively meet demand without excess overage. Therefore, a successful demand planning process puts heavy emphasis on the data gathering and analysis. It also uses continuous monitoring and adjustments to update demand plans in SCM as they change to improve future demand forecasts.

A successful demand planning process typically includes the following steps:

  1. Identify, collect, and organize demand data. This will likely come from varying sources but having a cloud ERP manufacturing operations solution built on the same platform as a sales CRM solution can make this step much easier while ensuring the data is complete, timely, and accurate.
  2. Develop the demand forecast. Many manufacturers use a dedicated demand forecasting solution, such as ketteQ, to use modern analytics and artificial intelligence to reduce errors and increase the accuracy of demand forecasts.
  3. Adjust the demand forecast using internal and external information. Market trends can provide information to signal demand shifts that don’t align with historical data. Internal plans and campaigns, such as promotional discounts, can also be used to increase or decrease demand as necessary.
  4. Use the demand forecast to develop a demand plan. The demand forecast is the primary input for developing the operational demand plan in SCM, from ordering raw materials to setting delivery expectations with customers.
  5. Monitor, adjust, and improve the demand planning process. Forecasts can always be improved through analysis and discovering new inputs that may correlate with demand. Demand may also change due to unforeseen events, so demand plans should be flexible and fluid.

Supply Chain Demand Planning Best Practices

Demand planning in SCM requires the continuous collection and evaluation of data from across the manufacturing business, but also leverages the insights and domain knowledge of key stakeholders in sales, marketing, procurement, supply chain, production, operations, and more. In other words, more information leads to more effective demand planning in SCM.

Manufacturers seeking to deploy best practices in demand planning should begin with the following tips.

1. Ensure the right data is captured and complete

Data is plentiful, but knowing which data is the best data, which data might be suspect, and how to best interpret data requires people. Collaborate with stakeholders and subject matter experts across the manufacturing organization to ensure the data used as inputs for the demand forecast will generate the most accurate forecast possible. Also, gaining stakeholder buy-in and support early in the process adds overall confidence in the demand forecast and demand plan.

2. Use artificial intelligence to improve demand forecasts

Artificial intelligence, machine learning, and other modern computing and analysis technologies have been proven for years and continue to improve over time. Manufacturers should take advantage of these capabilities to streamline demand planning processes, improve forecast accuracy, and influence supply chain management decision-making.

3. Work with operations to develop the best schedule

Demand forecasts should provide a timeline to guide operations scheduling. However, production methods and processes, labor constraints, and other items can create opportunities to shift schedules and improve productivity, increase profitability, or better meet customer expectations. Adjusting demand plans for operational efficiency requires tight collaboration with operations teams.

4. Guide procurement and supply chain in managing vendors

Demand forecasts, production schedules, and the overall demand plan can ease vendor management for procurement and supply chain teams. Be sure to structure demand plans in SCM to give those teams a better ability to collaborate with suppliers, provide longer lead times, and improve supplier relationships.

5. Continuously refine the demand planning process

More knowledge improves processes, especially demand planning in SCM. Ensure demand plans are fluid and flexible, and constantly monitor how operational output is aligning with demand planning. Use that information, and interviews with stakeholders across the manufacturing supply and demand chains, to improve every subsequent demand plan.

Improve Demand Planning in SCM with Rootstock Cloud ERP

Stay ahead of demand with Rootstock Manufacturing Cloud ERP for demand planning in SCM. Rootstock enables automated supply chain visibility and management. Built on the same platform as Salesforce CRM to easily incorporate customer demand data, Rootstock provides collaboration and dashboarding capabilities that help demand plans and supply chain planners keep suppliers, operations, and customers happy.

See How Rootstock Cloud ERP Balances, Customer Demand, with Production Capacity and material Supply for effective Supply Chain Management

More and more manufacturers are using demand planning to forecast the products customers want, the capacity operations needs to fulfill that demand, and the supplies required to meet that capacity. Successful demand planning in SCM relies on complete and accurate data, but also bringing the key people into the process and continuously refining how demand forecasts and demand plans are generated.

To learn more about Rootstock Cloud ERP for demand planning, watch this demonstration or visit this webpage.