When talking about Sales and Operations Planning (S&OP) processes and supply chain management, the terms “demand forecasting” and “demand planning” are frequently mentioned. And even people in the know will often use these two terms interchangeably, using one when they mean the other and vice versa.
But while there’s a substantial amount of overlap, they’re really two distinct concepts and cover different areas of the business. Understanding the differences between the two can provide you with the context needed to take your S&OP and supply chain management processes to the next level.
A forecast is, in its simplest form, a prediction of future events. In a business context, demand forecasting, then, is the process by which demand planners attempt to predict what demand for a given product will be in a week’s time, a month’s time, or even a year’s time. Its singular objective is to arrive at the right answer and, therefore, demand forecasting is very data-focused.
Demand planners work with the sales team, the marketing team, and other key stakeholders to gather historical information, such as sales numbers and a company’s past growth rate, as well as real-time data about consumer behavior, market trends, the weather, and more. They then run various forecasting models and techniques and crunch the numbers to arrive at a solid consensus forecast. And that forecast (or prediction) about future demand forms the basis for the overall demand plan.
Demand planning, on the other hand, refers to the entire undertaking: forecasting consumer demand and then arranging things accordingly. Its overarching goal is to make sure a company can supply customers with a given product or service when, where and how they want to buy it while keeping costs as low as possible, thus increasing chances of profitability. So the demand planner takes the demand forecast and translates it into action, mapping out all necessary steps and ensuring everyone is able to perform their parts well.
Demand planning, therefore, encompasses much more than demand forecasting. Although producing the forecast is a critical component, it triggers a series of other duties and responsibilities that are all part of demand planning. And demand planners must coordinate with people all along the supply chain to ensure customers are happy and the overall company remains healthy.
All companies engage in some kind of demand forecasting and demand planning. The real question is whether they’re doing so effectively. Are the tools they’re using and the processes they have in place yielding great results? If not, a lack of differentiation between these two concepts could be to blame. Great demand forecasting strategies may not necessarily prove optimal for carrying out an overall demand plan, for instance.
Fortunately, our Atlas Planning software was designed to help you with both demand forecasting and demand planning. Schedule a consultation with one of our Forecast Xperts today to explore how we can help you accurately forecast demand and effectively plan for it.