Demand Planning vs Supply Planning: The Complete Guide for Retailers

Mapping the route for your products to reach eager customers might seem straightforward, but the reality is far more nuanced.

As a retailer striving to optimize your own supply chain operations, it’s crucial to synchronize your demand planning with supply planning effectively. In fact, studies show that businesses achieving this alignment can slash inventory costs by up to 35%.

This article aims to cut through the complexities, offering practical insights into the demand planning vs. supply planning debate and showing the ways in which the two are closely related. Read on to discover how to streamline the coordination of your retail business’s demand planning and supply planning for enhanced supply chain efficiency.

Understanding Demand Planning and Supply Planning

What is Demand Planning?

Demand Planning is the strategic process of predicting and preparing for customer demand. 

Relying on outdated formulas or guesswork regarding how much inventory to order often leads to either stockouts or excess stock, both of which can severely impact cash flow. Having an effective demand plan serves as a important safeguard against such issues. By accurately forecasting customer demand and and using it to determine optimal inventory levels, demand planning helps ensure that you order the right products when you need them.

Moreover, demand planning enables businesses to promptly meet consumer demand, adapt to market fluctuations, increase profitability, and streamline operations.

What is Supply Planning?

Supply Planning, also called Open-to-Buy (OTB) planning or merchandising planning, is a tactical approach to determine the quantity of inventory to purchase or produce to achieve a retail business’s predefined objectives, be it in units, cost, or revenue. 

A supply plan typically starts with setting revenue goals, considering existing inventory and ordered stock to ensure enough inventory to meet targets. You can use it to show production capacity and assess whether your business can withstand inventory waiting periods, production delays, and manufacturing lead times, and whether cash flow is strong enough for more orders.

Demand planning vs Supply planning: 4 key differences

While demand planning looks ahead to predict what customers will need, supply planning works on meeting that demand while staying in line with financial and service goals. 

Let’s decode the main differences between both terms below.

Demand planning challenges

1. Demand forecast accuracy

Predicting future consumer demand accurately, especially in volatile markets or with new products, can be challenging.

Solutions: 

• Use a combination of sophisticated statistical forecasting models and advanced inventory planning software capable of providing a variety of metrics.
• Conduct thorough market research to understand consumer trends.
• Collaborate with sales and marketing teams to yield better demand projections.

2. Demand volatility

Fluctuations in demand due to seasonality, promotions, supply chain disruptions, or market trends can disrupt planning efforts.

Solutions: 

• Implement dynamic software that utilizes demand-sensing techniques to detect changes quickly.
• Adopt flexible and agile planning processes to better respond to shifts in demand dynamics.

3. Data quality and availability

Lack of reliable historical data and incomplete/inaccurate information can hinder forecasting efforts.

Solutions: 

• Invest in comprehensive data quality initiatives.
• Leverage external data sources to supplement internal data.
• Use advanced analytics to fill data gaps and improve the accuracy of forecasting models.

4. Collaboration and communication

Siloed operations and poor communication between team members can lead to misalignment regarding forecasted customer demand. 

Solutions: 

• Schedule regular cross-functional meetings to align strategies regarding inventory and supply chain management.
• Establish shared KPIs to measure success collectively.
• Integrate inventory planning tools in your everyday workflow to ensure seamless communication.

5. New product launches 

Predicting the exact demand for new products without past sales data is inherently uncertain.

Solutions: 

• Conduct in-depth market research to understand potential consumer interest and predict future sales.
• Collect customer feedback through surveys or focus groups.
• Use early sales data to iteratively refine demand forecasts for new product launches.
• Use demand planning software capable of predicting new product demand based on past sales of similar products, seasonal information, and customer information.

Supply planning challenges 

1. Capacity constraints

Limited production capacities or constraints in the supply chain can restrict your ability to meet demand.

Solutions: 

• Conduct comprehensive capacity planning exercises to identify bottlenecks.
• Invest in production efficiency improvements to optimize existing capacities and streamline the manufacturing process.
• Explore alternative sourcing strategies to diversify and expand your supply options.

2. Inventory management

Balancing inventory levels to meet demand while minimizing carrying costs and stockouts is another challenging optimization problem.

Solutions: 

• Implement Just-in-Time (JIT) inventory practices to synchronize supply with demand.
• Adopt advanced inventory optimization techniques, such as demand-driven planning.
• Implement safety stock optimization strategies to minimize excess inventory and set minimum order quantities accurately.

3. Supplier reliability

Dependence on external suppliers can introduce risks related to quality issues, lead time variability, and supply chain disruptions.

Solutions: 

• Develop strategic partnerships built on trust with reliable suppliers.
• Diversify your supplier base to reduce dependence on a single source.
• Implement risk mitigation strategies, such as dual sourcing and collaborative initiatives with key suppliers to strengthen your supply plan.

4. Demand-Supply mismatches

Misalignments between anticipated demand and available supply can result in excess inventory or stockouts.

Solutions:

• Implement demand-driven planning methodologies to align production with actual demand.
• Leverage real-time demand sensing capabilities to adjust plans dynamically.
• Implement cross-functional S&OP (Sales and Operations Planning) processes to sync collaboration between demand and supply planning teams.

5. Transportation and logistics

Inefficient transportation networks and logistics operations can lead to delays and increased costs.

Solution: 

• Optimize transportation routes to minimize delays and costs.
• Leverage technology for route planning and tracking to enhance logistics efficiency.

How Inventory Planner facilitates effective demand and supply planning

Inventory Planner is an indispensable tool for many businesses seeking efficient demand planning and supply planning in one integrated platform. It’s user-friendly and equipped with the tools you need to stay on top of your inventory game and enable integrated business planning.

Notably, Inventory Planner offers custom forecasting models tailored to different product types, ensuring precision for seasonal, non-seasonal, retail, and wholesale items, freeing you from reliance on indeterminate safety stocks. Its standout feature includes automatic adjustments based on emerging trends and optimized safety stock management, preventing you from overstocking or running out of best-selling products.

Inventory Planner doesn’t stop there—it seamlessly integrates demand forecasting with marketing efforts. This aligns your forecasts perfectly with promotions and influencer collaborations to avoid stockouts when demand spikes.

When it comes to supply planning, Inventory Planner excels with its flexibility. Plan based on retail revenue, purchasing budget, forecasted demand in units, or by category, brand, and vendor. The tool also accommodates purchase orders, transfers, and assembly orders, offering a comprehensive solution for your inventory planning needs.