Demand and Supply Planning for Efficient Business Operations
Businesses are constantly challenged to provide a seamless flow of products from manufacturing to the consumer. To meet this challenge, companies use Demand and Supply Planning, two disciplines that involve a complex study of the supply chain and consumer behavior to ensure that a sufficient supply of products is on hand to meet consumer demand, are acquired at the lowest cost, and avoid overstocking or understocking products.
Demand Planning: Forecasting future sales
At its core, Demand Planning focuses on accurately predicting customer demand based on prior sales, expected future sales, and examining the supply chain to ensure sufficient products are available in inventory for sale at the right time. Demand Planning requires that the organization has detailed information on customer buying behavior, identifies historical buying patterns, collaborates with sales to refine potential demand, and keeps track of world events, weather, and political/societal issues that might impact the supply of components and finished products, transportation and logistics, and customer demand.
For example, consider how recent events such as wars, social unrest, the COVID-19 pandemic, the surge in demand for renewable energy solutions, extreme weather events and natural disasters, and the growing interest in products that reduce greenhouse gas emissions have affected supply chains and consumer demands around the world. These elements are critical in determining supply chain availability and expected demand calculations.
Demand projections can either be constrained or unconstrained. Constrained demand forecasts consider the company’s limitations, such as production capacity and availability of capital, leading the company to operate as efficiently as possible to meet expected demand. Unconstrained demand projections produce an idealized demand forecast assuming no restrictions at all. Both are useful in comparing maximum potential sales opportunities against realistic production capabilities.
By studying everything from the point of origin to the point of consumption, including transportation, warehousing, material handling, seasonal trends, and more, demand planning enables businesses to estimate future sales, thus improving inventory management and replenishment accuracy.
Supply Planning: Meeting expected demand efficiently
Supply Planning, on the other hand, attempts to meet the forecasts generated by Demand Planning. The Supply Plan relies on the Demand Plan to determine the quantity of goods to produce. It establishes whether the company has the essential resources to meet forecasted demand by considering factors such as the availability of necessary components and raw materials, minimum order quantities, manufacturing lead times, and the production capacity available in the manufacturing process. Once completed, the Supply Plan is used to create the Master Production Schedule.
Supply Planning is essential to establishing the proper lead times to ensure the number of finished goods produced occurs at the appropriate time and takes advantage of lower pricing on minimum order quantities. In addition to establishing a realistic production schedule, Supply Planning is also critical to ensuring that the company does not commit critical capital resources to produce excess inventory.
The combination of Demand and Supply Planning
In conclusion, historical data analysis, demand forecasting, collaborative planning, and continuous review and adjustment are the key elements in using Demand and Supply Planning. Both are used together to help a company create forecasts, establish optimum inventory levels, and develop procurement and production plans. Both are separate but essential elements in ensuring a business can meet its service goals while minimizing costs.
Contact ArcherPoint to learn how to use Demand and Supply Planning more effectively in Business Central.