Is it better to miss a sale or have to liquidate excess inventory? With good demand planning you can avoid both.

Demand planning lets you know what stock you need on hand to fill all customer orders upon immediate request while avoiding excess inventory. Getting the demand plan right is essential to overall supply chain planning as it’s the front end of the process for determining inventory needs. 

With an effective demand plan for supply chain planning, you ensure timely inventory replenishment to maintain the right mix and amount of product in your warehouses to serve customers and net sales.

Difference between demand planning, supply planning, and forecasting

Although the terms “demand planning” and “forecasting” are related and sometimes used interchangeably, they are different concepts in the overall supply chain planning process. 

Forecasting uses historical sales data, along with other information, such as economic conditions and consumer behavior, to predict what your customers are going to buy at a future date. Demand planning starts with a sales forecast but then takes into account other factors to determine inventory needs, such as actual sales. 

Supply planning is a critical process used alongside demand planning. Supplier lead times – the period from order placement to delivery – must inform the demand plan about existing levels of inventory in your warehouses and fulfillment centers.

Most importantly, demand planning makes use of real-time information. The plan uses synchronous information on orders and sales, on-hand inventory, and supply lead times. So it can regularly update the picture of product demand down to the stock-keeping unit (SKU) level. 

With a true picture of granular demand, as it changes, your company can develop a more accurate supply plan to maintain the right flow of inventory in the pipeline for restocking warehouses and fulfillment centers.

Why manual-based forecasts are outdated

Forecasting inventory needs based on a manual process that relies on old information is a recipe for trouble. That’s because historical sales are not necessarily the most reliable predictor of future sales. 

In today’s interconnected global economy, where digital information travels around the world instantly, product demand is now highly volatile. Buyers’ needs and wants change with sudden shifts in economic conditions, consumer sentiment, style trends, and even the weather. Basing your forecasts on yesterday’s sales numbers leads to:

  • Poor fill rates
  • Backorders
  • Lost sales
  • Excess inventory 
  • Low inventory and stockouts
  • High carrying costs

The solution is to run a demand-driven supply chain, updating forecasts and demand plans weekly and daily using real-time data on sales and customer orders.

However, running a demand-driven supply chain can’t be done with manual demand planning. Plan updates require constant and immediate attention to changes in sales and orders of hundreds or thousands of SKUs. Human planners would struggle to keep up. 

You need a demand planning system in place that can automatically track and capture customer demand and then make forecast updates across a variety of SKUs in real time. 

The critical role of WMS in demand planning


Read how RestorixHealth | AMT is using Deposco’s end-to-end WMS + Planning solution to achieve 99.5% inventory accuracy, 90% more efficiency in planning, and 20% fewer stockouts from a single real-time system.

In addition to real-time information on sales and orders, as they occur, demand planning also requires real-time visibility of SKU-level inventory in the distribution network.

Your warehouse management system (WMS) must be capable of tight integration with your demand planning system, providing real-time visibility of on-hand inventory holdings. That way, your system has up-to-the-minute knowledge of product availability to accurately assess inventory needs and maintain high service levels for your customers.

Given that the WMS is the cornerstone for real-time inventory visibility, companies are wise to consider warehouse management software that incorporates demand planning as well as supply planning in a single platform.

System requirements

Along with capturing real-time information, an effective demand planning system should have the capability to analyze the data and provide insights into future demand. Data analysis should determine inventory needs by identifying emerging buying patterns, long-term trends, seasonal fluctuations, and the impact of sales promotions. 

The demand planning system should have the following capabilities for analysis:

  • Automatic detection of data trends 
  • Advanced forecasting algorithms for accurate prediction of demand at item, facility, or sales channel levels 
  • Incorporation of sales and promotion data in the forecasting process
  • Predictive analysis to identify future directions in buying behavior

AI capabilities improve time savings and accuracy

With the advent of artificial intelligence (AI), leading providers of supply chain software incorporate AI technology into their fulfillment platforms. AI offers the promise of making the fastest identification of buying trends, saving time for busy planners and improving decision-making.

Another trend is full-suite supply chain platform providers extending the scope of their solutions to include both demand and supply planning. It’s a logical extension because real-time visibility of what’s stored in the warehouse is critical to formulating accurate demand and supply chain plans. 

This is especially true for companies engaged in direct-to-consumer (DTC) fulfillment as they have to have inventory available for all advertised products to ensure high customer satisfaction.

Benefits of effective demand planning

When done right, a solid demand plan can optimally balance inventory supply with customer demand. In doing so, it provides the basis for right-sizing inventory levels and product mixes in an individual warehouse or across a network of warehouses.

Companies with effective demand plans often see the following benefits:

  • 15%  less inventory
  • 17%  better order performance
  • 35%  cash-to-cash cycle times
  • 60% better profit margins
  • 2-3 times Return on Assets (ROA)
  • 1/10 the stockout rates of your peers 

The essential role of integrated WMS + demand planning systems

Manual forecasting no longer cuts it for companies that want to be responsive to the marketplace. Now is the time to deploy a real-time demand planning system as part of the overall supply chain planning process.

With real-time demand planning, your company can achieve forecast accuracy to drive supply planning for smart SKU replenishment and efficient inventory management.