What Demand Planning Is For

A distributor runs out of a fast-selling product while its warehouse is full of items nobody is buying. A factory pays for overtime in one month and sends people home in the next. A buyer places an urgent air shipment that costs many times the sea freight. Very often, the root cause is the same: the company did not have a reliable, shared view of future demand.

Demand planning is the business process that produces that view. It turns history, market knowledge and customer information into a demand plan: the agreed estimate of what customers will want, by product, place and time period. Supply, inventory, transport, staffing and finance plans are then built on it.

Mini case — one number, three versions

Quorvale Logistics (an invented company) distributes industrial safety products. For next quarter, the sales team expects 12,000 cartons of work gloves, because that is their target. The warehouse plans for 9,000, because that is what it shipped last quarter. Purchasing orders 10,500 as a compromise. Figures are invented for teaching.

Actual demand turns out to be 10,800. The sales number was a target, not a forecast. The warehouse number ignored a new customer. Nobody owned one agreed plan, so each team was wrong in a different way. A demand planning process would have produced one number, with its assumptions written down, that all three teams used.