Demand Planning

Demand planning encompasses all processes by which a company forecasts future demand and derives an agreed demand plan – serving as the foundation for S&OP, MPS, MRP, and procurement.

Key distinction: Demand forecasting produces statistical projections. Demand planning goes further: forecast plus assessment plus alignment with sales, marketing, supply chain, and finance.

Position in S&OP and MPS

Demand planning sits at the start of the supply chain planning hierarchy:

• S&OP uses the demand plan to balance demand against available capacity
• MPS translates approved demand into specific production programs
• MRP / RCCP derive material and capacity requirements

Without reliable demand planning, S&OP and MPS operate on unstable assumptions – with direct consequences for delivery performance, inventory levels, and production stability.

Building Blocks of the Demand Planning Process

Data foundation: Historical sales data, orders, promotions, exceptional events, product lifecycle stages.

Forecast methods: From simple models (moving average, exponential smoothing) to seasonal and trend models, to machine learning approaches for high-complexity environments.

Granularity and horizon: Depending on the business, planned at product family or SKU level, by region or customer, typically over 3–18 months on a monthly basis.

Consolidation: Reconciling the statistical forecast with sales input on major deals, new launches, or phase-outs.

Sign-off: The final demand plan is handed over to S&OP, MPS, and procurement.

Relevant KPIs

• Forecast accuracy: Precision per product family, region, or customer
• Bias: Systematic over- or under-forecasting
• MAPE / WAPE: Error metrics for model comparison
• Service level / OTIF: Whether delivery commitments are met despite forecast deviations
• Inventory turns: Whether the demand plan translates into reasonable stock levels

Common Mistakes

Statistics only, no sales input: Models are optimized but market and project information is missing. "Finger forecasting": Sales opinion systematically replaces data – subjective and inconsistent. No feedback loop: Forecast errors are not analyzed and models remain unchanged.

FAQ

What is the difference between demand planning and demand forecasting? Demand forecasting generates statistical projections. Demand planning integrates these into a coordinated process with sales, supply chain, and finance – including review, sign-off, and handover to downstream planning stages.

How often should demand planning take place? A monthly demand review cycle is standard, focused on deviations, root causes, and adjustments – embedded in the S&OP rhythm.

Where to start pragmatically? With the most important product families, a 12-month horizon on a monthly basis, and simple statistical baseline models. Sales provides targeted input on deals and promotions – not gut-feeling estimates.