- Planning demand is one element of demand management and is not to be confused with demand planning, which is the larger process of forecasting and demand management that is the subject of this entire section.
- A key output of the demand planning process should be regular updates to the demand plan.
The Demand Plan
- The demand plan is a consensus document requesting products and services from the supply side of the organization to meet the expected future demand for the organizations products and services in each period.
- It is an estimate of how many products customers will purchase, at what price, and on what time table so that the organization and its suppliers can determine how much to produce, when to produce it, and when to ship it.
- The demand plan is based partly on forecasting and partly on commitments by the demand side of the organization to generate the necessary demand to meet the plan and the goals set in the organizations business plan.
Demand Plan Inputs
- The demand plan influences and is influenced by forecasting, by commitments, by product and brand management, marketing, and sales to create, influence, manage and prioritize demand and by business plan and strategy.
- Other key inputs to the demand plan are the assumptions used and uncertainties encountered by the persons responsible for preparing the forecasts, the product and brand management plans.
- These assumptions and uncertainties should be documented, reviewed, and challenged in the monthly S&OP review process to validate that the demand plan is realistic.
- Knowledge of assumptions and uncertainties will also help the organization determine the best way to arrive at a consensus regarding demand plan numbers.
Uses of Demand Plan
- The demand plan is used by multiple areas of the organization because it indicates demand both in units and in monetary amounts.
In this way, each audience for the demand plan can view the information in the most meaningful terms.
- Operations, logistics, customer service, and product development can view the plan in units
- Finance can view the plan in monetary amounts
- Marketing and sales can view both units and monetary amounts
- A key control to keep demand plans realistic is to treat the demand plan as a request for product from supply side of the organization.
- In making this request, the demand side of the organization is stating that it is committed to creating this amount of demand and selling the products in the requested amounts.
- Holding the demand side of the organization accountable for the consequences of producing too much inventory can be an effective control over unrealistic demand plans.
- Close scrutiny of the demand plan can also reveal when inputs may be biased or assumptions unrealistic.
Planning Horizon and Revision Period
- A best practice is to produce a demand plan that has at least an 18-month planning horizon and to revise it by re-planning on regular basis.
An 18 month minimum horizon has other advantages:
- It provides a sufficient horizon so that each periods demand has been planned and reviewed multiple times, with increasing accuracy each time.
- Planned product and brand management and marketing activities typically span at least an 18 month horizon, and sales activities typically span at least 12 month horizon, so the most current and reliable information on internal plans and likely actions of customers and competitors falls within 18 month range.
- If the demand plan does not seem to be capable of achieving the goals in the business plan and strategy, a longer horizon allows organizations time to plan and execute additional activities to meet the revenue goals.
- If the demand plan shows a need to increase capacity, it gives the organization sufficient time to approve and execute capital expenditures.
- When it comes time to generate the annual business plan, by midyear the demand plan will show the next years projected demand and can be used as a key input to the business plan.