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Demand Planning vs Forecasting in 2024: (Differences, Approaches, and Benefits)

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Demand planning and forecasting are popular catchphrases in retail and are often used interchangeably.

However, did you know they are not the same?

So, what is the difference between demand planning vs forecasting, and are both essential to achieving success in retail?

In reality, both activities play crucial roles in the demand management process, with each fulfilling different objectives. This article will help you understand the differences between demand planning and demand forecasting and explore their respective approaches and benefits.

The difference between demand planning and forecasting

There is a difference between demand planning and forecasting and they serve distinct purposes. Demand planners rely on data-driven demand forecasts to coordinate and inform supply chain activities. Essentially, demand planning and forecasting work together to help retailers meet supply and demand.

Differences between demand planning and forecasting

To illustrate the difference between the two, consider this example:

Example of demand forecasting and demand planning

Imagine you’re a retailer selling coats. As the temperature drops, your inventory of winter coats sells quickly. By analyzing historical sales data, fashion trends, and other relevant factors, you create a demand forecast that predicts your need to stock up on more winter coats of specific styles at particular times during the season.

Demand planning goes a step further, you now use the demand forecast to make decisions about inventory levels, lead times, the cost of carrying excess inventory, and product mix.

So, you may decide to order a certain number of jackets each week to ensure you have enough stock to meet customer demand.

In this example, you need the demand forecast to make predictions about future sales, while demand planning outlines how you’ll meet that demand.

Now let’s examine the approach for each.

Approaches: forecasting and demand planning

Demand forecasting and planning employ different approaches.

Demand forecasting

Gather data

Collect comprehensive, clean, and abundant data sets on sales trends, economic conditions, and consumer behaviour to gauge future product or service demand.

Analyze data

Use advanced technology tools like AI-driven analytics to create highly accurate forecasts, as inaccurate predictions can lead to stockouts or overstocks, reduced profits, supply chain issues, increased costs, and disappointed customers.

Make a forecast

Rely on high-accuracy, AI-powered data analysis to develop a detailed, precise, and timely demand forecast.

puzzle pieces representing demand planning and forecasting

Demand planning

Review demand forecast

Assess how the forecast aligns with your current operations and resources, and use it to inform your demand planning activities.

Determine a plan and implement it

Make inventory decisions based on your demand plan, which is informed by your demand forecast. Collaborate with manufacturers, vendors, and store locations.

If your demand forecasting and planning approaches are accurate and timely, you’ll see numerous benefits.

Benefits of proper forecast and demand planning

By understanding and effectively using demand planning and forecasting, you can increase your business’s overall profitability.

The key is leveraging innovative modern technologies that leading retailers use to create highly accurate forecasts and demand plans using solutions like AI-driven analytics for intelligent retailing. Some of the improvements you can expect to gain are:

1. Increased efficiency

Eliminate costly waste and optimize resource utilization by matching supply with forecasted demand.

2. Improved competitiveness

Stand out in the marketplace by streamlining operations, predicting trends, and automating manual tasks with AI-based analytics for demand forecasting and planning.

3. Enhanced customer satisfaction

Increase customer loyalty by meeting demand with products customers want, when and where they want them.

These are three significant gains in forecast and demand planning that any leading retailer would want to see in their business.

chart showing growth benefits of demand planning forecast

A demand planning forecast for retail success

As you can see, demand planning and forecasting are two separate concepts, but they work together in the demand management process to produce profitable results for retailers.

Both activities are essential for predicting demand and planning for the future, and their effectiveness depends on their accuracy. Therefore, adopting analytics-driven forecasting and a demand planning software is a method worth investing in to realize the resulting benefits.

Set yourself up for demand planning forecast success, apply these approaches to reach your goals, and improve your overall business performance.

If you want to ensure your demand forecasting and planning activities deliver the best outcomes for your retail business, contact our Team for more information.

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