Adjusting business operations to account for customer demand is a basic requirement of any business that wants to compete in the open market. Many of these businesses practice principles of both demand planning and demand management in order to make this responsibility easier. Both demand planning and demand management are systems meant to account for future consumer demand, although they differ in the length of forecast and demand factors considered.
Demand planning refers to the process of forecasting consumer demand for a company's products or services well into the future, sometimes as far into the future as one year. Demand planning is usually associated with sales, but it is closely tied to supply planning, which seeks to ensure that a company has enough supplies to meet demand. Ideally, a company's demand-planning process helps maintain supply levels that meet demand or just slightly exceed demand.
Demand management is similar to demand planning in that both help keep supplies and demand about even, but demand management looks at consumer demand in the short term. Demand management is the oversight of current consumer demand to ensure that a business does not experience recessionary activity, such as a loss of profits. Demand management is much more capable of taking advantage of business opportunities in response to local events. For instance, if an area experiences a flood, demand management principles indicate that a hardware store can increase demand by stocking flood supplies.
Errors in Forecasting
Errors in demand planning and forecasting are common due to many unknown factors that can occur over the course of a year. A 2005 study by AMR Research reported that companies engaging in demand planning commonly err in their forecasting, with the average margin of error ranging from 11 percent to 28 percent. If demand planning causes a company to purchase too few supplies to meet demand, demand management principles can help a business respond positively and increase inventory where needed.
Pressures and Challenges
Demand planning and management is used by companies in response to numerous industry pressures. A 2009 study published jointly by Purdue and the business analysis firm SAS indicate that the top business pressures causing the use of demand management and planning include increased cost efficiency due to lower profit margins, better customer service and volatile consumer demand within the industry. Top business challenges that make demand forecasts and responses difficult include obtaining accurate consumer data in a timely fashion as well as the inability to predict new product releases.