Inventory
Demand planning vs supply planning
Demand planning forecasts how much of each product customers will buy. Supply planning works out how to have that stock in the right place at the right time: what to order, from whom and when. Demand planning sets the target; supply planning hits it, within the limits of lead times, supplier minimums and cash.
Definitions
| Demand planning | Supply planning | |
|---|---|---|
| Question | How much will we sell? | How do we make sure we have it? |
| Inputs | Sales history, seasonality, promotions, launches, trends | Demand plan, stock on hand, lead times, MOQs, cash, storage |
| Output | A forecast by product and period | Purchase orders, delivery schedule, stock targets |
| Main risk | Forecasting too high or too low | Ordering too late, too much or from the wrong source |
How demand planning and supply planning connect
- Forecast demand for each product, week or month by month.
- Compare it with supply: stock on hand plus stock already on order.
- Find the gaps: when stock will run below safety stock.
- Plan orders to fill those gaps, working back from the date you need stock by the supplier lead time.
- Check constraints: minimum order quantities, cash and storage space. Adjust the plan if needed.
- Measure and repeat. Compare actual sales with the forecast, and feed the error back into the next forecast and your safety stock.
Lead time is what ties them together. A product with a three-month lead time needs a demand forecast at least three months out.
Forecasting methods for small brands
You don't need complex models to start.
Moving average
Average the last few periods to forecast the next one.
Worked example: three-month moving averageExample numbers
Sales for the last three months: 410, 380 and 450 units.
Forecast for next month = (410 + 380 + 450) ÷ 3 = 413 units
Good for: steady products without strong seasonality.
Seasonal (last year adjusted for growth)
Take sales in the same period last year and adjust for how much the business has grown.
Worked example: seasonal forecastExample numbers
Last November: 900 units. The business is running 15% above last year.
Forecast for this November = 900 × 1.15 = 1,035 units
Good for: products with clear seasonal peaks, such as gifts, outdoor gear or holiday items.
Adjust for what you know
Then adjust the baseline for events the numbers can't see: planned promotions, new product launches, a big ad push, or a competitor running out of stock.
Seasonal Lead-Time Buffer CalculatorThe extra stock you need to survive peak-season demand and slower lead times. Want this handled automatically?Forecast demand and know exactly when to reorder, before you stock out or tie cash up in overstock.Try Verve AITurning the plan into stock
- Set safety stock from forecast error. The less accurate your forecasts, the more buffer you need. The safety stock calculator sizes it, and the guide to forecast accuracy shows how to measure error.
- Order by lead time. Work back from when stock must arrive. See the guide to lead time.
- Review monthly. Update forecasts with actual sales, and adjust open orders where suppliers allow it.
For the restocking methods that turn a forecast into purchase orders, see the guide to inventory replenishment.
FAQ
What is demand planning?
Demand planning is forecasting how much of each product customers will buy over the coming weeks and months, using sales history, seasonality and planned promotions.
What is supply planning?
Supply planning works out how to meet that forecast: how much to order, from which supplier, when, and where to hold it, given lead times, minimums and cash.
Is demand forecasting the same as demand planning?
Forecasting is the core of demand planning, the number itself. Demand planning also includes adjusting that number for promotions, launches and market changes, and agreeing it as the plan.
How far ahead should a small brand forecast?
At least as far as your longest supplier lead time plus a review period. If production and shipping take three months, you need a forecast at least three to four months out.