What Is Demand Planning — Simply Explained

Imagine you own a small café.

Every morning, you have to decide how many pastries to bake. Too many — they’ll go to waste. Too few — the customer will leave and might not come back.

That’s exactly what demand planning is. Only instead of pastries, think of shampoos, laptops, or medicine.

Demand Planning is the ability to estimate how much product or service will be needed in the future. It helps companies:

  • Avoid stockouts (out-of-stock)
  • Prevent overproduction (overstock)
  • Reduce losses and improve customer service

Why business cannot work without forecasting

  • Production won’t know what to launch
  • Procurement can’t coordinate with suppliers
  • Logistics won’t plan resources
  • Finance won’t be able to forecast revenue accurately

Good demand planning = happier customers + fewer write-offs + higher profit

Nestlé Example

Nestlé is a global giant with 2,000 brands — from KitKat to Perrier. A forecasting error in one country can cause supply disruptions in others. Here's how they manage:

  • They use SAP IBP (Integrated Business Planning)
  • Forecasting by SKU, customer, and sales channel
  • Forecast horizon — 18 months (weekly detail for the first 13 weeks)
  • Target: Forecast Accuracy > 80%, Bias ±5%

Who’s involved:

  • The Demand Planner builds the initial statistical forecast
  • Sales and Marketing add inputs like promotions
  • Supply checks feasibility
  • Finance validates against budget and revenue goals

All this is consolidated in the Monthly Demand Review → then integrated into the S&OP cycle.

Results:

  • Forecast errors reduced from 30% to 12%
  • Waste reduced by 15%
  • Cross-country teams aligned through shared models

Types of Demand Planning

Demand planning is not a one-time spreadsheet. It consists of three levels working together:

1. Strategic (2–5 years)
Looks at long-term direction. Example: Mars analyzes macrotrends and builds scenario models.

2. Tactical (3–18 months)
Accounts for promotions, seasonality, and NPIs. Example: Castrol updates quarterly forecasts by region.

3. Operational (1–4 weeks)
Reacts to daily demand. Example: BIC forecasts back-to-school peaks country by country.

TypeHorizonGoalExample
Strategic2–5 yearsInvestment, long-term trendsMars
Tactical3–18 monthsBalance demand/supplyCastrol
Operational1–4 weeksShort-term executionBIC

What does a Demand Planner do?

A demand planner is like a weather forecaster — but for sales. They predict which products will be needed, where and when. Their forecast affects:

  • Procurement
  • Production
  • Logistics
  • Financial planning

Main responsibilities of a Demand Planner

  • Analyzes data: sales history, CRM, weather
  • Builds forecasts: Excel, ML
  • Aligns plans with Sales, Marketing, and Supply
  • Uploads forecasts to planning systems like SAP, Anaplan
  • Monitors forecast accuracy and bias

How Demand Planning connects to S&OP

S&OP is the integrated planning process across departments. It includes 4 steps:

  • Demand Review
  • Supply Review
  • Pre-S&OP
  • Executive S&OP

If the forecast is wrong — the entire chain fails.

Summary

  • Demand Planning combines analytics, collaboration, and tools
  • It is the foundation of the entire supply chain
  • Accurate forecasts = less waste, more profit

Practice questions

  1. Give an example of a product whose demand depends on weather
  2. Find a job posting for Demand Planner at Nestlé or Unilever. Write down 5 key responsibilities
  3. Explain why Demand Planning is essential for S&OP

Check your understanding: Demand Planning Quiz

1. What does the term “Forecast Accuracy” describe?



2. What system does Nestlé use for demand planning?



3. Who usually builds the baseline forecast in a company?



4. What is the planning horizon of operational forecasting?



5. Why does a poor forecast disrupt the S&OP process?



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