Supply chain is complex, encompassing a broad range of functions, including supply planning and demand planning roles. It can be challenging to distinguish between these functions, leading to confusion among companies and hiring managers.

I recently had a discussion with a friend who is a leader in placing people in supply chain, demand planning, and S&OP roles. He shared with me how companies often misidentify their needs, using certain terms interchangeably, such as calling a Supply Planner a Demand Planner and vice versa. As an example, he mentioned a job description he received for a Demand Planner to manage materials for the manufacturing process, which should have been a supply planning role. This confusion in terminology can be perplexing.

Demand Planners and Supply Planners do have one thing in common, however, and that is working together in the S&OP process. I recently spoke to an S&OP expert on the IBF On Demand Podcast, Alina Davydova, who is Senior Manager SIOP at Danfoss to clear up some of the ambiguity around these terms. The below is taken from that conversation.

First of all, how do we define demand and supply planning?

It is important that we look at the S&OP process as a whole. Within operations, we know that there is a demand (sales) part and a supply part. When we understand that demand and supply planning are one body, we can start  defining them individually.

Starting with demand, we are looking into the market needs and trying to understand what we are going to sell. Then, we transform that prediction of demand into what we can actually provide in the supplying part and how we can support sales. This is where the demand and supply functions meet, discuss, and contribute to the deployment plan at the end. This discussion has to be regular, ongoing, and looping into each other so that we are not splitting or separating demand and supply.

Does it matter what we call the different roles in supply chain?

Yes, because when it comes to roles and responsibilities within the organization, we need to be very clear who is facilitating the demand plan and who is then looking at the rough cut capacity plan, and making sure that we do the right estimation of what we can produce versus what we need to sell. And then, at the end of the day, who is reconciling and validating these numbers at the end? That would not be the same people who are creating the demand plan.

So when we are talking about creating the competencies within the organization, all of these roles need to be defined and designed: Demand Planner, Supply Planner, Demand Manager, S&OP Managers etc. These things are crucial to the effective operation of the business.

A lot of companies that have these different roles without a strong S&OP process operate in  silos. How do we break down those silos and work together?

To avoid this we need to have the whole process under the umbrella of an S&OP Manager so there is one person who is plugged into every step of the process and can bring everyone together. He/she is not necessarily dealing with any particular element like the sales forecast, for example, but knows what the main highlights are, and brings it into the supply planning where this can be discussed and agreed upon. If there are any questions or contributions regarding the demand plan, they can be brought up in the next cycle.

The person leading S&OP and the end-to-end process is crucial. You need somebody who understands exactly when things have to happen and who is responsible for this or that input and making sure that it happens, being there at the executive meetings, and facilitating the executive handshake to get the right decisions at the right time and bringing them back into the organization.

There can be a lot of confusion if the job title doesn’t match the role. What advice would you give to hiring managers when hiring Demand or Supply Planners?

I would start by describing all the steps that have to be done by that person in the normal, regular S&OP process. We have the monthly cycle, we have certain things that have to be done: Market analysis, the statistical forecast adjustments, going into the supply capacity checks, the pre-S&OP meeting, the executive S&OP meeting. All these things and their constituent steps are very clear activities that come with the role. Prepare a simple roles and responsibilities matrix. Who does what? Who opens the tool? Who signs off approval for level A, level B and so on? Who needs to call for the meeting with the executives? This will become the outline for your job description. Depending on the specific activities, it will be clear whether it is a Demand Planner or Supply Planner you’re looking for.

The Bottom Line: Supply Planning Vs Demand Planning

When we talk about demand planning, that’s the prediction side of the equation. Demand Planners are responsible for compiling a demand forecast. Supply planning on the other hand, that’s the optimization side of the problem. Supply Planners are responsible for translating the demand plan into the most efficient and executable plan that meets demand.

The goal from a supply planning perspective is to minimize cost, increase service, maximize resources, and leverage inventory to reduce cash being tied up. So it’s really a cash/cost/service triangle that must be balanced in a manner that achieves the particular financial/customer service objectives set by the company, whatever those may be.

To learn the fundamentals of business forecasting and demand planning, join us for IBF’s Chicago Demand Planning & Forecasting Boot Camp from March 15-17, 2023. You’ll learn how to forecast demand and balance demand and supply from world-leading experts. Click here for more information. 

Using history to predict the future is the most basic assumption that underlines demand planning processes and activities. This assumption presupposes that there is inherent demand variability in sales and, by analyzing sales data, the variability can be identified and managed – that is a given. But it’s not only demand planners who must understand variability; Supply Planners also need to be proficient in identifying factors that impact supply and then manage them to mitigate risk.

Not All Risk Comes From Demand

Supply planners must look internally and understand that not all risks come from demand. Risks and variability in the supply chain are often viewed as a forecast problem but the forecast isn’t the only part of the supply chain that features variability, and demand assumptions aren’t the only assumptions driving our supply chains and S&OP. 2020 has been a year that has really highlighted the need to manage assumptions across the entire supply chain and not just for demand.

Understanding Supply Chain Variables

Assumptions exist outside of demand. They impact our ability to serve our customers and need to be identified and managed, just as we do with demand assumptions. Attribute data (data relating to those things that cause variability in supply) related to an item’s characteristics, distribution network, manufacturing process, purchasing terms, and even general planning settings, all contain variables that impact the supply chain.

We have an opportunity to introduce previously unrecognized uncertainty into the supply process.

Typically, these factors aren’t considered to impact supply. Often these attributes are poorly managed and unvalidated unless persistent and serious issues make them impossible to ignore. When we input this data into the master data of planning systems, we have an opportunity to introduce previously unrecognized uncertainty into the supply process. When we do this, we get visibility into supply constraints and are in a position to manage them.

Failure to understand these supply assumptions results in either a growth of excess and obsolete inventory or in a shortage of good inventory,

This data (or attributes) should be regularly reviewed for accuracy, tracked for performance, and actively managed and maintained. For example, we must understand the impact on supply performance when lead times, run rates or process times change, or minimum order quantities and lot sizes are greater than our total annual forecast, or when any other supply constraint appears. Failure to understand these supply assumptions results in either a growth of excess and obsolete inventory or in a shortage of good inventory creating customer dissatisfaction and service failures.

Variability In Demand Is Often In Fact Variability In Supply

When things don’t work out as planned from a supply chain perspective, we often assume it’s due to a random, non-repeating event that could not be prevented when in fact there were indicators in the data that could have alerted us to it ahead of time. Key attributes impacting our supply chains should be identified to reduce unplanned variability and poor performance. They should be measured for accuracy and adherence to bring about best supply results. Unfortunately, when this is not done it shows up as variability in demand! 

We know there are many circumstances that can change the results of attribute values both internally (labor availability, repairs, inaccurate inventory) and externally (weather, transportation limits, vendor capacity). Measuring supply performance and communicating this performance and its drivers back to demand can help demand planners better manage forecast variability. Loading supply settings without validating if they are correct restricts the value demand planners add and that of the demand plans they generate.

Scenario Planning Requires Properly Managed Supply Assumptions

Properly managed supply assumptions create better scenario planning. Scenario planning is a useful part of the S&OP process that aims to maximize margins and profitability. Many of us already create scenarios based upon various demand expectations, but we should also create scenarios based upon potential supply changes. Understanding how adding an extra shift impacts inventory is just as important in reaching our goals as understanding what happens if customer X sells 40% more than planned.

Taking the time to understand the assumptions outside of demand allows us to create scenarios and understand potential financial risk to the business. Understanding variability in supply and how we are performing against expectations will certainly improve the quality of the scenarios we run in S&OP.

I believe demand planners need to teach supply planners how to recognize and manage assumptions.

Bottom Line: Supply Planners Can Learn Much From Demand Planning

I believe demand planners need to teach Supply Planners how to recognize and manage assumptions. Not only that, like Demand Planners, Supply Planners should also be held responsible for understanding and managing variability.

Metrics may be different between demand and supply, but they have the power to work together to reduce it. Supply planners must understand why there are differences between planned and actual results, find the root causes of the differences and understand when we might see changes in the future that don’t adhere to standards. When we fail to manage supply variability, we introduce additional variability not just into the supply plans but also into the demand plan, resulting in inventory imbalances and poor service levels.

If you haven’t defined which supply attributes are key in your supply chain, 2020 is the year to take a leaf out of demand planning’s book and start defining, reviewing, and measuring them and incorporating them into your process as core assumptions.