Demand Planning Explained
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Demand Planning Explained

Demand planning is practice that is crucial for business growth. One of ERP many functions is its capability to manage demand and supply within the system.ERP advanced Demand Planning module helps businesses assess the time horizon for which inventory is needed to be in-stock to ensure timely delivery to customers for sale.

Inventory has different lead time for purchase-to-stock requirements. Lead time is a fundamental measure that helps organisation assess how much time must be allocated between a request to purchase materials to the time of delivery. Quantity requirements are driven from customer demand; however individual components may be driven from recipes or bill of materials that represent individual item requirements that make up an end product.

Demand Planning Explained

Some item inventories will need months of time to meet demand, while others may need only a few weeks or days. The most basic inventory planning idea is to develop a plan around what future demand will be, and then develop a related supply plan that will supply according to that demand. Often times, businesses that have weak or immature supply chains or complex assembly requirements will have a difficult time producing a quality inventory plan.

ERP assists in the process by giving the user options to assess demand. It does this by giving you a look at existing sales orders which represent firm commitments by customers, as well as looking at historical trends for item based sales. When you perform demand planning, ERP will present, on an item-by-item basis, a calculated forecast. From there, you can assess if you trust ERP demand plan; or you can tweak or change it to better reflect your own assessment of future sales.

Demand Planning ERP

Once you have a satisfactory demand plan, ERP will then allow you to produce a supply plan against that demand. A supply plan will suggest purchase orders to preferred vendors, both now and in the future.

It will account for current inventory quantities including existing purchases orders expected to be received. Once you generate purchase orders, they can be sent to suppliers, on or within the appropriate date to have inventory delivered.

ERP offers this powerful capacity for companies who seek mature business practices. What I witness is that many businesses will complete their demand and supply plans outside the ERP system -- they do this by creating spreadsheets and other homemade tracking systems.

Demand Planning Software

From those offline systems, they will then manually create purchase orders. We helped a company, who was not on ERP, create a way for each salesperson to forecast demand and then we produced a report that lined up demand against all the existing inventory and purchases.

If the client would have been on ERP, they could have had the tools to do this in one application while reducing the potential for errors by missing existing orders and expected deliveries. The benefit of ERP's demand and supply planning is that all of this information lies within ERP itself, making it easier to track reporting, share information, and ultimately help the business grow by allowing you to make quicker and better decisions. In essence,ERP makes you more intelligent giving you a competitive advantage.
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