There are a number of terms that are used when discussing demand forecasting, demand planning and demand management — all of which appear to be used interchangeably. Just what are we talking about here? I thought it would make sense to share the terms I use on this blog and at Demand Foresight, and articulate the difference between each.
In my previous two posts, I delineated what demand planning and demand forecasting mean to our industry. Lastly, there’s demand management. We’re hearing this term a lot these days as it relates to the current economic environment. In economics, demand management is defined as the art or science of controlling demand to avoid a recession. For our purposes, demand management is the art and/or science of matching product supply to demand. If a huge snowstorm is forecasted to hit the Northeast, do the Home Depot stores in the region have ample supplies of snow shovels? It is within demand management that total demand (open orders plus forecast) is matched against capacity to ensure an efficient and profitable approach. Getting this right requires cross-functional senior leadership as this is where revenue and margin meet.
It is important for an organization to understand the distinctions between demand planning, demand forecasting and demand management so that it can determine where it needs to focus in order to achieve substantial and measureable improvements in bottom-line performance.