What's the difference between inventory planning & demand forecasting?

Oct 1,2022

In business, you may encounter people who use the terms inventory planning and demand forecasting interchangeably. While the two terms and ideas are heavily related, and there is plenty of overlap, they aren’t actually the same thing.

Understanding the subtle differences between the two can help keep business running smoothly, ensure you have just the right amount of stock and prepare for business growth.

So, if you’ve ever been confused by the two terms or perhaps you thought they were the same thing, here’s what you need to know.

Demand Forecasting

To put it as simply as possible, demand forecasting is a prediction. A business will examine previous trends, seasonal demand, customer expectations, upcoming marketing campaigns, and market research to predict how much will be sold in the coming weeks and months.

Demand forecasting encompasses much more than inventory and stock levels. This prediction will be used to determine the marketing budget, stock levels, how many employees are needed each day and much more. The demand forecast will form the basis of a business plan to meet demand and improve profitability.

Think of demand forecasting as a very proactive step.

Inventory planning

On the other hand, inventory planning is much more reactive. It’s still proactive in that it needs to be done in advance, but inventory planning means looking at the forecast and deciding how much stock to order and when. When inventory planning, you will need to consider the entire product lifecycle as well as the whole supply chain to make sure everything runs smoothly.

You will need to consider demand, warehouse space, cost of additional storage, returns and resales, build-time, shipping time and much more. Inventory planning is much more practical and looks at the realities of how a product is made, moved, stored and sold.

Effective forecasting and planning

On some level, every business engages in both forecasting and planning. The only question is how detailed and effective a business is. Since much of inventory planning and stock management relies on effective demand forecasting, many companies choose to focus recourses in this area. However, this can result in proper inventory planning being overlooked, leading to production mistakes, storage issues and lack of stock.

On the other hand, some businesses spend lots of money on forecasting, but due to a lack of focus or using the wrong tools, they end up with flawed conclusions. This can also impact inventory planning as it becomes impossible to plan for unknown events and changes in demand.

Both effective forecasting and planning are needed for a business to run smoothly and meet customer demands.

Getting forecasting and planning right

Since so much rests on effective demand forecasting and inventory planning, it is crucial to make sure you are using appropriate tools and getting it right. One mistake can impact all areas of business for months. The foundation of both predicting demand and preparing to meet those demands is data.

Ideally, you should use software that tracks, stores, and analyses data, including sales, seasonal trends, returns, market demand, and your stock levels. The more historical data and market research a business has, the better informed it can be. Automating the process and relying on algorithms to accurately make forecasts and let you know how to plan is an easy way for businesses to get both the forecasting and planning right every time.

To find out more about how StockTrim can help provide you with accurate data and help you plan for a better future, don’t hesitate to contact us.

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