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Why is Demand Planning Important?
Practically every company in the world performs some type of sales forecasting.  However, Demand Planning includes
a broader scope, including risk/opportunity assessment, demand stimulation, and performance tracking.  Demand
Planning is important for five key reasons:

1.  Check top-line revenue and bottom-line profit estimates to meet target
The foremost goal for companies is to hit a revenue target specified in an Annual Operating Plan (AOP).  By creating
a monthly Demand Plan, management can assess progress against the AOP and drive their team to meet this plan.  If
the Demand Plan will fall short of the AOP, then the business may decide to adjust expenses to meet bottom line
profitability.

2.  Focus Sales and Marketing activities to increase revenue
The process of demand planning includes the projection of product and market trends, seasonality, price, promotions,
key customer activity, and other factors to determine sales volume.  By performing this rigorous analysis, the Sales
and Marketing teams should have a clear picture of the market dynamics affecting their sales and can focus their
activities to maximize revenue.

3.  Provide superior customer service
Having a clear picture of what products are needed when for which customers means that the supply chain function
can insure high product availability to customers.  By tracking error the team can understand the variability of
demand, helping the supply chain can reduce delivery failures through methods such as inventory buffers and
responsive production.

4.  Reduce operational costs
With perfectly understood demand, the supply chain could run at optimal efficiency for material, production, and
logistics costs.  Supplier charges, production overtime and downtime, excess and obsolete inventory, and expedited
movements that are wasted costs could potentially be avoided.

5.  Manage innovation
New product and service offerings present the biggest opportunities for business—and the most challenges.  Demand
Planning must make special efforts to understand future demand of products for which there is no history.  By
grounding innovative demand plans to facts where possible and by using educated assumptions where available,
directional accuracy can be achieved.  Demand planning must understand possible scenarios and demand ranges so
that the business team can evaluate risk and prepare for it.


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