Demand Planning vs. Supply Planning: Understanding the Difference

As a fast-growing merchant in an ever-changing retail landscape, you’ll know that planning is the key to unlocking unparalleled operational efficiency and achieving sustainable growth.

You’ll have heard the terms ‘supply planning’ and ‘demand planning’ discussed in e-commerce circles – but what you might not know is that these terms are commonly (and incorrectly) used interchangeably.

Supply planning is essentially the same as open-to-buy (OTB) planning, but it is fundamentally different to demand planning.

However, both are essential for a successful and sustainable business – especially at a time when costs are sky high, the economy is unpredictable and just one poorly planned inventory order can be devastating to your cash flow.

By understanding the unique functions and objectives of supply planning and demand planning, you can create a more balanced strategy that helps you tap into market opportunities while also mitigating major risks to your cash flow from issues like overstock and stockouts.

What is demand planning?

Demand planning is the process of forecasting and anticipating customer demand for products. It ensures a business has the right amount of inventory on hand to meet customer needs, without surplus or shortage.

When businesses order inventory based on guesswork on outdated formulas, it often results in stockouts or excess stock – which can both have a devastating impact on cash flow. Demand planning is an essential step in avoiding this. It also helps businesses adapt faster to market changes, make more profit and streamline their operations.

Most fast-growing businesses use dedicated demand planning software, like Inventory Planner by Sage, which factors in historical sales, marketing, promotions and market trends to create reliable forecasts and buying recommendations without the errors and hassle of using manual spreadsheets.

What is supply planning? (aka OTB planning)

Open-to-Buy or OTB is a retail planning strategy that helps retailers accurately work out how much inventory to buy or produce to meet a goal, according to units, cost or revenue. It’s also known as ‘merchandising planning’ or ‘supply planning’.

Whereas demand planning forecasts future customer demand, OTB planning helps businesses work out how they will fulfill that demand while still meeting their financial and service goals.

An OTB or supply plan can start with your revenue goal for the coming months and then factor in current and incoming ordered stock to ensure that you have enough inventory on hand to meet your revenue goals.

It’s especially important for merchants with long lead times from overseas suppliers (eg: fashion brands) because it reveals whether you can stay afloat while you wait for inventory to arrive, and whether your cash flow is healthy enough to place other orders.

Demand planning vs. Supply planning

Demand planning is forecasting future customer demand for your products or service.

Supply planning is managing supply to fulfill demand and meet your financial and service goals.

Demand planning with Inventory Planner

Inventory Planner is the market-leading solution for businesses that need demand planning they can trust. Merchants from all sectors use it to know exactly the right amount of stock to meet demand, avoiding excess stock and stock outs.

Here are some of the top features…

  1. Custom forecasting models
    Seasonal, non-seasonal, retail and wholesale products all sell differently. Select the most suitable forecasting model for each product to guarantee accuracy.
  2. Automated adjustments to new trends
    Inventory Planner constantly monitors your sales patterns and adjusts demand forecasts accordingly, so you’ll always have the right stock for the next trend.
  3. Optimize ‘safety stock’
    Tweak your ‘stock coverage days’ at every level, from SKU to supplier, so you don’t tie up your cash in slow-movers you can’t shift, or run out of top sellers.
  4. Eliminate overstock before it’s too late
    Liquidate your cash flow killers before they completely lose their appeal. Use key metrics like last sold date, overstock units and overstock costs to safely reduce overstock.
  5. Align your marketing with your forecasting
    Signed up an influencer? Planning a big promotion? Sync your forecasts with your marketing, so you won’t annoy hard-won new customers by running out of stock.
  6. Bundling and assembling made simple
    Inventory Planner breaks forecasts down to component level and tells you how much inventory of each component is needed, plus when to order it.
  7. Forecast for multiple inventory locations
    Get reliable inventory purchasing and warehouse transfer recommendations based on up-to-date forecasts, for all locations.
  8. Cleverly predict sales for new products
    Inventory Planner ‘borrows’ sales data from similar products to predict demand for new items (including size, color, fabric and pattern), slashing the risk of over or under ordering.

Supply planning with Inventory Planner

Inventory Planner offers retailers the opportunity to get first-rate demand planning functionality and the best in supply or OTB planning in one place. After some exciting recent updates, supply planning with Inventory Planner is easier to use and more powerful than ever.

Here are some of the top features…

  1. Plan in retail/revenue
    Retailers have long used Inventory Planner to do open-to-buy planning by retail (aka by revenue) and this feature will remain. It gives merchants the power to plan how much inventory to buy to meet a target revenue target.
  2. Plan in cost
    Most leading retailers plan based primarily on how much purchasing budget is available, so we’ve added new, simple open-to-buy functionality that does just that. It’s good news for companies using cost-based accounting, too.
  3. Plan in units
    Some merchants prefer to plan based on forecasted demand, so we’ve made it easy for merchants to see exactly how many units to buy. This info can help merchants negotiate with vendors to boost profit margins.
  4. Plan by category, brand or vendor
    Customers have the flexibility to plan by category, brand or vendor. However, it’s important to note that OTB planning by vendor requires caution if your vendors change within your planning period.
  5. Factor in POs
    It’s vital that merchants can include incoming stock to any or all locations into their OTB planning, which is why Inventory Planner includes the option to consider any purchase orders that have been placed.
  6. Factor in transfers and assembly orders
    More retailers are assembling orders in house to cut costs and transferring stock between warehouses before ordering new inventory. The quantity of inventory in other locations and soon-to-be-assembled inventory can be accurately factored into OTB plans, making location-specific planning easier.
  7. Plan using tags
    This feature gives merchants the power to create flexible open-to-buy plans that fit the unique needs of their business. Users can quickly create custom groups of products using ‘tags’ and then plan based on these.
  8. Plan in retail weeks or calendar months
    To compensate for the ‘53 week year’, some retailers like to maximize ‘like for like’ sales comparability between years by dividing the year into months based on a 4 weeks – 5 weeks – 4 weeks format. Inventory Planner allows OTB planning by retail weeks, with 4-5-4 and 4-4-5 options available, or by calendar months.

Learn more about supply planning with Inventory Planner in our free upcoming webinar or check out
this blog.