Demand planning is a critical component of supply chain management because it ensures that the product supply is in sync with consumer demand. This alignment help prevents two major issues: excess inventory and stockouts. Excess inventory can lead to increased holding costs and waste, particularly if products become obsolete or expire. On the other hand, stockouts can result in lost sales and damaged customer relationships, as unmet demand means customers might turn to competitors.
By effectively forecasting demand, businesses are better equipped to maintain optimal inventory levels. This not only enhances operational efficiency but also improves overall customer satisfaction, as the right products are available at the right time. Additionally, effective demand planning contributes to better decision-making regarding production, procurement, and distribution across the entire supply chain, fostering a smoother operational flow and reducing the risks associated with fluctuations in market demand.