Demand Planning and Sales and Operations Planning (S&OP)

The topic of demand planning within the umbrella of S&OP is a pretty important one. After all, if we fail to get the demand plan right, we end up going forward in the wrong direction, and struggle to meet our objectives, with the rest of the organization playing catch up to account for poor demand plans.

Creating a Demand Plan

It starts by making sure your demand plan includes all of the elements required to give you a complete picture and connecting these to pull it together:

• Bookings are the orders sales commits to bring in

• Shipments are what the company can realistically deliver (given capacity and constraints)

• Backlog is the buffer of unshipped orders between bookings and shipments

Looking at only one of these creates blind spots, but together they provide a full, balanced picture of demand. A strong demand plan articulates both the inflow and outflow of orders while connecting these decisions to the overall strategic plan.

Types of Demand

In addition to bookings, shipments and backlog, you want to also include a view of both constrained and unconstrained demand.

• Unconstrained demand is what customers want (regardless of what your business is able to provide)

• Constrained demand is what the company can realistically deliver given capacity and resources

Sales should plan bookings as unconstrained demand, while operations develops a constrained shipment plan based on their supply limits.

Your backlog buffer fills the gap between the two. Comparing these views highlights trade-offs, opportunity costs, and growth potential.

The goal isn’t a perfect forecast but a transparent picture of demand versus capability, giving leaders the clarity to make informed decisions about priorities, capacity, and strategy.

Demand Streams

Your demand plans also need to be at the right level of granularity to drive the strategic decisions in S&OP. Because S&OP families should be setup by constraint, you will want a further level of granularity by segmenting demand into demand streams. Demand streams align your family demand into market segments or demand types.

Different demand streams may require different forecasting or planning methodologies. They may have different demand characteristics such as lead time or make to stock vs make to order. Having the right expectations around accuracy and accountability for each of these is important to drive accuracy.

Measuring Accuracy

Often people push for the most accurate forecast possible, without asking the question “how accurate does my forecast need to be?" Instead of measuring accuracy to a number, hold the team accountable to accuracy with a tolerance level.

This will show when performance is on track or drifting off course. Out-of-tolerance results should result in root cause analysis and drive improvements to the process. This is how you get better.

Tolerance bands should also be lined up with how you set your buffers. Buffers such as inventory, upside flex and backlog are there to protect you from demand uncertainty and volatility. Start with realistic tolerance bands and narrow them over time as discipline improves. As you narrow the tolerances, you can reduce the buffers

Staying Accountable

Finally, issues such as out-of-tolerance performance or unexpected results that are flagged need to be solved. S&OP works to drive accountability in the demand planning process. Accountability is a critical but often misunderstood part of S&OP and without it, even strong processes lose traction. In demand planning, sales owns bookings, and operations owns supply, meaning constrained shipments are a shared accountability.

Backlog and inventory act as scorecards showing the results of those decisions. When this accountability is weak, meetings become blame sessions and executives lose confidence in the demand plan. When it’s strong, S&OP becomes a decision-making tool that drives alignment and creates a place where assumptions are challenged and adjusted.

Great demand planning points the organization in the right direction. S&OP will help you align your organization with that demand plan. But more than that, a good S&OP process should provide the feedback required to improve your demand planning processes. It’s a symbiotic relationship. Improving your demand plan will improve your S&OP plan, and improving your S&OP process will improve your demand plan.

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At DBM Systems, our consultants have over 20 years of experience providing S&OP leadership to businesses worldwide. We equip teams with coaching and the tools to quickly start and sustainably run an effective S&OP process. Learn about our process and unlock the power of S&OP in your organization.