Success in demand planning isn’t just about using advanced models or powerful analytics it’s also about how well your company’s strategy and teams work together. While data and forecasting tools build the foundation, real success depends on your production strategy, industry dynamics, and how much ownership your organization takes over the planning process.
In this article, we’ll explore how different production strategies like make-to-stock and make-to-order shape your approach to demand planning. We’ll also look at why your industry context matters and how the structure of your planning team can drive long-term results.
If your goal is to turn forecasting insights into real-world business impact, understanding these company-specific factors is key. It’s about building a planning process that stays agile and adapts to market signals as they happen.
A company's production strategy (largely determined by the industry of the company), whether make-to-order (MTO) or make-to-stock (MTS), is crucial in shaping its approach to demand planning.
In a make-to-stock (MTS) environment, production is driven by demand forecasts (and the related inventory positions). The end products are produced in advance and stored based on expected demand. This approach is rather a push system, where historical data, market trends, and seasonal patterns help predict future demand. MTS is typically used in industries with stable demand patterns and well-established products, such as consumer-packagedpackaged goods (CPG), electronics, or automotive components.
If you overestimate demand, you're stuck with excess inventory, driving up storage costs. If you underestimate, you risk stockouts and lost sales. A common pitfall is reacting to sudden demand spikes—like customers stocking up during a promotion—by increasing the forecast, which can lead to inefficiency later.
Collaboration with marketing is essential to understand how promotions or incentives might shift demand or even cannibalize sales of other products.
In make-to-order (MTO) environments, production of the end product is triggered only when an order is received. This pull system is common in industries like pharmaceuticals, fashion, or customized manufacturing, where products are tailored to specific customer needs. MTO minimizes excess stock, but it brings challenges with lead times and production readiness.
MTO often deals with longer lead times, which can result in customer dissatisfaction if production takes too long. To manage this, many companies hold inventory for basic components that can be quickly assembled when an order comes in, essentially blending MTO with MTS principles.
Collaboration with sales teams is critical here. Salespeople can provide insights into upcoming contracts or large deals, allowing you to adjust your forecasts for raw materials and components ahead of time.
Make to stock vs make to order by Intuendi: https://intuendi.com/resource-center/make-to-stock-or-make-to-order/
Make to stock vs make to order by Siemens: https://blogs.sw.siemens.com/opcenter/make-to-order-versus-make-to-stock-planning-what-makes-sense-for-you
Demand planning needs alignment across multiple departments, but the question of where it should sit, within Supply Chain, Sales, or as a separate function, has been debated for years.
While it's often placed in either supply chain or sales, there's growing support for establishing it as a distinct, strategic role. Let's explore the pros and cons of each approach.
Supply chain ownership: When demand planning sits within the supply chain department, the focus tends to be on optimizing operations and managing inventory levels. Supply chain teams have visibility into production capabilities, lead times, and logistics, making them well-suited to develop demand plans that align with these constraints. However, this focus on operational efficiency can sometimes cause a disconnect with the commercial side. Supply chain teams might prioritize cost reduction over customer service, leading to stockouts or slower responses to market changes.
Sales ownership: In some companies, demand planning is owned by the sales team. This can create a stronger connection to customer needs and market trends, as sales has first-hand insights into customer preferences. Sales-driven demand planning often leads to better service levels and faster responses to shifts in demand. The downside? Sales teams tend to focus on short-term targets, which can inflate forecasts. This can result in overstocking and inefficiencies, as sales-driven forecasts may prioritize revenue goals over operational feasibility.
A potential solution is to establish demand planning as a separate, cross-functional role that operates independently of both sales and supply chain. Here's why:
Who should own the demand management process? By Arkieva: https://blog.arkieva.com/demand-management-process-ownership/
Sales vs supply chain: where should planning reside? By IBF: https://demand-planning.com/2023/05/22/sales-vs-supply-chain-where-should-planning-reside/