Demand planning constitutes an important supply chain management (SCM) attribute affecting various business operations and aspects, from production to distribution, warehousing, the end consumer, and eventually the organisation's bottom line. Generally, demand planning encompasses forecasting demand (Jain & Malehorn, 2012). Effective demand planning is important for aligning inventory with changes in demand and enhancing the accuracy of revenue projections (Chase, 2013). This paper examines the importance of effective demand planning. First, the paper focuses on issues associated with demand planning in today's business operations. Next, attention is paid to the impact of poor demand planning on business operations. Finally, the paper focuses on the implications of ineffective demand planning on production, supply chain operations (specifically distribution, warehousing, capacity management, the end customer, and engineering), as well as the organisation's strategic planning process and bottom line.

Demand Planning Issues Today

Businesses exist in a constantly changing environment. Customer tastes and preferences, technologies, regulatory requirements, markets, and the industry environment keep evolving, affecting demand planners in different ways (Stadtler, Kilger & Meyr, 2015). The challenge of constant change is that the change sometimes comes at the most unexpected of times, catching demand planners completely unaware. For instance, an unexpected legislation or economic catastrophe causing a revision of previously projected demand levels. In today's business world, therefore, it is more imperative than ever before for organisations to make demand forecasts in consideration of the uncertainties and complexities that exist in the operational environment.

Demand planning issues in today's business world emanate from not only the external environment, but also internal environment. Forecasting tools, management support, and involvement of stakeholders in the demand planning processes are crucial ingredients of success as far as forecasting is concerned (Barr, 2002). Lack of proper forecasting tools, for instance, may result in inaccurate forecasts. With technological advancement, demand planners have a wide array of forecasting tools at their disposal.... Acquiring and maintaining these tools, however, requires the support of the management. The role of the management involves not only providing the necessary resources and support, but also creating an atmosphere of stakeholder involvement. Indeed, stakeholder involvement has become crucial in today's demand planning processes (Jain & Malehorn, 2012). Organisations now have to more closely work with customers, suppliers, distributors, retailers, and other key stakeholders in the supply chain to produce more accurate demand forecasts.

Impact of Poor Demand Planning on Business Operations

The importance of effective demand planning has increased significance, contemporarily. Indeed, ineffective demand planning can negatively affect business operations. Underestimating demand, for instance, may cause products to run out of stock when most needed by customers (Hensel, n.d.). This may not only cause loss of revenue, but also hurt the business's relationship with its customers (Huff & Sultan, 2014). It may result in customer dissatisfaction, reduced loyalty to the brand or organisation, and even the loss of customers. With customers' increased access to many options in today's increasingly competitive business environment, an organisation cannot afford to allow its relationships to weaken with its customers. Poor customer relations may negatively affect business operations. Running out of stock may hurt the business in terms of not only revenue loss and customer dissatisfaction, but also creating needless costs (Chase, 2013). During out-of-stock circumstances emanating from underestimating demand, organisations are often compelled to incur extra costs in instituting unexpected production changeovers (Hennel, n.d.). On the other hand, over-estimating demand may lead to excessive inventory. It is well-known that excessive inventory can significantly increase costs (Stadtler, Kilger & Meyr, 2015). The following sections highlights the specific areas that may be affected by poor demand planning.

Impact of Poor Demand Planning on Production and Supply Chain Operations

Production

One of the key areas affected by poor demand planning is production. Production processes are significantly supported by demand…