In day-to-day operations we focus on demand planning. We focus on supply planning. Then… we seem to lose focus. There is sometimes a sense of wishful thinking that the demand plan that was so diligently generated will magically appear in the supply plan the way we want and everything will work out perfectly!
Unfortunately, real life rarely works that way. It comes down to a fundamental difference in the ways that demand and supply plans are generated. Demand planning tends to be at a higher level—for example, at a style or style-color by week. Supply planning is at the most granular level—say, style-color-size by day. This difference in calculation is further complicated by actual orders coming in. How are they accounted for in the demand plan?
Ultimately it comes down to forecast netting. It can sometimes be tough to realize that netting logic has an impact on how the supply plan should be developed. This brings us back to the million-dollar question: is there a magic formula for how to best net demand? Short answer—not really. Some larger companies choose to run algorithms based on years of historical data, but not every company can access its data easily, or the company may be so new that folks are still figuring things out.
The right answer is depends on how aggressive or conservative your company wants to be when it comes to planning. Deciding whether to net demand at a high level then disaggregate it to lower levels, or vice versa, is an art and a science.
Just be aware that you should be prepared with a contingency plan if your actuals come in higher than your demand plan, or vice versa—but that’s a topic for another day.