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3. Demand Planning
Individual functional departments, such as sales and manufacturing, take specific actions in expectation of demand for a firm’s product or service. Demand planning aligns these activities by creating a target for the sale of a product that will be used by the sales department to establish demand for the product as well as the manufacturing group to create the supply with which the demand is met.
It is therefore important for demand planning as the alignment of the anticipations of individual departments regarding demand and supply decreases the probability of a mismatch in the actions taken by individual departments to meet supply and demand targets. A failure to match demand and supply can lead to an overstock or understock of inventory those results in either excessive inventory costs or lost revenue opportunities