example of supply and demand in business plan

Trending Courses

Course Categories

Certification Programs

• Free Courses

Economics Resources

• Free Practice Tests
• On Demand Webinars

Demand and Supply Analysis

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Reviewed by :

Dheeraj Vaidya

What is Demand and Supply Analysis?

The demand and supply analysis focuses on the demand for a product or service and maximum production-distribution capabilities. It highlights the gap between the market's requirements and the fulfillment of goods and services.

This analysis is based on the law of demand and the law of supply. The law of demand explains that the demand for goods is inversely related to their price. The law of supply, on the other hand, states that goods supply is directly related to their price.

Table of contents

Demand-supply analysis explained, applications, frequently asked questions (faqs), recommended articles.

• Demand and supply analysis is the study of price changes with respect to the number of buyers and sellers for a particular product.
• In a state of market equilibrium, the demand curve and the supply curve intersect. At this point, the demand and supply for a commodity are equal.
• The fair price of farm yield is also based on demand-supply. In a perfectly competitive market, farmers are price takers and demand-supply is the price maker. Therefore, governments set a minimum price to protect farmers.

The demand for goods and services signifies the consumers' need, willingness, and ability to buy a particular product. Supply, on the other hand, refers to the production capacity of manufacturers and distributors. A demand and supply analysis is essential to understand the impact of those forces on buyers, sellers, buyer-seller interactions, and prices.

The demand-supply study is based on the laws of demand and supply. The law of demand depicts an inverse relationship between goods price and goods demand. The law of demand renders a downward sloping curve—demand goes up when goods price falls.

If other factors remain constant, the law of supply suggests that an increase in goods price should result in an increase in the supply of goods and vice-versa. It establishes a direct relationship between the price and supply of a commodity—forming an upward curve.

Demand and supply together help determine market conditions and consumer behavior. Thus, understanding economic equilibrium is crucial in economics.

Economic equilibrium or market equilibrium is a point where the demand curve cuts across the supply curve . It is a scenario where the demand for a commodity is equal to its supply. On a graph, it is represented as follows:

However, if demand exceeds supply, then there is a shortage of that product. Also, if supply is higher than demand, there is a surplus.

The demand for a product or service is dictated by various factors—goods price, consumer income, consumer taste, consumer preference, price of related goods, competition, consumer expectations, and income distribution.

Similarly, supply fluctuates due to price changes , fiscal policy, monetary policy, natural disasters, price of production factors, monopoly, climate conditions, infrastructure, and technological advancement.

The most common example of demand and supply is the price fluctuation of securities. Stock market analysts study both the demand and supply of stocks to predict future price trends.

Let us assume that the demand for a particular security is high. In that case, there will be many buyers in the market, and the security will be low in supply (a smaller number of people would be willing to sell the security). Due to the high demand-low supply predicament, the security's price is expected to shoot up.

In contrast, if a stock's demand shows a downfall, a smaller number of people are interested in buying it. Let us assume that its supply is high—many stockholders are willing to sell the shares. In this scenario, the stock price will fall—due to surplus supply. 

In economics , the demand-supply study elucidates the dynamics between buyers and sellers (in a free market). Other applications are as follows:

Price Control : When at war, governments use demand-supply analysis to set a price ceiling for each product. The price ceiling is the maximum price of essential goods or services. In order to ensure public wellbeing during pressure situations, this price is kept lower than the equilibrium price.  

Housing Rent Control : Here, the government ascertains a maximum rental price that can be charged to tenants for occupying houses for rent. Again, the set limit is below the equilibrium for housing rent price. This is done to safeguard lower or middle-income tenants from exploitation.

Taxation : The analysis considers the impact of direct and indirect taxes on consumers. When indirect taxes are raised, consumers are burdened. It results in a shift in demand and supply curves.

Subsidy : To encourage a particular commodity, the government offers subsidies to manufacturers. Such grants decrease the price of that particular good or service. As a result, there is an increase in both demand and supply.

Farm Product Pricing : The fair price of farm yield is also based on demand-supply. In a perfectly competitive market, farmers are price takers, and market forces (demand and supply) are the price makers. However, the government sets a minimum price to protect farmers from losses.

Black Market Identification : Black marketers flourish when demand for a commodity is high but the supply is low. They sell products at a price higher than the ceiling price. The demand and supply study reveals such practices.

Minimum Wage Legislation : State governments undertake such analyses of labor markets to determine minimum wages. A minimum wage cap protects employees and laborers from exploitation.

Consumer Surplus and Producer Surplus : A demand-supply study explains the consumer surplus—the gap between the amount consumers are willing to pay and the actual amount paid for a particular commodity. The study also sheds light on the producer surplus —the amount at which producers were ready to sell and the actual selling price.

If the demand for a commodity exceeds the quantity supplied, then there is a shortage of that commodity in the market. This shortage results in a price rise. In contrast, if supply surpasses demand, there is a surplus of that product—resulting in a price fall.

The price of a product or service is the major factor causing demand and supply changes. Other factors include consumer income, customer preference, price of related goods, competition, consumer expectations, fiscal policy, monetary policy, price of production factors, monopoly, climate conditions, infrastructure, and technology.

The law of demand states that when commodity prices increase, their demand decreases. In contrast, the law of supply states when commodity prices increase, its supply also increases.

This has been a guide to what is Demand and Supply Analysis & definition. We discuss Demand and Supply Analysis meaning, graph, application, & examples. You can learn more about it from the following articles - 

• Derived Demand
• Determinants of Demand
• Joint Supply

This device is too small

If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.

• Small Business

7 Reasons Supply and Demand Matters to Your Business

Updated Aug. 5, 2022 - First published on May 18, 2022

By: DP Taylor

As a small business owner, you're constantly thinking about supply and demand, even if not specifically in those terms. You're wondering if people will buy a new product you're developing, for example, or you're trying to figure out if you have enough units on hand to fill all the orders customers made after a marketing campaign .

Whether you run a seasonal business, own a vacation property for passive income, or operate a more standard business entity, basic economics like supply and demand should matter to you. Here are seven reasons in particular that should drive your thinking as you plot out your business's future.

The supply and demand curve has an inescapable effect on the pricing of the products and services you offer. A lack of market demand will force you to lower prices in order to move products off the shelves, while a lack of supply may cause prices to skyrocket.

Businesses attempt to achieve equilibrium quantity and optimal pricing by placing it at just the right point in the supply/demand intersection -- a tricky task to be sure, and a constantly moving target.

Why a Business Credit Card Could Transform Your Small Business

These business credit cards that offer a convenient and efficient way to separate personal and business expenses, simplifying accounting and tax reporting.

Additionally, business cards can provide valuable perks such as rewards points, cashback, and expense tracking tools, enhancing financial management and the potential to help save money in the long run.

2. Competitiveness

Supply and demand has a big impact on the competitiveness of a company. For example, if a firm loses access to supply, they are unable to satisfy customer needs and risk seeing them flee to a competitor. A plunge in demand for a product provides an opening for a competitor to offer an alternative to customers and take market share. A rival may also cut prices in an attempt to drive demand.

Example: Amazon has grabbed a stranglehold on the online retail market by driving prices as low as possible, often selling items at a loss. After subtracting the profitable Amazon Web Services and Amazon Prime portion of the business, the retail portion of Amazon loses billions of dollars annually. This has given Amazon the power to force many smaller retailers out of business and take over more market share in their absence.

3. Expansion

An organization’s ability to expand is highly dependent on supply and demand. Greater demand for a product or service gives the firm the opportunity to grow the business, hiring more workers and increasing capacity to match the demand.

On the other hand, oversupply and low demand forces businesses to contract, laying off staff and closing factories. Companies must achieve the appropriate balance for consistent and sustained expansion.

Example: Blockbuster once owned more than 9,000 video rental stores across the nation, but by 2010 they had declared bankruptcy. The chain was done in by the fact that people no longer wanted to rent physical DVDs, thanks to competitors like Netflix, who created DVD-by-mail and eventually video streaming. Essentially, Blockbuster saw demand for their product drop to almost zero in just a few years and failed to respond quickly enough.

4. Marketing

A company can drive demand for a product or service through marketing. A good marketing campaign can make a customer aware of a product or service and create a desire for it, causing demand to emerge out of nowhere. This creates a justification for a company to create a supply to fill that demand. Marketing and demand create a relational loop that feeds itself.

Example: When Apple’s iPhone came along, it filled a need people didn’t know they had. Through extensive marketing, Steve Jobs was able to convince the world that they needed more than a phone -- they needed a handheld computer that could make calls, play music, browse the Internet, and do all sorts of other tasks. Now, it’s hard to find a non-smartphone, even if you try.

5. Inventory

Inventory is a major logistical challenge for all companies selling a physical product. Supply and demand greatly influences the profit margins of companies that have inventory -- oversupply and low demand results in high inventory costs for the company, while undersupply and high demand will cause the company to be constantly running out of items and displeasing customers.

Inventory management is critical for forecasting supply and demand and planning accordingly.

Example: Back during the Christmas season of 2011, Best Buy had a major catastrophe on its hands. Due to poor forecasting, it had failed to have the proper level of inventory to fill all orders customers had placed -- even those made as early as November. The company made an announcement just days before Christmas that many customers wouldn't get their gifts in time -- despite having been promised on-time delivery -- causing an explosion of outrage that made a major dent in the retailer's reputation.

6. Financing

Strong supply and demand increases the attractiveness of a company to investors, prompting banks, lenders, and inventors to offer their financial assistance to improve and expand the business in exchange for a stake in the company.

On the flip side, a lack of strong demand for a product or service will cause a company to struggle to attract outside investment to turn the company around. Successfully securing financing may help a company boost demand and build a stronger supply chain.

Example: Airbnb leveraged its success in creating a booming online home-rental business into a massive public investment spree. The company went public in December 2020, and on the first day of trading, its Initial Public Offering (IPO) topped a staggering $100 billion.

7. Salaries

Strong demand and the supply to handle it will cause extra revenue to flow into a company’s coffers, giving it more freedom to pay higher salaries in an attempt to attract top talent.

Higher salaries lead to greater worker retention and satisfaction, and improve workers’ confidence in the business. This, in turn, can boost productivity and improve the performance of the business and its products -- which can further increase demand.

Example: In 2015, Gravity Payments CEO Dan Price made headlines by announcing that the company would raise the pay of all employees to at least $70,000 per year while cutting his own salary from $1 million to $70,000 to cover the increase. Today, he boasts arguably the most loyal staff in the country -- when the COVID-19 crisis hit and revenue plunged 50%, loyal employees offered to take pay cuts in the interim to keep the company humming, with about a dozen offering to take no pay at all. It’s hard to imagine that happening at a typical company.

Set aside time to plan for your company’s future

One of the best small business tips you can get is to properly prepare your company for any scenario when it comes to supply and demand. Too many small business CEOs are caught up in the thick of putting out daily fires and don’t carve out time to really plan for the growth of their business.

They don’t take time to ask themselves the big questions. What are the factors impacting demand in my business? What are the potential disruptions to supply? What backup plans can I create to weather -- and even thrive in -- any storms?

Take some time in the coming days to sit down and plot a new path forward for your business. Conduct a business impact analysis to determine what threats are out there and how you can respond. Draft a gap analysis to determine where you are and where you’re going. It will give you peace of mind to know that your company is prepared for anything.

Our Research Expert

DP Taylor is a business software expert writing for The Ascent and The Motley Fool.

Share this page

We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.

Related Articles

By: Cole Tretheway | Published on June 7, 2024

By: Lyle Daly | Published on June 5, 2024

By: Christy Bieber | Published on June 5, 2024

By: Lyle Daly | Published on June 4, 2024

The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.

Copyright © 2018 - 2024 The Ascent. All rights reserved.

Supply & Demand Analysis

A demand and supply analysis is a vital tool used in economics to inform business decisions. When it is done accurately after considering factors such as trends and seasons, a supply and demand analysis can anticipate the effects of market shifts.

What Is Demand and Supply Analysis?

At the core of a supply and demand analysis are two laws: the law of demand and the law of supply. According to The Business Professor, the law of demand stipulates that the quantity of demanded goods and services lowers with the rise of prices. Conversely, the law of supply stipulates that the number of goods and services supplied increases with a rise in price.

Britannica explains that a supply and demand analysis indicates the relationship between the quantity producers want to sell at various price points and the quantity consumers will buy. Including a demand and supply analysis in a business plan is one of the best tools business owners can use to predict their next moves. By analyzing various factors that affect supply and demand, businesses can predict the amount of product they should produce at a particular price point to yield the most profit.

Advertisement

Article continues below this ad

More For You

The concept of supply & its uses in business, what happens to price when supply decreases, relationship between level of prices and demand, what can make a demand curve shift, what is the market analysis of a supply and demand curve, how to interpret supply and demand.

In a graph, the demand curve is represented by a downward curve based on the relationship between what consumers want and what they can pay. As prices rise, demand decreases. If consumers cannot afford a product, they won't be interested in buying it. When plotted on a graph with price on the vertical axis and demanded quantity on the horizontal axis, the demand curve slopes downward as price increases and quantity decreases. The steepness of the curve depends on the current influences on demand.

In a supply analysis, the supply curve is plotted onto the same graph – with prices on the vertical axis and quantity on the horizontal – as an upward sloping curve. Based on the number of goods produced, the supply curve factors in input resources, labor, technology and regulations to accumulate its data.

The equilibrium is the point where the two curves meet. This point indicates where the market balances and the quantity supplied matches the demand. Businesses can adjust their prices or supply to find the equilibrium point and use workforce planning to meet an upcoming predicted demand.

Supply and Demand Influences

Many factors influence supply and demand trends. Five common factors that influence demand are consumer preference, income level, substitute prices, complementary goods and future expectations.

Many products become popular based on trends; However, trends don't last forever. As consumer preferences shift, demand for formerly popular products will likely decrease. Similar to trends, future expectations also influence buyer habits. For example, if the consumer expects prices to decrease, they may wait to purchase later, such as buying holiday decorations after the holiday season has ended.

However, complementary goods, which are items that are traditionally bought together, affect demand differently. If one item becomes cheaper, such as pancake mix, the demand for maple syrup is more likely to increase. Production costs, technology advances, the number of suppliers and government regulations can all affect supply trends. For example, advances in technology can influence supply by cutting costs in the production chain, making it cheaper to produce more product.

• The Business Professor: Demand-Supply Analysis - Explained
• Britannica: Supply and Demand

Danielle Smyth is a writer and content marketer from upstate New York. She holds a Master of Science in Publishing from Pace University. She owns her own content marketing agency, Wordsmyth Creative Content Marketing, and she enjoys writing home and DIY articles and blogs for clients in a variety of related industries. She also runs her own lifestyle blog, Sweet Frivolity.

Business Plan Demand Analysis, Four Things to Consider

Small businesses and entrepreneurs use demand analysis to:

• Consider substitute products and services
• Get input from (potential) customers
• Determine what “drives” demand
• Understand what variables affect demand and to what degree

Demand analysis is about challenging your preconceived notions regarding your product/service. A stress test, if you will. A demand analysis will take your idea and start molding it into something that has even higher potential.

As an entrepreneur, you can’t be too stubborn. You have to be flexible. After going through this process, the hope is that you’ll come out the other end with an even more refined idea and a greater chance at success.

Market research and competitive analysis for a business plan

This is the second post on drafting a business plan for your startup. These posts are modeled after the SBA Business Guide .

Want to know how many people are included in your “customer avatar?” Read this post: BUSINESS PLAN DEMOGRAPHICS – DEFINING A TARGET MARKET

Business plan demand analysis of the total market

When first thinking about the market for your product/service, don’t define it too narrowly. Try to think of substitutions that you might not have otherwise considered. No, you might not compete directly with these substitute products, but the presence of substitute products will have an impact on your pricing and demand.

Pricing too high could push customers to these substitute products. Even if that pricing seems in line with your value proposition when compared to direct competitors. But, theoretically, the amount demanded changes (inversely) with the price. A higher price will push customers to consider alternatives. A lower price should result in a higher volume sold.

Further defining the market for my product

As I mentioned in my first business plan post on the topic of demographics, I am working alongside you. I have a prospective product that I would like to explore the viability of, and I am creating a business plan for this product as I write these posts. As a reminder, my potential product is an all-natural hair-thickening topical supplement.

Anyhow, in the previous post, I used “customer avatars” to roughly ascertain the size of my market. I think I was fairly liberal in that estimation. The three of my avatars that were the most detailed totaled approximately 5.2 million people. The avatar that was broader included 6.5 million people.

Want to know what a top-down and bottom-up analysis would say about your market size? Read this post: MARKET SIZE FOR A BUSINESS PLAN – 2 METHODS TO GAUGE IT

Substitute products

As mentioned above, I have to keep in mind that not all of these people will pursue hair loss treatment. Many, will just accept it as a normal part of aging. Others will choose to address the problem but will pursue an alternative treatment method to topical supplements. Some of these alternative treatment methods include:

• Biotin, vitamin D, Viviscal, Nutrafol, Finasteride (Propecia), collagen powder, nutriceuticals, Spironolactone (Aldactone)
• Toupees, hair fibers
• Laser treatments, microneedling, hair transplants, protein-rich plasma injection
• HairMax LaserComb, light treatment

In addition to substitutions, I have to consider the direct competition. The alternatives that are also topical. Those include:

• Minoxidil (Rogaine), rosemary essential oil, pyrithione zinc shampoo, scalp tonic/serum

Obviously, there’s no shortage of alternatives to my prospective product. However, many of these treatments are ongoing and the potential exists for customers to combine them.

After listing these potential substitutions, it dawned on me that there are a couple of different classes of hair loss. I would probably target individuals that are in the early stages and are merely looking for help to slow down and, hopefully, somewhat reverse the initial effects of hair loss.

Another thing that dawned on me when researching substitutions is that it might be a mistake to only consider men when ascertaining the market for this product. Most of the results I found when searching “hair loss treatments” were articles targeted at women.

As I said, I’m taking this journey right along with you. So, I’m refining my idea and picking things up as I go along.

Gathering survey information for your business plan demand analysis

The next steps are mostly statistical. That might give you pause if numbers aren’t your thing.

I really do wish I could provide you with the handiest spreadsheet imaginable to manage the information you find. There are just too many variables, though. Different surveys asking different questions. Not to mention, every industry is going to address unrelated topics. I just couldn’t figure out how to make a one-size-fits-all tool.

What we’re going to do is compile whatever relevant statistical information we can get our hands-on, and interpret what we find. You can input this information into your own spreadsheet if you like

Statistical information, hopefully, can be obtained from a simple internet search. “[your topic/industry] survey results”, or something similar should yield some useful information. If you can’t find relevant info, then you might have to reach out to industry trade magazines or organizations.

As far as how much survey information to collect – there’s no clear answer. It depends, first and foremost, on the abundance of such information. If there is plenty available, then I guess I’d recommend collecting it until you’re tired of doing so. You can always circle back around and search for more specific results if you need to in the future.

What to focus on

Right now, focus on demographics information, substitute product information, and information about motivation (drivers).

This is where having it in a spreadsheet will come in handy. With the numbers in a spreadsheet, you can combine survey information and break it down as needed. Check out my example below to see what I mean.

Survey information about my product

There was no shortage of survey results regarding hair loss. In fact, I grew tired of collecting information well before I was able to read it all.

I must admit, I learned something on this step. I learned that it probably makes more sense to do this research before creating customer avatars rather than after .

This research showed me that hair loss in women is a considerably more prevalent problem than I knew. So, I should definitely not exclude women when trying to calculate the size of my target market. Additionally, I learned a lot more about the age that hair loss starts to affect men and women. Not to mention, a lot of other interesting tidbits related to marketing and substitute products.

I simply typed the figures I found into the cells and tried to organize it in a somewhat easy-to-read format.

To make this information as useful as possible, I also included a link to the survey – in case I wanted to reference it again. Also, I thought it would be useful to make note of the year the survey was conducted. That way, I could note trends, if any existed.

Finally, to top it all off, I put in some charts. Charts can help to illustrate ideas in a way that numbers can’t, sometimes.

Now, I have a nice little foundation of data to build my business plan off of. I also know that there is plenty of other information out there if I want to delve further on a specific topic.

Divide total industry demand into its main components.

Now, you want to start to organize the information you found in a logical manner.

First, isolate the information related to demographics or that which otherwise describes your potential customers to you. You want to break this information up so that you can get an idea of what your potential customers might look like. You should, hopefully, begin to see customer “avatars” take shape.

Yes, I asked you to create avatars in the previous post. As I said above, that was probably premature. It would make more sense to create the avatars with this survey information, then use the census/demographic information to estimate the size of the market based on what you found.

Live and learn…

After you have the demographic information in good order, move on to the “solution” information – if available. This is information that specifies how customers are solving their problem(s) now.

If you’re lucky, this information will join seamlessly with the demographic information you organized above.

Start with the simplest questions (those with the fewest variables) and expound from there.

What if my survey data is inconsistent?

You might run into a situation where you have conflicting information. Or you might find yourself in the fortunate situation where different surveys seem to corroborate the same statistics.

If your information sources don’t jive, you have a couple of options. First, you can move forward with the information you deem to be the most trustworthy. Or, alternatively, you can average what you found. This works well if the differing results are relatively close together. Finally, you can choose to use the data source that is most recent – particularly if your industry is especially dynamic.

All of your numbers aren’t going to jive up perfectly. However, at this point, you are armed with a lot better information than when you started. Better information will ultimately lead to better decisions.

Industry components for my product

Demographics.

For my part, I like to start simple and divide my demographics based on the variable with the fewest options. In this case, the simplest variable only has two choices – men and women.

From there, I used information that I found regarding the percentage of men and women that have had hair loss and have tried treatments.

Next, I break things down further based on the age that men and women started experiencing hair loss. I was fortunate to find information for both genders.

That’s the extent of demographic information I was able to obtain. I would have liked to have found some information regarding income or socioeconomic status. If that information proves to be critical as I move forward with my business plan, I’ll have to circle back around to see if I can track it down.

Once I felt good about my (revised) customer avatars, I moved on to “solution” information.

Want to use data.census.gov to know how big your potential market is? Read this post: CENSUS DATA MARKET RESEARCH AT THE NEW DATA.CENSUS.GOV

Again, thanks to the abundance of information I was able to find, I found similar questions for both genders. The first question was the simplest. It asked if the person with hair loss had done anything to address the problem.

From there, I had a couple of survey questions that explored the alternatives that hair loss sufferers had tried in the past. Additionally, I found results that gave insight into how effective these alternatives were.

When all was said and done, I had the groundwork laid for the ability to know how many potential customers I might have, their demographics, what they have tried so far, and how well those alternatives had addressed the issue at hand.

Here’s what my worksheet looks like after sorting my information into industry components:

Business plan demand analysis of drivers

Hopefully, in your search for survey results, you came across some information that provided insight into the “why people buy” question.

In particular, we’re looking for drivers of sales here. Specifically, what circumstances compel a customer to buy your product/service (or a substitute)? Hint: people usually buy to solve a problem. To avoid pain, not seek pleasure. Or, so I’ve been told…

Insight into what compels your customers to buy will not only be valuable in the drafting of the remainder of the business plan but in all your marketing efforts once you are up and running.

The information about who your customers are (from the previous step), why they buy, and what steps they are currently taking to solve their problems (also from the previous step) will hopefully paint a clear picture for you. A picture that will guide you to a point where you can position your strengths in a manner that will help other people’s weaknesses.

Understanding the drivers of demand for my product

Again, I was fortunate to have an abundance of survey information to draw from. A couple of my surveys not only touched on how hair loss made people feel but also on specific actions that they had taken before the hair loss started.

This information tells me an angle I can take when marketing my product, plus where a lot of my potential customers are going before they start to experience this problem. That place…the hairdresser.

Of course, that’s for women. Though there’s no rock-solid proof that it’s hairstyling that is contributing to hair loss in women, there is enough correlation to make a compelling case. For men, on the other hand, hair loss just seems to be the hand that most are dealt.

But, before we get into that, let’s look at some of the emotional drivers that might compel customers to purchase a topical hair loss supplement…

Drivers for men

On the “men” side I got information about how “worried” men were about hair loss. This told me that most men were, at least, “somewhat” worried about hair loss.

Beyond that, there was valuable information about how hair loss had affected them negatively.

Finally, the most valuable information, to me, was a question of what they would give up to solve this problem (men & women). The answers were encouraging for someone who was hoping to build a business in this industry. Almost half would rather have more hair than more money. Three quarters would give up a prized possession for more hair.

While I acknowledge that I’m not marketing a guaranteed cure to hair loss, that tells me that people are willing to try anything to fix this problem. As I know from my market segmentation analysis, supplementation works for about 1 in 17 people. Not great odds, by any means. But good enough, I hope, to at least try a new product. Especially when the ingredients are all-natural and offer no downside.

Drivers for women

About half had stress prior to experiencing hair loss. That’s a coin flip. It doesn’t mean that the hair loss was caused by the stress (though it surely didn’t help). But it provides insight into what women are feeling prior to and while they are experiencing this problem.

I also included the “What they’d give up” question on the women’s side of the analysis because my source for that information didn’t specify either gender. Plus, it seems feasible that women would feel the same or even stronger. It’s my opinion that society values female attractiveness above male attractiveness.

Finally, we get down to the brass tacks. A potential cause-and-effect situation for the problem I’m attempting to address. The number of women that are currently experiencing hair loss are also (possibly) straightening/heat processing or getting their hair colored on a semi-frequent basis.

This tells me that hairstyling might play a part in a lot of women’s hair loss (this goes back to the pressure to be attractive thing). Therefore, I should consider marketing my product in salons and other establishments that focus on women’s hair.

There’s still a lot of analysis to be done. But, two steps into the process of drafting my business plan, I feel a lot more confident about my understanding of the environment.

Here’s a look at my spreadsheet with the driver information included:

Business plan demand analysis of sensitivity

To this point, the goal has been to make assumptions and get answers. We want to have a better understanding of the environment in which our business will operate. Hopefully, you feel that you’ve accomplished that.

But, we don’t do ourselves any favors by lying to ourselves.

Well, yes. But probably not willingly.

You start off excited about your business idea. So excited that you decide to take the first step (something that the vast majority of people won’t do). You begin to write a business plan. You can feel your idea taking shape. You’ve already refined your idea a bit and feel that by the time this whole exercise is over, there’s no way you can fail. You’ve got momentum and your confidence keeps increasing.

That is all very good. Confidence is key. But, if everything looks rosy, you might be blind to a risk that could put your baby in jeopardy.

So, I don’t want to be a killjoy. But, for the sake of our businesses, let’s take a step back and play devil’s advocate. We need to ask ourselves some tough questions and challenge our assumptions. If we can rise to these challenges, and address them with confidence, our chances of success are that much greater.

Go back through your segmentation and demand drivers and think critically about this information. Some statistics might be a given, without much wiggle room. Others might be misrepresentative of reality. In these instances, tap into your inner cynic.

Make notes of what the worst-case scenario might look like. If you’re using a spreadsheet, like me, maybe use a different colored text. Address things like survey questions that might have been misinterpreted or alternative explanations for results.

Don’t get too down-and-out here and don’t dwell on this step too long. You don’t have to necessarily plan what you would do if these worst-case scenarios came to be. You just need to imagine them so that when the time comes for serious planning, you can take these risks into consideration.

Demand sensitivity for my product

I think my categorization by demographics is pretty safe. It’s rather well established how many men and women experience hair loss. The only thing that I might tweak is the number of men and women who have had hair loss and tried treatment. I lowered those estimates by 20%. It could be that the respondents’ interpretation of “treatment” is to comb their hair a different way or to shave their heads rather than to buy a product to battle hair loss.

Furthermore, what if the number of people that have “done anything” is lower? What if I misinterpreted the question for women that asked: “Do you take medication to prevent hair loss?” Maybe it was 20% of women who actually had hair loss rather than all women? The effect of that would be dramatic.

What if the alternative treatments were more effective than I’ve been led to believe? It could be that the respondents only consider “effective” to be a restoration to a full, thick head of hair? Also, just because they consider them ineffective, it doesn’t mean that they’ll stop using them. They might think that all of their hair will fall out if they stop (which could work in my favor, though). Perhaps they were overly optimistic when it came to supplements? It could be that supplements gave them other benefits, but didn’t make their hair loss any worse – so they considered them “effective.”

Could it be that fewer men are really “(very) worried about hair loss” than I’m led to believe? Are more are “Not worried at all?” Plus, it might be that those who are only “somewhat worried” aren’t motivated to do anything about it.

As far as confidence (love life, making friends, professional life) goes, it might be that that hair loss is a contributor to low confidence, but not the primary driver. Maybe they’re overweight or socially awkward and that’s why they lack the confidence they desire?

As far as “what they’d give up” it could be that the respondents were primed by the hair loss questionnaire to be more self-conscious than they usually are. If it came down to it, perhaps not so many would be willing to part with valuables to solve this problem.

Finally, as far as hair styling being a cause of hair loss in women, it could be that I am wrong. Maybe hair styling has no effect on hair loss. Or, maybe women overestimate how often they heat process or color their hair. It only feels like every day/once every 2-3 weeks. When, in fact, they do it a lot less often.

Okay, that’s enough pessimism. It seems unlikely that every worst-case scenario would be true. But, there’s probably a mix in there between my initial interpretations and the not-so-great ones.

Want to back your business plan up with valuable data? Read this post: GOVERNMENT STATISTICS FOR MARKET RESEARCH VIA USA.GOV

This exercise should help me going forward to make realistic forecasts and assumptions. Which, in turn, should help me be proactive to some of the challenges I might face.

Here’s a final look at my spreadsheet with my worst-case notes in blue:

Business plan demand analysis

This step takes a little bit of thought and a decent amount of research. This is done to give you a deeper understanding of the market you hope to compete in and the customers you hope to sell to.

What other steps would you have taken to refine estimates of demand?

Do you think my demand sensitivity was rational? Or, was I taking it too easy on myself?

Join the conversation on Twitter!

• What is PESTLE Analysis?
• Entrepreneurs
• Permissions
• Privacy Policy

What Is 'Supply and Demand' in Business?

Supply and demand is an economic model which states that the price at which a good is sold is determined by the good’s supply, and its demand.

‘Supply’ and ‘demand’ are valuable concepts in both business and economics, in their own right. However, put the two together (as supply and demand , or The Law of Supply and Demand ) and you now have a world-recognized economic model which defines price determination in a market. In this article, we’ll be introducing you to the terms ‘supply’, ‘demand’, and ‘supply and demand’ -- as well as explaining the concepts to which they refer -- in an approachable and informative way.

What Is Supply?

Supply is the amount or quantity of something that providers are willing to bring to the market at a given price. The supply of a product can be determined by the following factors:

• The demand for the product at a particular price point
• Forecasts for the future price of the product
• The ownership of the product
• The taxes that will be incurred
• The speed at which the product can be produced
• The efficiency at which the product is created
• The availability of resources (physical and human) required to create the product
• The legality of the product
• Trade bans or sanctions
• The logistics involved in selling the product

The supply of a product is an important quantity, because not only does it determine whether or not something can be bought, but also (at least partially) the price at which it can be bought.

What Is Demand?

Simply put, demand is the amount or quantity of something that consumers want to buy at a given price. As with supply, there are a number of factors than can influence the demand for a product:

• The appeal of the product
• The necessity of the product
• The price of the product
• The logistics involved in receiving the product

Demand is also a very noteworthy quantity, as it can decide whether or not something will sell and influence the price at which it is bought.

So, What Is ‘Supply and Demand’?

Supply and demand is an economic model which states that the price at which a good is sold is determined by the good’s supply, and its demand. When the supply of a good is equal to its demand (known as economic equilibrium ), it reaches a stable price which buyers and sellers can agree on.

If the supply of a good is higher than its demand, then the price will drop (various sellers will have to compete with each other by offering lower prices, which will in turn create more demand), until eventually the supply and demand equalize. When the supply for a good is greater than the demand, it is referred to as a surplus .

If the demand for a good is greater than its supply, then the opposite will occur. Suppliers will increase their prices to earn more profit with the products they already have, until eventually the supply and demand reach an equilibrium at some peak price. When the demand for a good is greater than the supply, it is referred to as a shortage .

Not only are supply and demand two very important factors in a competitive market, but they also make up one of the world’s most popular economic models. Supply is the amount of a good at a given price that can be provided to the market, while demand is the amount of a good at a given price that is desired by buyers in the market. Together, the two form the basis of The Law of Supply and Demand which states that products reach a stable price when the demand is equal to to the supply (known as economic equilibrium). In case of shortages and surpluses, the market is capable of self-correcting by price adjustment.

This can mean a number of different things for your business -- including how you might have to adjust the prices of products, or how you should be prepared for particularly low or high volumes of sales.

Do you have any questions or comments? Be sure to leave them below and we’ll get back to you ASAP!

Image: lightofchairat/ Shutterstock.com

SWOT Analysis of Artificial Intelligence

Learn to Convert LinkedIn Cold Messages Using These 14 Proven Prospecting Messages

How cashless payments are transforming retail operations

• > Economics

A Guide to Demand and Supply Analysis

• Yashoda Gandhi
• Feb 15, 2022

Introduction

The study of how buyers and sellers interact to determine transaction prices and quantities is known as demand and supply analysis. As we'll see, prices reflect both the value of the next (or marginal) unit to the buyer and the cost to the seller of that unit. 

The most basic set of microeconomic tools in private enterprise market economies, which are the primary concern of investment analysis , is demand and supply analysis.

Consumers (or households) and firms are the two types of private economic units classified by microeconomics. The theory of the consumer and the theory of the firm are two branches of study based on these two groups. 

The consumer theory is concerned with utility-maximizing individuals' consumption (demand for goods and services) (those who make decisions to maximise satisfaction from current and future consumption).

The firm theory is concerned with profit-maximizing firms' provision of goods and services. The consumer and firm theories are important because they help us understand the underlying principles of demand and supply. The theory of the consumer and the theory of the firm will be the focus of subsequent readings.

What is Supply and demand analysis ?

Two laws are at the heart of a supply and demand analysis: the law of demand and the law of supply. According to  The Business Professor , the law of demand states that as prices rise, the quantity of desired goods and services decreases. The law of supply, on the other hand, states that as prices rise, so does the number of goods and services available.

A technical assessment of securities based on factors influencing supply and demand for a specific security or for securities in general. The purpose of the supply-demand analysis is to see if there is or will be an imbalance between supply and demand for securities. 

For instance, if a security's supply is expected to exceed demand, the security should be sold or avoided because its price is likely to fall. New stock offerings, government borrowing, pension fund contributions, mutual fund cash balances, and a variety of other similar factors are all factored into the supply-demand analysis.

Also Read |  Factors affecting the supply of a product

When to apply Supply and demand analysis ?

With a few exceptions, the law of demand states that as the price of a good or service rises, so does the quantity demanded. The law of supply states that as a supplier's price rises, so does the quantity supplied. Demand is often a downward sloping curve in the price-quantity plane, whereas supply is an upward sloping curve.

The market equilibrium is defined as the intersection of the supply and demand curves, which determines the equilibrium levels of price and quantity of a particular good (or service) in the economy. Excess demand describes a situation in which the current demand for a good (or service) in the economy exceeds the equilibrium quantity.

In a similar vein, excess supply is defined. Changes in supply and demand (and thus the equilibrium price and quantity) of any good or service can be influenced by a variety of factors, including policy changes, unexpected economic shocks, business cycle fluctuations such as a recession or a boom, or even simply over time (long run versus short run).

It also depends on the market's characteristics (whether the market is perfectly competitive or monopolistic etc.). The study of supply and demand, or simply 'Demand-Supply Analysis,' could be applied to all of the above. (source)

Supply-demand analysis tool

A comprehensive strategic planning approach includes supply and demand analysis. Because the market and consumer habits are rapidly changing, it's all about making sure you're always responding in the best way possible to the needs of the customers you're trying to serve.

This tool will give you a solid foundation for a supply and demand analysis, which can then be used to inform a more comprehensive strategic planning process.

The Supply/Demand Analysis feature is a chart that is directly embedded in the scenario. The graph shows the supply and demand planning data over time in a combined view.

The supply data is shown as a stacked bar graph, with the area stacked vertically according to the building or lease. The demand data is shown as a line graph that is superimposed on the bars. This graph depicts how an organization's space or area supply compares to its demands.

You can use this tool to interactively analyse scenario options to match forecasted business demand to portfolio space supply over time. The graphical analysis tool can assist you with the following:

Visually identify supply-demand gaps that necessitate action planning to meet demand or maximise portfolio utilisation.

Consider what-if supply-side scenarios for lease contract options, new building expansions, and portfolio consolidations.

Examine the effects of demand-side changes in order to match supply or close gaps.

Also Read |  11 Types of Economic Theory

Importance of demand and supply analysis

Demand analysis.

For a new business, the analysis can determine whether there is a significant demand for the product/service, as well as other information such as the number of competitors, size of competitors, industry growth, and so on. It aids in determining whether a company can enter a market and generate sufficient returns to sustain and grow its operations.

Demand analysis aids in identifying key business areas with the highest demand and areas that require attention, as low demand can indicate a variety of issues, such as customers not being aware of the product/service, which necessitates increased advertising and promotion, or customer needs not being met by current product/service, which necessitates improvements, or competitors have sprung up with better offerings, among other things.

Supply analysis

Supply analysis aids manufacturers in determining the impact of changes in production and policies on the increase or decrease in finished goods supply. 

For example, newer upcoming technology can aid in the production of more goods in the same amount of time. The results of the analysis can be used to determine whether or not this new technology should be adopted. 

Is there a demand for more products if this technology can help produce more? What effect will it have on the current labour market, and how will it affect supply?

Another example is the impact of market wage increases on supply. The cost of labour will rise, and with it, the cost of goods will rise as well. 

If the supply must be maintained at the same level, the costs must be maintained at the same level, and if the supply must be maintained at the same level, the supply must be reduced, driving up prices if the demand remains constant. These are some of the questions that supply analysis aims to address.

Also Read |  What is Scarcity in Economics?

Demand analysis parameters

Price of similar products.

As we discussed in the first two points about price and purchasing power, the price of a competitor's product or service enters the equation and can influence demand. If a competitor's price is lower, demand for that product will be higher, and vice versa. In the case of luxury or niche products, the situation may be different.

Customer preferences and requirements

Consumer behaviour must be taken into consideration. The product or service must match the preferences of the customer; otherwise, there will be no demand for it.

Price set by the product itself

In demand analysis, the product's price is very important. Demand will be affected if the price is too high in comparison to competitors or what the customer can afford. It can be low or high, depending on the product or service's price point.

Profits from customers

Customer purchasing power has a significant impact on product demand. If a product or service is offered at a price point that is higher than a customer group's affordability, demand will be low, so customer income must be considered.

Customers in the market

Customers drive demand, so the potential market is an important parameter for demand analysis. If the customer base is too small for a viable business, even if the first five points are favourable, demand will never rise because the customer base is too small.

Expectations

Based on the overall industry landscape, the customer may have expectations for a new or existing product. For example, if every competitor in the market provides free warranty service but one company does not, that company is unlikely to meet customer expectations. (source)

Example of demand-supply analysis in tariffs

A tariff is a tax imposed on goods from other countries that are sold in the United States. Assume that foreign-made automobiles are subject to a 10% tax.

Who would be the ones to bear the brunt of this tax? Assume that a Japanese car and a similar American car both sell for $25,000 in the United States.

According to the source , with the ten per cent tax ($2,500) on Japanese cars, the Japanese company wants to raise the price to $27,500. The tariff will be imposed on Japanese automobile manufacturers.

A tariff on a foreign product with very elastic demand is referred to as an optimal tariff in technical terms. In the United States, the price of a foreign product rises very slowly.  

Also Read |  Law of Diminishing Marginal Utility

Share Blog :

Be a part of our Instagram community

Trending blogs

5 Factors Influencing Consumer Behavior

Elasticity of Demand and its Types

An Overview of Descriptive Analysis

What is PESTLE Analysis? Everything you need to know about it

What is Managerial Economics? Definition, Types, Nature, Principles, and Scope

5 Factors Affecting the Price Elasticity of Demand (PED)

6 Major Branches of Artificial Intelligence (AI)

Scope of Managerial Economics

Dijkstra’s Algorithm: The Shortest Path Algorithm

Different Types of Research Methods

Latest Comments

Supply And Demand Analysis: Definition, Importance, And Framework

Supply and demand analysis is an essential tool for businesses of all sizes. It enables them to better understand the market forces that drive their industry, allowing them to make data-driven decisions that can help them maximise profits and minimise losses. But what exactly is supply and demand analysis? In this blog post, we’ll explore the definition of this important concept, its importance in today’s business landscape, and a framework to apply it effectively. Read on to learn more!

Check out our Advanced Executive Certificate in Supply Chain Strategy and Operations Management to learn detailed supply and demand analysis.

What is Supply and Demand Analysis?

Supply and demand analysis studies how prices change in response to the availability of goods and services. It is a key tool used by economists to understand the behaviour of businesses and consumers.

The basic idea behind supply and demand analysis is that prices are determined by the interaction between buyers and sellers in the marketplace. The amount of a good or service buyers can buy at a given price is known as demand. The number of goods or services sellers can supply at a given price is known as supply.

Changes in either supply or demand can lead to changes in prices. An increase in supply, all else being equal, will lead to lower prices. Demand increases, all else being equal, will lead to higher prices. A decrease in either demand or supply will have the opposite effect on prices.

Supply and demand analysis is often used to help explain economic phenomena such as inflation, unemployment, and economic growth. It can also be used to predict how changes in economic conditions might impact prices.

How Does Supply And Demand Analysis Work?

Supply and demand analysis is a powerful tool to help you understand how your business works. By analysing the factors that affect supply and demand, you can make informed decisions about pricing, production, and other essential aspects of your business.

To perform a supply and demand analysis, you need to understand the basic concepts of supply and demand. The supply and demand law is a fundamental economic principle that explains the interaction between buyers and sellers in the marketplace. The law of supply and demand is supported by the following four principles:

• There is a relationship between price and quantity.
• The connection decides the price of goods or services between supply and demand in the market.
• The market equilibrium occurs when the quantity demanded equals the quantity supplied.
• Changes in market conditions can cause shifts in the equilibrium price and quantity.

Supply is the number of goods or services available for sale at a given price. Demand refers to the number of goods or services consumers purchase at a given price. The law of supply and demand states that when there is more demand for a good or service than there is supply, the price of the good or service will increase. Conversely, the price will decrease when there is more supply than demand.

What is The Importance of Supply and Demand Analysis?

Supply and demand analysis is a basic economic tool used to understand the market’s relationship between buyers and sellers. It can be used to determine the prices of goods and services in a market and understand the forces influencing them.

Demand analysis looks at how much of a good or service people are willing to buy at different prices. This information can be used to understand consumer behaviour and make decisions about pricing and production.

Supply analysis looks at how much of a good or service producers can supply at different prices. This information can be used to understand business behaviour and make decisions about pricing and production.

The interaction between supply and demand decides the price of goods and services in a market. If there is more demand than supply, the price will increase. If there is more supply than demand, the price will decrease.

The importance of supply and demand analysis lies in its ability to help decision-makers understand market conditions and make informed decisions about pricing, production, and other factors that influence market performance.

 Benefits of Supply And Demand Analysis

• Improved Pricing : Supply and demand analysis can be used to set accurate prices for goods and services, helping businesses maximise profits while ensuring customers get a good deal.
• Better Forecasting : With the help of supply and demand analysis, businesses can predict future trends in their market with great accuracy, allowing companies to plan efficiently so as not to miss out on opportunities or fall behind competitors. 
• Maximizing Profits : By understanding the relationship between supply and demand, businesses are better equipped to adjust their operations accordingly to take full advantage of economic conditions – both short-term spikes and long-term changes – which may result in increased profits. 
• Increased Efficiency : Through analysing supply and demand dynamics, businesses can identify areas where they may need fewer resources (people/money) than currently allocated, leading them to become more efficient with their use of capital. This also allows firms to reduce costs without harming sales or customer satisfaction levels. 
• Reduced Risk : Companies that accurately forecast future trends are far less likely to suffer from sudden drops in sales due to unexpected changes in the marketplace, enabling them to make necessary adjustments before problems arise rather than after it’s too late! 
• Enhanced Customer Service Levels : When business owners understand how pricing affects consumers’ buying decisions, they can make more informed decisions about what items should be discounted at certain times throughout the year, allowing them to provide maximum value for money at all times whilst still delivering an excellent level of service overall!

How Can Supply and Demand Analysis Help the Economy?

Supply and demand analysis is a powerful tool for understanding the behaviour of markets, prices, and economies. It allows us to analyze how changes in the supply or demand of goods and services affect the economy. Supply and demand analysis can help governments set sensible policies by allowing them to understand better how different factors might affect market conditions in their countries. 

For example, they can use this knowledge to determine what taxes should be imposed on goods or services that are in high demand or scarce supply to encourage more efficient production while still providing consumers with an adequate amount of goods at reasonable prices. 

Furthermore, businesses also benefit from using supply and demand analysis when deciding on pricing strategies. 

They assess whether increasing prices will lead customers away from buying their products due to increased cost; if so, then adjusting price levels may be necessary for sales growth over time. In addition, companies examine elasticity – which measures how responsive people are to changes in price – before choosing marketing strategies that work best for their target audiences.

Overall, supply and demand analysis is essential because it helps both governments and businesses create effective economic policies that promote long-term stability through the balanced distribution of resources across society’s needs.

Read More: What is Supply Chain Finance? A Detailed Analysis

Supply And Demand Analysis Framework

The supply and demand analysis framework is a commonly used tool for analysing economic trends, market conditions, and consumer behaviour. This framework provides an empirical perspective on understanding the dynamics of markets and how buyers and sellers shape them. The basic premise of supply and demand analysis is the interaction between buyers and sellers determines the price and quantity in any given market. 

To understand these interactions, it is necessary to consider factors such as production costs, changes in consumer preferences or tastes, availability of substitutes or complementary goods/services, government policies related to pricing or trade barriers etc.

At its core, supply-demand analysis uses two curves: one representing the quantity demanded (demand curve) versus price; another representing the cost associated with producing each additional unit (supply curve). 

Together these curves allow us to identify equilibrium points where both sides have reached their respective goals – i.e., where producers have maximized profit by meeting consumer needs at acceptable prices. By studying shifts along either curve due to changes in underlying variables, we can better understand why certain markets behave in certain ways under different circumstances.

Finally, this approach also allows us to make predictions about future outcomes based on current data points – allowing firms/governments alike to develop plans for long-term growth or mitigation strategies based on expectations about the future states of different markets within their specific context.

How Does Supply And Demand Analysis Framework Work?

The Supply and Demand Analysis framework uses the principles of economics to explain how buyers and sellers interact in a market. The basic concept is that prices will either increase or decrease accordingly when there is an imbalance in demand for a product or service.

1) Supply : This refers to how much of a good or service suppliers are willing and able to produce at different prices. It depends on factors such as technology, cost of inputs, taxes, subsidies etc.

2) Demand : This refers to how many people want (or ‘demand’) a certain good or service at different prices. It depends on income levels, tastes/preferences, price expectations etc. 

3) Equilibrium Price & Quantity : These are the balance points where supply equals demand – i.e., quantity supplied by producers matches what consumers can acquire at that given price level. When this equilibrium is disturbed through an event such as increased production costs or higher consumer incomes, new equilibriums need to be established, leading to adjustments in both price & quantity demanded/supplied until the balance is restored.

4) Elasticity Of Supply And Demand : This measures the sensitivity of changes in demand and supply due to external factors like taxes & subsidies, which affects the pricing decisions of both buyers & sellers. Generally, if one increases while the other decreases, it causes a larger change than vice versa resulting in changes in equilibrium quantities & prices over some time.

Different Methods of Demand and Supply Analysis1

• Identify the Market : The first step in supply and demand analysis is to identify the market of interest. This could include tracking a particular product or industry, studying a specific geographic region where goods are traded, or monitoring an entire economic sector.
• Gather Data : Once the market has been identified, data needs to be gathered about both supply and demand for that good or service within that market. This data can come from various sources, including government reports, trade publications, company earnings reports and surveys of consumers’ buying habits.
• Analyze Supply : Supply analysis involves looking at production costs such as labour inputs and raw material prices as well as other factors such as transportation costs which affect how much a producer can make on any given item before losing money on it. By understanding these cost structure elements, one can better predict how producers will respond to price-level changes over time by either increasing or decreasing their production level accordingly.
• Evaluate Demand : On the demand side, numerous factors must be considered when conducting an analysis, including consumer preferences and income levels, along with political stability in countries where goods may be sold abroad, among others, if applicable.
• Compare Supply & Demand Factors : Using all of this collected information, it should then become possible for analysts to compare various supply-side characteristics with those found on the demand side. So predictions regarding future price movements can begin based on trends found throughout each respective factor associated with them.
• Monitor Results & Adjustments : Finally, once initial forecasts have been put together, it is important for analysts not just stop there but rather continue tracking results ongoing so any adjustments needed going forward can be quickly applied if necessary to keep projections updated accurately over time.

Latest Trends in Supply and Demand Analysis

• Big Data Analytics : With the help of big data analytics, companies can now understand supply and demand patterns in real time, enabling them to adjust their strategies accordingly quickly. This gives them a competitive advantage over those still relying on traditional methods.
• Predictive Modeling : Predictive modelling is used to identify future trends in supply and demand by analysing past behaviours and current market conditions. Companies use this technique to make more informed decisions about how much product they need to produce or purchase and when it’s most advantageous for them to do so. 
• Automated Demand Planning : Automated demand planning systems enable businesses to accurately forecast customer demands based on historical sales figures and external factors such as seasonality, weather, economic indicators etc. These systems also allow companies to simulate different scenarios to optimise production levels across multiple locations.
• Supply Chain Visibility : This trend focuses on ensuring that all participants throughout the supply chain have visibility into inventory levels at any given time, along with access to key performance metrics like delivery times or cost per unit shipped etc. 
• Agile Inventory Management : The concept behind agile inventory management is that instead of having large amounts of stock sitting idle waiting for orders, inventory is better managed through just-in-time techniques, which involve replenishing small stocks at regular intervals. This helps businesses reduce storage, transportation and waste costs while ensuring there’s always enough stock available to meet customers’ needs without overstocking.

What The Future Awaits For Supply and Demand Analysis?

The future of supply and demand analysis lies in leveraging advanced technologies to make decisions that lead to a more efficient and profitable market. As the world becomes increasingly connected, data collection will become easier and more accurate than ever before, thus providing better insights into how customers interact with products or services. This will enable companies to anticipate customer needs better, identify new markets for their offerings, and adjust pricing strategies accordingly.

Read More: What is Supply Chain Visibility? 10 key points

In addition, artificial intelligence (AI) algorithms such as Machine Learning (ML) can help in automating many aspects of supply chain management . AI systems can monitor global market trends by gathering data from multiple sources, allowing companies to respond quickly to changes. 

Furthermore, AI-based predictive analytics can provide real-time predictions about customer behaviour, allowing businesses to proactively create strategies that maximise profits while minimising losses due to unexpected shifts in market conditions. 

Lastly, blockchain technology is also set to revolutionise supply chain management and help streamline processes like tracking goods through the system. Creating an immutable record of transactions linked together through cryptography makes it much harder for fraudulent activities such as counterfeiting or double spending money from the same source possible within a given networked environment. 

The transparency provided by blockchain would also help reduce costs associated with manual record-keeping by cutting out intermediaries who needlessly add complexity and cost throughout the process without adding value.

Overall these advancements have created vast opportunities for businesses seeking competitive advantage over their competitors through improved efficiency of operations.

Overall, supply and demand analysis is a crucial tool for understanding the market dynamics of a given product. It helps to identify trends in pricing, production levels and other factors affecting the balance between buyers and sellers. By using this framework, businesses can identify ways to maximize profits while providing services or products that meet the needs of consumers. A thorough grasp of what drives supply and demand will allow businesses to make more informed decisions about their operations.

The Advanced Executive Certificate in Supply Chain Strategy and Operations Management can provide a comprehensive supply and demand analysis overview. You will learn about the different monitoring methods, analyzing, forecasting, and optimizing your supply chain to ensure maximum efficiency. Additionally, this program offers insight into how to manage risks associated with a fluctuating demand environment. With guidance from experts in the field, you will gain valuable knowledge essential for successful supply chain management.

More Information: 

What Is A Supply Chain Control Tower? Types & Uses

What is Supply Chain Consulting? Meaning and Frameworks

What Is Supply Chain Management And Why Is It Important?

Recommended blogs for you, top 7 principles of quality management system, what is design thinking – the creative problem-solving approach, what is blockchain in supply chain an overview, what is electronic data interchange in scm 11 things to know, what is digital supply chain/supply chain 4.0, what is green supply chain an overview, supply chain modeling: types, models and best practices, why succession planning is important & how to strategize it, what is the difference between logistics and supply chain management, what is supply chain finance a detailed analysis, what is a supply chain control tower types & uses, supply chain design: what is it and why is it important, major decision areas in supply chain management, who is a supply chain analyst how to become one, what is network design in supply chain and why is it essential, what are supply chain management courses, top certification courses in supply chain management for professionals, discovering the power of design thinking process with edureka, join the discussion cancel reply, browse categories, subscribe to our newsletter, and get personalized recommendations..

Already have an account? Sign in .

20,00,000 learners love us! Get personalised resources in your inbox.

At least 1 upper-case and 1 lower-case letter

Minimum 8 characters and Maximum 50 characters

We have recieved your contact details.

You will recieve an email from us shortly.

Nice to meet you.

Enter your email to receive our weekly  G2 Tea newsletter  with the hottest marketing news, trends, and expert opinions.

What Is Supply and Demand? Strategize in a Competitive Market

May 17, 2024

What is supply and demand?

Comparing and contrasting supply and demand, what is a supply curve, what is a demand curve, achieving equilibrium, supply and demand examples.

If a product is being sold but there’s no one around to buy it, does it really exist? 

Supply and demand is the give and take of microeconomics. The market would not survive if companies did not provide a product and consumers did not buy those products. 

A market is essentially any place where suppliers and buyers meet to give and receive goods and services. These market price transactions are considered ethical because those involved are agreeing to adhere to the unspoken rules of the transaction where the seller is happy to accept the money and the buyer is content with paying the given price. Both parties have agreed on the value of the good or service and are making a clean trade. 

Supply is the amount of product that a company can provide to customers at a specific price. Demand is the customer’s desire to purchase the product at that price.

Supply and demand work together to create a balanced and competitive market. They are fully reliant on each other to cultivate a consumer and distributor environment that is constantly and efficiently buying and selling.

Although supply and demand work closely together, they are also different concepts that move in unique ways depending on changes in market trends and conditions. 

• Definition: Supply is the number of products offered and demand is the willingness to buy that product. 
• Perspective: Supply is the perspective of an individual company or   supply chain,   and demand is the perspective of the consumer. 
• Determinants: Supply primarily depends on the expenses that come with producing a product such as manufacturing, distributing, and marketing costs. Demand depends on the preferences, income, and size of the target audience. Demand can even be affected by external factors like the weather and politics. These determinants can change at any moment and are why demand is so difficult to predict. That is why some companies utilize   demand planning   to prepare ahead of time. 
• Relationship: When supply increases, demand decreases. When demand increases, supply decreases. 
• Graphs: Supply is an upward sloping line while demand is a downward sloping line. 

With all of those differences in mind, supply and demand do share a couple of similarities. Both supply and demand are dependent on consumer expectations. Whether a good or service is successful is fully determined by the buyer’s eagerness to pay for it. 

Both supply and demand respond to changes in price and quantity. Increases or decreases in price and quantity will heavily affect the amount of supply made and the number of products demanded. This correlation can be demonstrated using supply and demand curves. 

Supply and demand curves

The supply and demand graphs demonstrate the relationship between price and quantity with a company’s supply and demand. The curves used on the graph show the direct result of any major changes. When there is a demand or supply shift, the curve moves accordingly and the laws of supply and demand apply. 

The 4 laws of supply and demand:

• When supply increases and demand stays the same, you get a lower price and higher quantity.
• If supply decreases and demand stays the same, you get a higher price and lower quantity.
• If demand increases and supply stays the same, you get a higher price and higher quantity.
• If demand decreases and supply stays the same, you get a lower price and lower quantity.

Source: QUICK SPROUT

A supply curve on a graph shows the relationship between the amount of supply a company offers and the cost of their goods or services. It is a visual representation of how much more a product will cost to produce at a range of quantities demanded.

Price is shown on the vertical axis and quantity is shown on the horizontal axis with supply being illustrated using an upward slope. The upward slope demonstrates how expenses react when more or less product is needed. When more money is being spent, more profits are anticipated because the supply is being made to meet expected demand. 

The laws of supply and demand, discovered by Adam Smith in 1776, study the product of how things change on the supply and demand graph. The law of supply states that when there is a price increase, there should be an increase in quantity as a result. Moreover, when there is a price decrease, there is a decrease in quantity. This is considered a direct relationship because the price and quantity supplied move together on the graph. 

The price elasticity of supply allows us to determine how the quantity of a good or service reacts to when a given price changes. Economists consider a supply curve elastic when a higher price increases the amount of product supplied dramatically. When that increase is minuscule, the supply curve would be considered inelastic.

A demand curve on a graph shows the relationship between the number of supply consumers are requiring and the price of a good or service. It represents how much of a product the target audience will need or want at a range of prices.

Price is shown on the vertical axis and quantity is shown on the horizontal axis with demand being illustrated using a downward slope. The downward slope demonstrates how the quantity of products demanded reacts when the price is changed. 

The law of demand states when there is a price increase, consumer demand decreases. Moreover, when there is a price decrease, consumer demand increases. This is considered an inverse relationship because price and quantity demanded move in opposite directions on the graph. 

The price elasticity of demand allows us to determine just how much of an increase or decrease demand is expected to yield. Economists consider a demand curve as elastic when the price increase reduces the amount of product demanded dramatically. When the reduction is minuscule, the demand curve would be considered inelastic. 

A company’s market equilibrium price is where the quantity of product supplied meets the quantity of the product demanded. This equilibrium price is the only part of the supply and demand graph where the price can remain constant.

Reaching market equilibrium allows companies to offer a product price that matches the consumer’s budget at a reasonable production cost to them. 

When a price rises too high, companies can be left with higher than expected quantities. This excess supply is considered surplus and is shown anywhere above the equilibrium point on the graph. To reach market equilibrium during a surplus, a company will lower its price to create more demand. As a price falls, so does the product surplus. 

Offering a lower price than market competitors is not always going to help a company meet equilibrium quantity though. Pricing too low will create a demand that is higher than anticipated. Having too much demand and insufficient inventory to offer is considered a shortage. A shortage can be shown anywhere below the equilibrium point on the graph. To reach market equilibrium during a shortage, a company will offer its product at a higher price to make demand less overwhelming. 

Tip: Suppliers can use pricing software to experiment with different pricing strategies and identify which one will help them achieve market equilibrium.

Equilibrium is reached when the seller can provide a number of goods that is favorable to them and there is a consumer market that is demanding that quantity of goods and gains marginal utility from securing a specific amount. When a supplier can offer that ideal quantity, they will implement a   demand generation strategy   to create interest in their goods or services and the supply and demand cycle continues. 

Balancing supply and demand and reaching equilibrium is not as easy as it sounds. Even some of the biggest players in the industry have dealt with shortages and surplus. 

Check out some real-world examples of how changes in supply and demand have affected popular companies.

Too much demand, not enough supply

One company that has found itself in the pickle of too much demand than they can supply is Apple. Due to the COVID-19 lockdown in 2020, more people than ever were making the switch to a fully digital working environment. Companies and their employees alike were trying to buy more computers and devices, and they needed them quickly. These consumers turned to Apple and skyrocketed the demand for products such as Mac computers and iPads. 

However, like everyone else, Apple simply couldn’t have predicted this large influx in demand. Not only did the lockdown drive demand to heights they weren’t ready for, but it also caused significant delays in manufacturing and distributing. As a result, Apple was left with a major shortage of devices and an estimated   decline of 21% YoY   in computer sales. 

Too much supply, not enough demand

While the COVID-19 pandemic offered some companies overwhelming demand, others were faced with particularly underwhelming demand. The lockdown and subsequent changes in how we live daily life caused people all over the world to start prioritizing needs over wants. 

Due to this shift, the automotive industry saw a huge decrease in demand for new vehicles. Car brands like Chrysler, Dodge, and Buick saw major decreases in demand for their 2020 car models and were left with a surplus at the end of the year. In this time period, Ford was found to have the largest surplus with   48.9% of their 2020 inventory   still remaining. 

Success in equilibrium

A company that has found long-term success through supply and demand equilibrium is McDonald’s. The fast-food chain is notorious for changing things up to excite and entice customers while remaining extremely loyal to their original business model. 

McDonald’s does this by leveraging their knowledge of their consumer base. 

As a result of the increasing importance put on being environmentally conscious, McDonald’s began implementing sustainable packaging and more organic ingredients. They even plan to start utilizing the budding success of   artificial intelligence in their drive-thru systems . Although these additions will create higher costs for them, McDonald’s found that the return on investment was favorable because they were creating more authentic products and adapting to customer priorities and expectations. 

Balancing the scales

When it comes to supply and demand, it is all like a game of seesaw. When something increases, that means something else is decreasing. While there are always many internal factors to consider when trying to balance supply and demand, external factors play a larger role than you think. Reaching equilibrium is not easy and many companies opt into using supply chain management  or demand planning tools to aid in the process. 

Whether you automate your supply and demand process or do it yourself, planning is everything. Leverage historical data to forecast future demand and organize supply accordingly. The last thing you want is to be stuck with a surplus or stressing over a shortage. The key is balancing and studying the causes and effects of your business. 

Because when they said what goes up must come down, they were talking about supply and demand. 

Ready to leverage a supply and demand model in your business process? Start by digitizing  your entire supply chain using specification management !

Alexandra Vazquez is a Senior Content Marketing Specialist at G2. She received her Business Administration degree from Florida International University and is a published playwright. Alexandra's expertise lies in writing for the Supply Chain and Commerce personas, with articles focusing on topics such as demand planning, inventory management, consumer behavior, and business forecasting. In her spare time, she enjoys collecting board games, playing karaoke, and watching trashy reality TV.

Recommended Articles

Law & Disorder: Investigating Inadequate Sales Templates

By emily roberts.

Use a Performance Management System to Boost Your Sales Team

If you could squeeze a little more effort out of your sales team...would you?

by Haley Smith

Keep an Eye on Sales Analytics: Your Complete Guide

There’s no escaping it; it’s all around us.

by George Rowlands

Get this exclusive AI content editing guide.

By downloading this guide, you are also subscribing to the weekly G2 Tea newsletter to receive marketing news and trends. You can learn more about G2's privacy policy here .

Understanding Supply and Demand in Business

The Law of Supply and Demand is one of the most important economic theories. Learn what it is and how it can help business owners make informed decisions.

Supply and demand is an economic model that provides the basis for the consumer economy. The given supply and cost of a good is driven by demand and how much consumers will pay for the good.

When demand for a good is high, the price increases , and when the demand is low, the price drops in response. Both consumers and producers engage in a push-and-pull dynamic as both respond to these two market forces.

Just about every good or product that reaches the market is affected by the law of supply and demand. It affects products that are new to the market and ones that have been available for some time.

The law of supply and demand on an established good was obvious during the early days of COVID-19 when people were buying toilet paper in large quantities. The price of toilet paper increased in response to the demand because manufacturers had a hard time keeping up with the supply.

Businesses, small and large, benefit from understanding the law of supply and demand as it helps them find an equilibrium price for their products, how to maintain a steady supply of goods and services, and drive profitability.

Read on to learn more about this important law of economics and how to use it to your advantage.

What is the law of supply and demand?

The law of supply and demand enables a manufacturer or provider to anticipate demand for a product or service and drive more sales while engaging in effective customer care.

It's something that can be visualized on a graph to help track pricing data, inventory, sales and find the sweet spot for steady sales and profits.

The law of supply

The law of supply refers to the product being created and sold by a manufacturer to consumers. A supplier introduces a product to the market or maintains a regular supply of a product for ongoing demand.

When a new product comes onto the market and sells extremely well, the supplier has the job of keeping up with demand. The supplier may also decide to increase the price.

A manufacturer can use this to increase or decrease the price depending on demand. If the manufacturer has an exclusive for the item, it can control inventory levels and price the product at a point where the product sells without a loss in demand.

In the event the product is not exclusive and easily copied, the strong demand can draw other manufacturers into the market to sell their version of a popular product. This runs the risk of oversaturating the market and reducing demand.

What affects supply?

Price is the main factor that affects the supply of goods or services, but the manufacture and delivery also affect the supply curve.

Some of the pressures that affect supply include the demand for goods from the consumer, the availability of raw materials to make the goods, and the ability to get the goods to the consumer.

The law of demand

The law of demand is determined by the ability of a consumer to make a purchase of necessary or discretionary items.

It's a given that consumers buy more when prices are lower and buy less when a price rises. Consumers are also more likely to look for a less-expensive version of an item with the knowledge that they're buying a lower-quality item.

What affects demand?

The amount of discretionary income a consumer has is the largest driver of demand, but other factors also affect the demand curve. They include effective marketing efforts, changes in trend and taste, consumer confidence, perception of quality, and price.

All of this influences how well a product will sell from the time it's introduced to the market and throughout its lifespan.

The supply and demand curve

The supply curve and demand curve are two separate graphs that are used to track the price, inventory, and consumer demand for an item.

Generating a supply and demand curve graph results in a visual representation of how well a product is selling at what price and how consumers are responding to pricing.

Supply curve

The supply curve graph shows the price of the goods along one side of a right-angle graph and the inventory amount on the other side. A line is drawn from the corner of the graph on the diagonal to show the point where quantity supplied and price intersect to determine how much inventory is needed to meet the demand curve for the goods.

Demand curve

The demand curve begins with the same graph as a supply curve, but instead of drawing a line out at a 45-degree angle from the corner, the line is drawn from end to end.

A pricing line is drawn to the angle, then down to the inventory levels. This graph shows how much a particular good has sold at different market price points, enabling the seller to change the price accordingly if necessary.

Combining supply and demand curves together results in something known as market equilibrium or the equilibrium price.

Market equilibrium price

Putting both graphs of the supply and demand curves together along the same axis shows the effectiveness of pricing if more or less inventory is needed and the optimal or market equilibrium price that encourages consumers to buy without rapidly drawing down inventory. The graph also shows if the market price rises or is too low.

How can supply and demand guide business owners?

Business owners can use supply and demand to help them with product development , launch a business, and engage in customer care to make a customer feel heard and satisfied.

It can also be used to set a price for a product after the basic costs are factored in. Here's a look at some of the ways you can make this law serve your business needs and purpose.

Maintain a steady inventory

You have a product to sell, and you have customers who want to buy that product. The consumer demand curve can help you determine how much inventory you're going to need during peak seasons and throughout the rest of the year.

Customers figure out that you're a reliable seller and return to you for sales because they know you're going to have a product in stock.

Keep up with the competition

Customers are fickle at the best of times. They want their goods, and they're not going to wait if there's a competitor that has the goods in stock.

Forecasting the demand for your product helps you maintain an adequate inventory while minimizing lost sales.

Avoid having too much or not enough inventory

One of the risks of selling physical goods is not having enough or too much inventory. Too much inventory results in lower prices and reduced sales, while not enough inventory on hand leads to higher prices and lower sales.

Using a supply and demand curve chart along with determining the price elasticity of a good helps you keep the right amount of stock available for sale.

Helps you set your pricing

Setting your ideal price for your product is a balancing act, especially if you have a seasonal good or something that experiences steady demand throughout the year.

For example, you sell a component for a certain type of craft on a crafting site. Your customers buy steadily from you throughout the year, but there's always a spike in sales for the holiday season.

The law of supply and demand gives you the opportunity to set the price a little higher during spikes to increase profits, keep the sales at a steady pace so you can reduce the strain on your inventory levels, or keep the same price and order more inventory to meet the demand. The same goes for services, but instead of inventory, it helps you figure out if you need to hire more employees to provide the service.

Find out how well a product is going to sell

Part of product development is putting it through a market assessment to determine its sales potential.

You can sample the market by releasing a few of the products to the market, using advertising or marketing to attract attention, and sending out a survey questionnaire to get customer feedback.

The information that is collected from these efforts can be extrapolated to the market at large to determine customer satisfaction with pricing, the product, and how desirable it is to consumers.

Knowing when to put a product or service on sale or discontinue it

Sometimes a product hits big because everyone wants it, but the market eventually becomes saturated and sales decline. When the demand for a particular item falls off, it can be put on sale to spur people to buy more of it.

A decision can be made to discount the item further and eventually stop restocking inventory as it's more costly to carry the item than it is to sell it.

Drive sales with Mailchimp

Understanding and applying the law of supply and demand helps you launch a business or make your existing business more successful.

It shows you how data tracking enables you to set the best price for your product or service, maintain your inventory levels to meet demand, and anticipate your customer's needs. You'll find that your business runs better and customer care improves because you have the information you need to run your business in an optimal fashion.

At Mailchimp, we provide you with business tools that help you determine your next business move and which of your online business ideas are most likely to succeed.

Mailchimp offers an ecommerce platform that enables you to build the e-commerce business of your dreams and easily track your metrics. We can help you collect customer feedback , create marketing campaigns, find new customers, and help you find out how popular your business is through the use of social listening tools .

In the meantime, you can build your brand and business from anywhere you have an internet connection, improve your sales, and enjoy the freedom that comes with being an entrepreneur.

Related Posts

• What is xFP&A? Going Beyond Financial Planning and Analysis
• Strategic KPI Report for Dynamics 365 Business Central
• Monthly Balance Sheet with Prior Month and Last Year Comparisons for Dynamics 365 Business Central
• Profit & Loss Report with Monthly Trend for Sage Intacct
• Intercompany Elimination Model for Dynamics 365 Business Central

How to Create a Successful Demand Plan

What is demand planning.

• Product Portfolio Management - Product portfolio management oversees the entire product lifecycle. It starts with the introduction of a new product to the eventual end of its product life cycle. Upkeep and maintenance of product data is key to statistical forecasting.
• Statistical Forecasting – Build a forecast with past inventory data, sales data, and appropriate product history to predict future data or trends.
• Trends (Internal and External) – Build into your forecast an estimate of casual influences from internal and external trends. Internal trends include the seasonality of your products and hiring talent to scale. External trends include unexpected economic crisis, competition, socio-cultural, legal, and political forces. 
• Events and Promotions – Once a forecast is generated with the above factors in mind, events and promos can be used to help hit your S&OP targets.

Importance of Automated Demand Planning

Lost credibility, wasted resources, aspects of demand planning, 1. product portfolio management , 2. statistical forecast .

Example of an Automated Statistical Forecast

Example of Demand Planning of Weekly Sales by Item

3. Internal Trends 

4. external trends, 5. events and promotions, the future of demand planning.

• Lower inventory costs
• Decrease in stockouts
• Waste reduction (obsolete inventory)
• Increase in on-time, in-full deliveries
• Decrease in expedited shipping costs
• Better pricing negotiation with suppliers

Contact Solver to Learn More about Demand Planning Software

TAGS: Planning , Forecasting , CPM

Global Headquarters

Solver, Inc.

Email: [email protected]

Phone: +1 (310) 691-5300

Information

• Contact Sales
• Contact Support
• International Locations
• Make a Payment

Solver Suite

• Solver Suite Overview

Core Subscription

• Data Warehouse
• Integrations
• Template Marketplace
• On-Demand Training
• Rapid Deployment
• Instructor-Led Training

Explore Solver

• Solver Demo
• Industries Served
• Technology Partners
• Find a Partner
• Become a Partner

Company and Resources

• Customer Stories
• Press Releases

© Copyright 2024, Solver All rights reserved. Legal | Privacy

QuickStart and Template Marketplace Overview (2 min) | QuickStart and Template Marketplace Setup (10 min)

• Free Subscription
• Whitepapers
• Web-Cite City
• Video Podcasts
• Knowledge Center

Demand Planning vs. Supply Planning: Key Differences and Value

Demand planning vs. supply planning remains a cornerstone debate in the logistics sector. Both concepts are integral to supply chain management, determining many businesses’ efficiency, cost-effectiveness, and overall success.

Recent studies indicate that organizations that effectively balance demand planning and supply planning see up to a 15% increase in forecast accuracy and a 35% reduction in inventory costs. A company that successfully applies these concepts in forecasting customer demand and managing inventory production ensures a streamlined supply chain.

Demand Planning: Its Significance and Differences

Demand planning revolves around forecasting customer demand to match optimal inventory management . By analyzing sales data and other factors, demand planners create a demand plan that predicts future customer demand. 

This demand plan is used to guide supply chain operations, align with financial and service goals, and achieve accurate forecasts.

Key components of demand planning include:

• Historical Data Analysis: Leveraging historical sales and related data to identify patterns and trends.
• Demand Forecasting: Utilizing tools like demand planning software and unconstrained demand forecasting to project expected demand.
• Collaborative Planning: Integrating data from various departments, including sales and marketing, to refine the demand forecast.

For instance, many businesses benefit from accurately predicting consumer demand. They neither overstock nor understock. However, failures in demand planning can be catastrophic. 

The demand planning department not only focuses on raw demand potential but also partners with marketing and sales teams. Such collaboration yields better demand projections and helps in reducing costs.

An integrated business planning approach ensures each department, including the demand planning department, shares critical component data, streamlining operations and chasing demand effectively.

A notable example was the fashion industry. They needed to capture demand projections to avoid overproduction and unsold inventory. When they failed, they had clearance sales, damaging the brand’s premium image and profitability.

Supply Planning: Its Significance and Differences

While closely related to demand planning, supply planning ensures that businesses have the necessary resources, including raw materials and production capacity, and meet the forecasted customer demand. Supply planners analyze the demand plan and consider the manufacturing process constraints, minimum order quantities, and safety stocks to produce a supply plan that aligns with demand and business limitations.

Essential elements of supply planning encompass:

• Master Production Schedule: Determining the quantity and timing of finished goods production.
• Inventory Management: Managing safety stocks and lead times to produce as needed.
• Raw Material and Resource Planning: Ensuring raw materials and other resources are available for production to avoid potential supply chain disruptions.

A classic example of effective supply planning is a global tech giant renowned for its product launches. Accurately anticipating maximum demand potential and aligning its supply chain operations ensures product availability across global markets.

On the other hand, a contrasting scenario involves a car manufacturer that faced supply chain disruptions when the supply planning failed the forecasting parameters. This led to a critical shortage and resulted in production delays and substantial financial losses.

Supply planning’s role goes beyond just matching production with demand forecasts. Efficient supply planning aids businesses in managing their cash flow by ensuring optimal stock levels and reducing tied-up capital in excessive inventory. By managing minimum order quantities for raw materials, companies can negotiate better terms with suppliers; thus, supply costs remain manageable.

It’s essential for supply planners to remember that demand can be forecasted; external factors like supply chain disruptions can always introduce unforeseen problems.

Demand planning vs. supply planning isn’t just about contrasting two concepts but understanding their interdependency and significance in the broader supply chain management framework. Both play essential yet separate roles in helping businesses meet service targets and, at the same time, reduce costs and optimize cash flow.

The Value of Strategic Demand Planning and Supply Chain

In an ever-evolving business landscape, the strain on demand planning and supply chain management remains a prominent factor in organizational success. Their intertwined roles ensure businesses meet customer demand efficiently, streamline operations, reduce overheads, and maximize profitability.

The essence of strategic demand planning lies in forecasting demand in tandem with a supply chain that smooths the transition of products from production facilities to the end consumer. Together, they form a symbiotic relationship, shaping the trajectory of businesses in many industries.

It’s imperative to note the evolving nature of both demand and supply planning in today’s dynamic market. For many businesses, the challenge isn’t about generating raw demand potential but converting it into actual sales. 

Constrained demand forecasting, which accounts for business limitations and constraints, ensures the forecast is realistic and achievable. Such nuanced approaches in demand planning vs. supply planning play a significant role in achieving financial and service goals and help businesses remain competitive.

The Future Role of Demand Planning in Supply Chain Management

As industries become increasingly digitized and globalized, demand planning will play an exciting and essential role in guiding supply chain operations and enforcing that the right product reaches the right consumer at the optimum time.

Career Paths of Demand Planning and Supply Chain Specialists

With the expanding emphasis on integrated business planning, career opportunities in demand planning and supply chain have burgeoned, offering roles from tactical analysts to strategic leadership positions, each instrumental in driving business growth and sustainability.

The landscape for demand planning and supply chain specialists is ever-evolving. With the integration of AI and machine learning, there’s an increased emphasis on data-driven decision-making. Professionals equipped with skills in advanced demand planning software and those who understand the intricacies of managing safety stocks in an era of volatile demand can become leaders in this dynamic industry.

Implementing and Streamlining an Efficient Supply Chain Model

Implementing an efficient supply chain model is pivotal for businesses aiming to meet service targets, reduce overheads, and maintain a competitive edge in today’s fast-paced market. A successful model necessitates harmonizing demand planning, inventory management, raw materials sourcing, and production capacity.

Many businesses thrive by optimizing their supply chains. Amazon, with its Prime delivery model, revolutionized ecommerce by promising quick delivery times. However, failures are equally instructive. BlackBerry once led the smartphone market but faced supply chain problems and was ill-equipped to manage safety stocks and release of new models in a time with industry expectations. This significant failure contributed to its decline.

Key steps in streamlining:

• Accurate demand forecasting based on historical sales and consumer behavior
• Regularly reviewing and updating the master production schedule
• Aligning procurement strategies with expected demand and managing minimum order quantities effectively
• Incorporating flexibility in the supply chain to adapt to sudden market changes

Technology and Software to Enhance Supply Chain Operations

Incorporating advanced technology and software tools in supply chain operations streamlines the processes and offers accurate forecasts and real-time data analysis from past sales data. These innovations are pivotal in enhancing efficiency, reducing costs, and timely delivery in complex supply chains.

A list of commonly asked questions about demand planning vs. supply planning and their respective roles in the industry.

What is the relationship between demand planning and supply planning?

Demand planning predicts future customer demand, while supply planning ensures adequate resources and inventory to meet that demand.

What does a supply and demand planner do?

A supply and demand planner forecasts customer demand, manages inventory, and coordinates resources to ensure timely production and distribution in supply chain planning.

What are 4 crucial elements of demand planning?

Historical data analysis, demand forecasting, collaborative planning, and continuous review and adjustment are key elements.

Key Takeaways of Demand Forecasting and Supply Chain

Understanding the distinctions between demand planning vs. supply planning is paramount for efficient supply chain management. Accurate, unconstrained demand forecasting guides supply chain operations and demand planners for businesses to have the right resources and meet customer demand. Integrating both with advanced technology can further enhance operational efficiency and profitability.

Visit Our Sponsors

We know that many industries have unique planning requirements, so we’ve built solutions that support your industry-specific needs.

Featured industries

Predictor IA

Reduce excess, minimize stock-outs, place better orders

Predictor IBP

Advanced demand and supply planning functionality

ERPs we integrate with

Why Netstock

article | Forecasting & Demand Planning

Demand Forecasting for Supply Chains: How to Predict & Plan

Discover key demand forecasting processes to optimize operations, minimize costs, avoid stock-outs, and enhance customer satisfaction..

The customer lies at the heart of demand forecasting. Today’s demand planners must quickly understand the customer’s requirements, preferences, and behavior to make strategic choices regarding production, inventory, and distribution.

By accurately predicting future demand, businesses can reduce stock-outs, reduce long lead times, enhance product availability, and ultimately ensure their supply chain planning is customer-centric, geared to deliver the right products, at the right time, in the right quantities, and at the right locations.

In this article, we’ll explore the various methods and techniques used to improve demand forecasting, highlight the benefits of accurate forecasting, and provide practical tips to improve your demand forecasting processes.

Table of contents:

• What is demand forecasting?
• What’s the importance of demand forecasting in supply chain planning?
• Five trends impacting supply chains in 2024
• What supply chain KPIs inform demand forecasting?
• Supply chain demand forecasting techniques
• How to improve supply chain demand forecasting
• Discover how Netstock will elevate demand forecasting

1 What is demand forecasting?

Demand forecasting is the process of predicting the future demand for a product based on historical data, market trends, customer behavior, and other relevant factors. The objective of demand forecasting is to use predictive planning and analytics to provide an accurate estimate of the number of goods customers are likely to purchase over some time. Using the information, demand planners can estimate future sales and improve financial and capacity planning decisions.

Selecting the correct method of predicting demand for your supply chain will ensure you’re making the right decisions to meet demand.

2 What’s the importance of demand forecasting in supply chain planning?

Demand forecasting helps businesses make informed and data-driven decisions regarding production, inventory management, and resource allocation to meet customer demand, remain competitive, and maximize profitability.

Reduce stock-outs

Demand forecasting helps businesses determine the right amount of inventory to maintain. By accurately predicting future demand, businesses can avoid overstocking, which ties up capital and incurs storage costs, or stocking out, which leads to lost sales and customer dissatisfaction.

Efficient production planning

Demand forecasting allows businesses to plan their production schedules effectively. By understanding the anticipated demand, businesses can adjust their production levels, resource allocation, and procurement activities accordingly. This helps optimize manufacturing processes, reduce long lead times, and avoid production bottlenecks.

Increase visibility with suppliers

Reliable demand forecasts enable supply chain stakeholders to collaborate and synchronize their activities. Suppliers can align their production and delivery schedules with anticipated demand, leading to improved coordination, shorter lead times, and enhanced overall efficiency in the supply chain.

Avoid excess with better resource allocation

Demand forecasting helps businesses allocate their resources efficiently. Businesses can appropriately allocate workforce, machinery, and other resources by predicting future demand patterns. This prevents resource shortages or excess stock and allows for better utilization of available resources.

Improve financial planning

Accurate demand forecasts facilitate effective financial planning and budgeting. Businesses can estimate future sales revenue and align their budgetary allocations accordingly. It helps set realistic targets, manage cash flows, and make informed decisions regarding investments, marketing strategies, and expansion plans.

Increase customer service

Businesses can ensure high customer satisfaction by maintaining adequate stock levels, minimizing stock-outs, and fulfilling customer orders promptly. This leads to improved customer service and increased customer loyalty.

Risk management

Demand forecasting assists in identifying potential risks and uncertainties in the supply chain. Businesses should anticipate market fluctuations, changing customer behaviors, and other external factors by analyzing demand patterns and trends. This allows them to develop contingency plans, mitigate risks, and respond proactively to market dynamics.

3 Five trends impacting supply chains in 2024

External factors will continue to influence and disrupt supply chain planning. The global recession, global politics, inflation, and supplier or material delays will obstruct businesses from meeting demand. Another major factor impacting demand forecasting is the shift in consumer purchasing behaviors following the pandemic. Demand planners today must work with real-time data, leverage predictive analytics, and collaborate with cross-functional teams to effectively adapt their demand planning strategies.

Here are five trends to consider when approaching demand forecasting in 2024:

1. Changing consumer behavior

Consumer buying behaviors have drastically changed, becoming more digital, safety-conscious, value-driven, and environmentally conscious. As a result, demand planners need to consider the increased demand for online channels and optimize inventory levels accordingly.

2. An increase in nearshoring or ‘friend shoring’

This will continue so businesses can secure the supply of goods on time and in full to meet demand. This means you’ll need to review your current supplier network.

3. Supply chain visibility is non-negotiable

Leverage technology to gain full visibility of your supply chain operations to measure inventory levels, improve fill rate, and review safety stock levels and supplier performance. With increased visibility, you’ll quickly identify and address potential stockouts or excess stock before they become problematic and prevent you from meeting demand.

4. Prioritizing investing in predictive supply chain technology

Use technology to quickly model different scenarios to measure the impact and profitability of these scenarios on your supply chain.

5. More material shortages

Identifying your high-demand stock items will be essential for sourcing the right amount of materials while also developing a good relationship with suppliers.

4 What supply chain KPIs inform demand forecasting?

A supply chain Key Performance Indicator (KPI) is a measurable metric used to assess the performance and effectiveness of various supply chain activities. KPIs are typically aligned with a business’s strategic goals and objectives and help monitor key areas such as inventory management, procurement, and customer service. With full visibility to monitor and analyze supply chain KPIs, businesses can identify areas for improvement, make informed decisions, and optimize their demand forecasting processes to achieve better outcomes.

Visibility of these KPIs will enhance demand forecasting:

Stock holding

Inventory stock holding comprises all products or materials available in the warehouse or storage facility before they are sold or used in production. It’s influenced by customer demand, production lead times, and order quantities. Visibility of inventory stock holding is crucial for demand planning as it enables accurate forecasting, efficient allocation of resources, and timely fulfillment of customer orders. With visibility to quickly measure and monitor your stock holding, you can balance your inventory levels, ensuring you have enough inventory to fulfill customer orders promptly while avoiding excess stock that ties up capital and incurs storage costs. Your goal should be to bring your actual stock holding value as close to the model stock value as possible while increasing or maintaining your fill rate.

Your fill rate is like a measuring gauge, telling you how well you can service your customers with the available inventory. Fill rate measures the percentage of customer demand successfully fulfilled from available inventory and significantly influences demand forecasting. Firstly, it helps improve accuracy. A higher fill rate means incurring excess stock, and a lower fill rate could lead to potential stock-outs. By monitoring your fill rate, you can also identify patterns of demand variability and understand how much safety stock you need available for high-risk items with volatile demand or unstable supply. Delays or inconsistencies in receiving goods from suppliers can affect a business’s ability to fulfill customer orders. This can impact demand forecasting accuracy since it relies on reliable and timely supplier deliveries.

Replenishment cycle

The replenishment cycle , which refers to the time to restock inventory after sales, will impact demand forecasting. It influences lead time, stock-outs, overstocking, seasonality, demand variability, and supply chain efficiency. A longer replenishment cycle requires accounting for demand fluctuations during that time, while a shorter cycle allows for more frequent updates to demand forecasts. Seasonal patterns and trends must align with the replenishment cycle, and accurate forecasting helps optimize inventory levels. The replenishment cycle’s length directly affects supply chain efficiency, making it crucial to balance customer demand and inventory management.

Supplier performance

Visibility of your supplier network and monitoring how well your suppliers perform will impact the demand forecast. Unreliable lead times or stock arriving in fewer quantities from suppliers can lead to stock-outs and delays in meeting customer demand. Variability in lead times due to supplier performance can disrupt the supply chain and require adjustments to demand forecasts. Poor product quality from suppliers can result in returns and reduced demand, making forecasting challenging. Fluctuations in costs and pricing due to supplier issues can also impact consumer demand and purchasing behavior.

5 Supply chain demand forecasting techniques

By combining the qualitative and quantitative approach and other techniques, businesses can enhance their supply chain planning and optimize inventory levels, production schedules, and procurement strategies to effectively meet customer demand. Knowing which method to use plays a vital role in the success and competitiveness of businesses across various industries.

• Qualitative techniques: rely on historical data and past trends to predict future demand. Businesses can identify seasonal fluctuations, consumer preferences, and market trends that inform demand forecasts by analyzing patterns and trends in previous sales data.
• Quantitative techniques: involve expert opinion and market research. Experts provide insights and predictions based on their industry knowledge and experience. Market research involves gathering data on consumer behavior, economic indicators, and competitor analysis to make accurate demand forecasts.

Other demand forecasting techniques include:

• Scenario analysis: Using scenario analysis to forecast demand under different hypothetical scenarios. This allows planners to understand the potential impact of changes in variables such as pricing, marketing strategies, or external factors on future demand.
• Customer segmentation: Segmenting customers based on various characteristics such as demographics, purchasing behavior, and preferences. By analyzing the demand patterns within each segment, planners can forecast demand for different customer groups.
• Tracking leading market indicators: Identifying and monitoring leading indicators that strongly correlate with demand. For example, tracking economic indicators such as consumer confidence, employment rates, and housing market trends can provide insights into future demand patterns in the retail industry.
• Predictive analytics: leveraging advanced analytical techniques and machine learning algorithms to analyze large datasets and identify patterns and correlations can help planners better predict future demand.

It’s often necessary to use a hybrid approach to leverage the impact of each technique. Selecting the most appropriate demand forecasting technique will rest on which techniques best align with the business’s goals and data availability within your supply chain.

6 How to improve supply chain demand forecasting

Collaborate with customers.

Staying close to your customers involves monitoring customer behavior, building relationships, leveraging customer data, and involving them in the forecasting process. By integrating customer data from sales records, loyalty programs, online transactions, and other touchpoints into forecasting models and analyzing this data, you can identify correlations, seasonality, and demand drivers that influence customer behavior, leading to more accurate demand forecasts. This customer-centric approach enhances demand forecasting accuracy and ensures supply chain operations align with customer needs.

Improve supplier relationships

With so much complexity in balancing inventory levels with supply and demand, the more you develop a good relationship with your suppliers and try stabilizing lead times, the more accurate your demand forecast will be. Suppliers also have their fair share of challenges. Regularly checking in with your suppliers gives you a better idea of what’s happening in their supply chain, and with real-time information, you can make adjustments if needed. You can also help your suppliers by giving them visibility of your forecast so they know in advance what stock you’ll need, so they can plan accordingly or flag any potential issues as they occur.

Tradeware can present their 12-month projected order forecasts to suppliers.

“Our suppliers find this invaluable for their planning, strengthening our relationships and paving the way for successful collaboration.” – Tradeware

Review and adjust demand forecasts

Continuous monitoring is crucial for demand forecasting improvement. Regularly reviewing forecast accuracy, tracking actual demand against forecasted demand, and analyzing the reasons for any discrepancies can help identify areas for improvement. This feedback loop allows for iterative adjustments and refinement of forecasting models and strategies.

“In the apparel industry, one pair of pants may have 200-250 available sizes when looking at all waist and inseam options. We use the statistical models and algorithms that Netstock suggests at the product level and then apply historical averages to develop forecasts down to the SKU level. – Edwards Garment Read more

Use predictive supply chain planning software

Investing in supply chain technology that utilizes advanced analytics and machine learning algorithms can help improve supply chain demand forecasting. These tools analyze historical data, identify patterns, and make more accurate predictions, leading to improved forecasting accuracy.

Edwards Garment achieves a $900,000 reduction in inventory write-offs with Netstock.

Learn more about their incredible success

7 Discover how Netstock will elevate demand forecasting

Netstock’s demand planning functionality is a powerful tool for empowering demand planners to quickly adapt their forecasting models to keep pace with evolving market dynamics and shifting customer behavior. With this capability, you gain a granular view of demand at various levels, including individual SKUs, regions, and channels. You can forecast at any group level and in base units, price, cost, or margin. It goes beyond the surface and identifies outliers such as seasonality, promotions, and events, allowing you to make informed decisions.

Improve your demand planning today!

Related articles.

3 Tips for More Effective Ordering and Inventory Optimization

Effective inventory optimization is essential for every business owner.

What To Look for in Inventory Forecasting Software

Planning is a crucial function for any business, especially when it comes to ensuring that resources align with objectives.

Tips for Calculating Your Optimal Inventory Quantity

Inventory management directly affects customer service, operational efficiency, and profitability.

Leveraging inventory analysis to optimize your supply chain operations

Many small and medium-sized businesses struggle with inefficient supply chain operations, especially if they still manage their inventories manually.

Ready to get started?

Discover more about Netstock’s demand and supply planning software

• Start free trial

Start selling with Shopify today

Start your free trial with Shopify today—then use these resources to guide you through every step of the process.

9 Business Plan Examples to Inspire Your Own (2024)

Need support creating your business plan? Check out these business plan examples for inspiration and guidance.

Any aspiring entrepreneur researching how to start a business will likely be advised to write a business plan. But few resources provide business plan examples to really guide you through writing one of your own.

Here are some real-world and illustrative business plan examples to help you craft your business plan .

Business plan format: 9 examples

The business plan examples in this article follow this template:

• Executive summary
• Company description
• Market analysis
• Products and services
• Marketing plan
• Logistics and operations plan
• Financial plan
• Customer segmentation

1. Executive summary

Your executive summary is a page that gives a high-level overview of the rest of your business plan. While it appears at the beginning, it’s easiest to write this section last, as there are details further in the report you’ll need to include here.

In this free business plan template , the executive summary is four paragraphs and takes a little over half a page. It clearly and efficiently communicates what the business does and what it plans to do, including its business model and target customers.

2. Company description

You might repurpose your company description elsewhere, like on your About page , social media profile pages, or other properties that require a boilerplate description of your small business.

Soap brand ORRIS has a blurb on its About page that could easily be repurposed for the company description section of its business plan.

You can also go more in-depth with your company overview and include the following sections, like in this business plan example for Paw Print Post:

Business structure

This section outlines how you registered your business —as an LLC , sole proprietorship, corporation, or other business type : “Paw Print Post will operate as a sole proprietorship run by the owner, Jane Matthews.”

Nature of the business

“Paw Print Post sells unique, one-of-a-kind digitally printed cards that are customized with a pet’s unique paw prints.”

“Paw Print Post operates primarily in the pet industry and sells goods that could also be categorized as part of the greeting card industry.”

Background information

“Jane Matthews, the founder of Paw Print Post, has a long history in the pet industry and working with animals, and was recently trained as a graphic designer. She’s combining those two loves to capture a niche in the market: unique greeting cards customized with a pet’s paw prints, without needing to resort to the traditional (and messy) options of casting your pet’s prints in plaster or using pet-safe ink to have them stamp their ’signature.’”

Business objectives

“Jane will have Paw Print Post ready to launch at the Big Important Pet Expo in Toronto to get the word out among industry players and consumers alike. After two years in business, Jane aims to drive $150,000 in annual revenue from the sale of Paw Print Post’s signature greeting cards and to have expanded into two new product categories.”

“Jane Matthews is the sole full-time employee of Paw Print Post but hires contractors as needed to support her workflow and fill gaps in her skill set. Notably, Paw Print Post has a standing contract for five hours a week of virtual assistant support with Virtual Assistants Pro.”

Your mission statement may also make an appearance here. Passionfruit shares its mission statement on its company website, and it would also work well in its example business plan.

3. Market analysis

The market analysis consists of research about supply and demand , your target demographics, industry trends, and the competitive landscape. You might run a SWOT analysis and include that in your business plan. 

Here’s an example SWOT analysis for an online tailored-shirt business:

You’ll also want to do a competitive analysis as part of the market research component of your business plan. This will tell you which businesses you’re up against and give you ideas on how to differentiate your brand. A broad competitive analysis might include:

• Target customers
• Unique value proposition , or what sets the products apart
• Sales pitch
• Price points for products
• Shipping policy

4. Products and services

This section of your business plan describes your offerings—which products and services do you sell to your customers? Here’s an example for Paw Print Post that explains its line of custom greeting cards, along with details on what makes its products unique.

5. Marketing plan

It’s always a good idea to develop a marketing plan before you launch your business. Your marketing plan shows how you’ll get the word out about your business, and it’s an essential component of your business plan as well.

The Paw Print Post focuses on four Ps: price, product, promotion, and place. However, you can take a different approach with your marketing plan. Maybe you can pull from your existing marketing strategy , or maybe you break it down by the different marketing channels. Whatever approach you take, your marketing plan should describe how you intend to promote your business and offerings to potential customers.

6. Logistics and operations plan

The Paw Print Post example considered suppliers, production, facilities, equipment, shipping and fulfillment, and inventory. This includes any raw materials needed to produce the products.

7. Financial plan

The financial plan provides a breakdown of sales, revenue, profit, expenses, and other relevant financial metrics related to funding and profiting from your business.

Ecommerce brand Nature’s Candy’s financial plan breaks down predicted revenue, expenses, and net profit in graphs.

It then dives deeper into the financials to include:

• Funding needs
• Projected profit-and-loss statement
• Projected balance sheet
• Projected cash-flow statement

You can use a financial plan spreadsheet to build your own financial statements, including income statement, balance sheet, and cash-flow statement.

8. Customer segmentation

Customer segmentation means dividing your target market into groups based on specific characteristics. These characteristics can be demographics, psychographics, behavior, or geography. Your business plan will provide detailed information on each segment, like its size and growth potential, so you can show why they are valuable to your business. 

Airsign , an eco-friendly vacuum cleaner company, faced the challenge of building a sustainable business model in the competitive home appliance market. They identified three key customer personas to target:

• Design-oriented urban dwellers
• Millennials moving to suburbs
• Older consumers seeking high-quality appliances

The company utilized Shopify’s customer segmentation tools to gain insights and take action to target them. Airsign created targeted segments for specific marketing initiatives.

Put your customer data to work with Shopify’s customer segmentation

Shopify’s built-in segmentation tools help you discover insights about your customers, build segments as targeted as your marketing plans with filters based on your customers’ demographic and behavioral data, and drive sales with timely and personalized emails.

9. Appendix

The appendix provides in-depth data, research, or documentation that supports the claims and projections made in the main business plan. It includes things like market research, finance, résumés, product specs, and legal documents. 

Readers can access detailed info in the appendix, but the main plan stays focused and easy to read. Here’s an example from a fictional clothing brand called Bloom:

Appendix: Bloom Business Plan

Types of business plans, and what to include for each

This lean business plan is meant to be high level and easy to understand at a glance. You’ll want to include all of the same sections in one-page business plan, but make sure they’re truncated and summarized:

• Executive summary: truncated
• Market analysis: summarized
• Products and services: summarized
• Marketing plan: summarized
• Logistics and operations plan: summarized
• Financials: summarized

A startup business plan is for a new business. Typically, these plans are developed and shared to secure funding . As such, there’s a bigger focus on the financials, as well as on other sections that determine viability of your business idea—market research, for example:

• Market analysis: in-depth
• Financials: in-depth

Your internal business plan is meant to keep your team on the same page and aligned toward the same goal:

A strategic, or growth, business plan is a big-picture, long-term look at your business. As such, the forecasts tend to look further into the future, and growth and revenue goals may be higher. Essentially, you want to use all the sections you would in a normal business plan and build upon each:

• Market analysis: comprehensive outlook
• Products and services: for launch and expansion
• Marketing plan: comprehensive outlook
• Logistics and operations plan: comprehensive outlook
• Financials: comprehensive outlook

Feasibility

Your feasibility business plan is sort of a pre-business plan—many refer to it as simply a feasibility study. This plan essentially lays the groundwork and validates that it’s worth the effort to make a full business plan for your idea. As such, it’s mostly centered around research:

Nonprofit business plans are used to attract donors, grants, and partnerships. They focus on what their mission is, how they measure success, and how they get funded. You’ll want to include the following sections in addition to a traditional business plan:

• Organization description
• Need statement
• Programs and services
• Fundraising plan
• Partnerships and collaborations
• Impact measurement

Set yourself up for success as a business owner

Building a good business plan serves as a roadmap you can use for your ecommerce business at launch and as you reach each of your business goals. Business plans create accountability for entrepreneurs and synergy among teams, regardless of your business model .

Kickstart your ecommerce business and set yourself up for success with an intentional business planning process—and with the sample business plans above to guide your own path.

• How to Start a Dropshipping Business- A Complete Playbook for 2024
• The 13 Best Dropshipping Suppliers in 2024
• How To Source Products To Sell Online
• 25+ Ideas for Online Businesses To Start Now (2024)
• The Ultimate Guide To Dropshipping (2024)
• How to Build a Business Website for Beginners
• 7 Inspiring Marketing Plan Examples (and How You Can Implement Them)
• 10 Ways to Write Product Descriptions That Persuade (2024)
• Get Guidance- 6 Business Plan Software to Help Write Your Future
• Business Valuation- Learn the Value of Your Business

Business plan examples FAQ

How do i write a simple business plan.

To write a simple business plan, begin with an executive summary that outlines your business and your plans. Follow this with sections detailing your company description, market analysis, organization and management structure, product or service, marketing and sales strategy, and financial projections. Each section should be concise and clearly illustrate your strategies and goals.

What is the best format to write a business plan?

The best business plan format presents your plan in a clear, organized manner, making it easier for potential investors to understand your business model and goals. Always begin with the executive summary and end with financial information or appendices for any additional data.

What are the 4 key elements of a business plan?

• Executive summary: A concise overview of the company’s mission, goals, target audience, and financial objectives.
• Business description: A description of the company’s purpose, operations, products and services, target markets, and competitive landscape.
• Market analysis: An analysis of the industry, market trends, potential customers, and competitors.
• Financial plan: A detailed description of the company’s financial forecasts and strategies.

What are the 3 main points of a business plan?

• Concept: Your concept should explain the purpose of your business and provide an overall summary of what you intend to accomplish.
• Contents: Your content should include details about the products and services you provide, your target market, and your competition.
• Cash flow: Your cash flow section should include information about your expected cash inflows and outflows, such as capital investments, operating costs, and revenue projections.

Keep up with the latest from Shopify

Get free ecommerce tips, inspiration, and resources delivered directly to your inbox.

By entering your email, you agree to receive marketing emails from Shopify.

popular posts

The point of sale for every sale.

Subscribe to our blog and get free ecommerce tips, inspiration, and resources delivered directly to your inbox.

Unsubscribe anytime. By entering your email, you agree to receive marketing emails from Shopify.

Latest from Shopify

Sep 6, 2024

Learn on the go. Try Shopify for free, and explore all the tools you need to start, run, and grow your business.

Try Shopify for free, no credit card required.

Understanding the law of supply and demand in business

Ioana Neamt

The law of supply and demand is a balancing act that your business needs to master to have any chance of turning a profit. It doesn’t matter if you’re running a one-man startup or a multinational corporation — understanding it can make all the difference between your ultimate success or failure. 

Read on to get to grips with the law of supply and demand with some real-life examples.  

What is the law of supply and demand?

Imagine you’re at a food stand, and there’s only one slice of pizza left for sale. Everyone’s pushing to the front, desperate to get their hands on it. The more slices people want (demand), the more the food stand can decide to charge for them. 

At the same time, if the stand has one hundred slices of pizza and only ten customers, they might slash their prices to shift as much as they can. 

This basic example is the true essence of the law of supply and demand. 

It’s all about how the availability of the product (supply) and the desire for the product (demand) interact with each other to determine the price set for the product. 

When demand increases, and supply remains unchanged, a shortage happens. This will eventually push prices up. On the flip side, when supply increases and demand remains unchanged, a surplus occurs, which will cause prices to drop. 

The law of supply 

The law of supply states that, all else being equal, an increase in the price of goods leads to an increase in the quantity supplied, while a decrease in price results in a decrease in the quantity supplied.

This usually happens because the manufacturers are more willing to create and supply a product when they can sell for more cash as they can enjoy a bigger profit. They’ll also supply far less when the price drops because the incentive to keep producing is no longer there. 

Let’s go back to the food stand theory again. If the market price of a slice of pizza goes up, the stand will want to bake more of them to maximize their profits. If the price plummets, the stand will cut back on baking since the cost of the ingredients isn’t worth it. 

The law of demand

The law of demand states that, all else being equal, an increase in the price of goods leads to a decreased demand, while a decrease in price results in increased demand.

Basically, consumers want to get the best value for their money, so they’re far more likely to buy more of a product when it’s cheaper. 

In the food stand example, this would mean that if the price of a slice of pizza doubles overnight, fewer people will go there for lunch — they might look for a cheaper option nearby. But if the price drops by half, customers might buy two slices. 

Manage your supply and demand with Katana

Katana lets you forecast your inventory and plan ahead. Leverage your historical sales data to generate demand plans and stock your shelves accordingly.

The law of supply and demand 

Now that we’ve covered the basics of supply and demand, we can bring them together. 

The law of supply and demand states that if the supply and demand of a product are equal, the balance is reached. This point is known as the equilibrium price. Basically, the market is in balance, and there’s no pressure for the price to go up or down. 

If you decide to plot supply and demand on a graph, the point where the two lines intersect is the equilibrium price. When the market price is above this equilibrium point, it represents a surplus, and prices will start to fall. 

At the same time, if the market price sits below the equilibrium line, then there’s a shortage, and prices will start to creep up. 

Why is the law of supply and demand important for your business?

Without the law of supply and demand guiding your decision-making, you’d be making decisions regarding your pricing and production in the dark. 

By knowing how changes in supply and demand will affect pricing, your business can make better predictions when it comes to market trends so that you can adjust your strategy. 

Let’s say your business anticipates a spike in demand for one of your products using the law of supply and demand. You can increase your production to meet that demand and enjoy higher profits. 

At the same time, if you predict a drop in demand, you can slow down production to avoid excess inventory and potential losses. 

The basic laws of supply and demand

If you’re still unsure of how the law of supply and demand might look in practice, read the basic laws with examples below. 

The law of supply — As prices rise, the supplied quantity rises. As prices fall, the supplied quantity also falls.

Example: A coffee shop owner increases prices when there’s a coffee shortage. Farmers grow more coffee beans because they can sell them at higher prices. 

The law of demand — As prices rise, the demand falls. When prices fall, the demand rises.

Example : A tech company slashes its smartphone prices. Sales boom as customers rush to buy discounted phones. 

Equilibrium — The point where supply successfully meets demand. 

Example : A food stand sells 100 slices of pizza every day. If they make exactly 10 pizzas with 10 slices each, they’re at equilibrium. Any more, then there are leftovers. Any less, and they run out, and their profits decline. 

Balance supply and demand with Katana

In business, you have to strike the balance between supply and demand — but it can be as challenging as finding a needle in a haystack. That’s where Katana comes in. Our inventory management software helps you keep your finger on the pulse of your supply chain so you never miss a beat. 

With Katana, you have the ability to track your inventory levels and forecast demand, allowing you to adjust your production levels in real time. Sign up for a demo today and find the equilibrium point with ease. 

What happens when supply and demand is unbalanced?

When your supply and demand levels are unbalanced, you’ll find yourself with either a surplus or a shortage of stock.

A surplus happens when supply exceeds your demand, meaning your products will go unsold, and you’ll have to lower your prices. A shortage happens when your demand exceeds your supply. While you can charge more, you’ll also face dissatisfied customers who don’t have their orders fulfilled on time. 

How can businesses use supply and demand to make strategic decisions? 

Businesses can use their supply and demand data to make better decisions when it comes to pricing, production levels, and inventory management. 

Taking the time to analyze your market trends and customer behavior will allow you to anticipate any changes in demand better. Then, you can start to adjust your strategy to maximize your profits and minimize the chance of any losses. 

How does supply and demand affect market prices? 

Supply and demand have a direct impact on market prices — not just for your business but for everyone operating in your industry. When demand increases, and the supply remains constant, prices will likely rise. 

At the same time, when supply increases, and the demand remains the same, prices will start to fall. If an equilibrium is met, then prices will remain the exact same. 

What factors can shift supply and demand curves? 

Several factors can contribute to a shift in the supply and demand curves. This includes changes in how consumers behave, technological advancements, government policies, and broader economic conditions. 

For instance, a new technology that lowers production costs might hit the market and increase supply, making the supply curve shift to the right. 

What is the price elasticity of demand, and why is it important?

Price elasticity of demand is a way of measuring how sensitive the quantity demanded of a good is to a change in price. If the demand is elastic, a price change, even if small, can lead to a major change in how much quantity is demanded. If demand is inelastic, the quantity demanded only changes slightly with price changes. 

Understanding this will help your business increase its prices without a major drop in sales.

Do businesses have the ability to influence supply and demand?

Yes, businesses, including yours, can influence supply and demand. Let’s say you come up with a killer marketing campaign that boosts the demand by making a product more appealing to your customers. You’ll need to adjust your production levels to keep up with rising demand. 

Companies can also influence supply by forming partnerships with other businesses or by making investments in new production technology that cuts costs while boosting supply. 

Table of contents

Get inventory trends, news, and tips every month, explore all categories, get visibility over your sales and stock.

Wave goodbye to uncertainty by using Katana Cloud Inventory for total inventory control

Demand planning is a supply chain management process that enables a company to project future demand and successfully customize company output—be it products or services—according to those projections. It is the linchpin of an effective supply chain, which makes it doubly important to business.

Demand planning seeks to achieve and maintain an effectively lean supply equilibrium, one in which store inventories contain just as many products as demand dictates, but no more. Finding that perfect balance that exists between sufficiency and surplus can prove especially tricky. And although maintaining that balance is a major concern of demand planning, so is the constant effort to help shape demand through an effective use of promotions.

Effective demand planning typically requires the use of demand forecasting techniques to accurately predict demand trends, and carries added benefits, such as heightened company efficiency and increased customer satisfaction.

Discover the power of integrating a data lakehouse strategy into your data architecture, including enhancements to scale AI and cost optimization opportunities.

Register for the guide for data leaders

Demand planning is the linchpin of an effective supply chain, serving two essential functions — which makes it doubly important to business.

First, there always exists the fundamental drive to protect the sale and ensure that expected revenues are generated. But retailers can’t sell what they don’t have in stock. And it doesn’t take long for today’s consumers to develop a lasting impression of a company, and whether it can meet supply demand. Demand planning works to see that retailers have exactly the right amount of inventory at the right place to avoid stock-outs and remain prepared for that next sale.

But protecting sales isn’t enough anymore. It’s also about running businesses more efficiently. Demand planning assists with efficiency, by helping manage inventory space smarter. Why should companies invest in more physical space than they need? Demand planning can help businesses avoid the perils of overstocking — such as increased inventory carrying costs and financial situations that require the use of product discounts or other temporary measures to alleviate overstocking by selling inventory as quickly as possible.

Demand planning and forecasting is more crucial than ever, especially since so many outside forces — such as weather events, economic trends and global emergencies — can end up shaping and reshaping demand.

Effective demand management requires a comprehensive understanding of products and their respective lifecycles. Product portfolio management offers this, detailing a product’s complete lifecycle, from its origins until its eventual phase-out. And since many product lines are interdependent, product portfolio management shows you how shifting demand can affect “neighboring” products.

Working from the traditional concept that past history is usually the best predictor of future performance, statistical forecasting uses complex algorithms to analyze historical data and develop supply chain forecasts. The mathematics of statistical forecasting methods is advanced and the exacting process demands accurate data (including from outliers, exclusions or assumptions).

Demand sensing uses a combination of new sources of data, such as weather, infectious disease trends, government data and more, with historical trend data and applies AI to detect disruptions and demand influences in near real-time.

Survival in the retail jungle depends on sparking the interest of potential customers. Trade promotions and other marketing strategies use special events (such as discount prices or in-store giveaways) to spike consumer demand. Trade promotion management works to ensure that such opportunities are properly executed and deliver all expected benefits.

Organizations vary widely in how they approach the demand planning process, but there is a general set of steps that businesses typically follow. Those steps include:

• Organizing and preparing data.
• Making a preliminary forecast.
• Integrating market data.
• Reconciling bottom-up and top-down forecasts.
• Developing a final forecast.
• Using analytics to monitor project performance.

In addition to establishing a precise set of implementation steps, successful companies usually engage in the following best practices for demand planning:

In order to process complex projections, effective demand planning requires ample amounts of data. Smart companies rely on metrics reports that help them prepare their data through increasingly sophisticated data mining and aggregation techniques.

There are numerous options when choosing demand planning software, but companies should try to be selective, based on their unique needs. Goal: Find a solution refined enough to reflect the subtleties of demand forecasting methods yet robust enough to handle reporting tasks.

Experienced demand planners typically begin their process by using descriptive analytics data to develop a testing baseline. Next, they shape the actual plan, devoting personnel and resources to cultivate and refine that plan, and then work on the exact implementation steps.

To be sure, the future is digital — and so is the outlook for demand planning. As demand forecasting in supply chain management becomes increasingly sophisticated because of advances in machine learning, companies will reap substantial benefits, such as being able to receive precise, real-time inventory updates and forecasts.

These continuing advances are drawing companies closer to the ideal promoted through demand planning. If an enterprise stocks just enough inventory to satisfy customer demand and withstand temporary market fluctuations, it’s able to run more efficiently and profitably thanks to its lean inventory strategy.

Your business is always evolving, which is why you need continuous intelligent planning.

Discover how to streamline the planning process for supply chain plans that are synchronized and responsive.

Get a single view of your inventory — from raw material availability and supplier orders all the way to customer delivery.

View all upcoming IBM events, such as THINK, Supply Chain Academy and more.

Predict outcomes with flexible AI-infused forecasting and analyze what-if scenarios in real-time. IBM Planning Analytics is an integrated business planning solution that turns raw data into actionable insights. Deploy as you need, on premises or on cloud.