What is the difference between capacity planning and demand planning?

What is the difference between capacity planning and demand planning?

• A. Demand planning forecasts customer demand; capacity planning ensures resources (people, equipment) can meet that demand.
• B. Capacity planning forecasts demand; demand planning ensures resources meet demand.
• C. Both refer to forecasting demand; there is no difference.
• D. Demand planning schedules production; capacity planning handles procurement.

Answer: (B)

Demand planning is about predicting how much customers will want in a given period, while capacity planning takes that forecast and ensures the organization has enough resources—people, equipment, facilities, and suppliers—to meet that expected demand. In other words, forecasting comes first to shape the demand plan, and capacity planning translates that forecast into a plan for available capacity, identifying gaps and actions (hiring, overtime, capital investment, outsourcing) needed to meet the forecast. If you say capacity planning forecasts demand, you’re reversing the flow: forecasting is the job of demand planning. Saying both are just forecasting misses the important resource side, and describing demand planning as scheduling production confuses planning with execution while capacity planning encompasses more than procurement, covering all resource availability and timing.

Demand planning is about predicting how much customers will want in a given period, while capacity planning takes that forecast and ensures the organization has enough resources—people, equipment, facilities, and suppliers—to meet that expected demand. In other words, forecasting comes first to shape the demand plan, and capacity planning translates that forecast into a plan for available capacity, identifying gaps and actions (hiring, overtime, capital investment, outsourcing) needed to meet the forecast. If you say capacity planning forecasts demand, you’re reversing the flow: forecasting is the job of demand planning. Saying both are just forecasting misses the important resource side, and describing demand planning as scheduling production confuses planning with execution while capacity planning encompasses more than procurement, covering all resource availability and timing.