Collaborative Demand Planning between manufacturers and their distributors allows both partners to streamline their work processes and ultimately benefit from a more accurate forecast, better market transparency, greater stability, reduced inventory and better communication.

There are many different possibilities for collaborative demand planning. The following is an example using the Collaborative Planning, Forecasting and Replenishment (CPFR) model.

Within Collaborative Demand Planning the buyer and seller develop a single forecast and update it regularly based on information shared over the Internet. It is a business-to-business workflow, with data exchanged dynamically, designed to increase in-stock customer stock while cutting inventory. The basic process consists of seven steps:

1. Agree on the process: define role of each partner, establish confidentiality of shared info, commit resources, agree on exception handling and performance measurement.
2. Create a joint business plan and establish products to be jointly managed including category role, strategy and tactics.
3. Develop a single forecast of consumer demand based on combined promotion calendars and analysis of POS data and causal data.
4. Identify and resolve forecast exceptions. This is achieved by comparing current measured values such as stock levels in each store adjusted for changes such as promotions against the agreed-upon exception criteria (in-stock level, forecast accuracy targets).
5. Develop a single order forecast that time-phases the sales forecast while meeting the business plan's inventory and service objectives and accommodating capacity constraints for manufacturing, shipping, etc.
6. Identify and resolve exceptions to the forecast, particularly those involving the manufacturer's constraints in delivering specified volumes, creating an interactive loop for revising orders.
7. Continue with the succeeding planning steps

This process is illustrated in the diagram below: