Demand Forecasting: minimizing risk and maximizing your customers
As part of a larger series, we have been examining the challenges and opportunities that the supply chain faces in 2019. In our first article, we focused on a challenge, specifically how to make sure your supply chain is secure in a complex technological environment. Today we will focus on an opportunity: Demand Forecasting. Since the supply chain is smarter and the consumer data is readily available, demand forecasting has become a must have feature in 2019.
Defining Demand Forecasting
Before looking at how demand forecasting can affect your supply chain, we need to understand what forecasting is. Forecasting is a product of predictive analytics based on past data and trends. These analytics should drive all your company’s decisions in the short-term and long-term. The goal of forecasting is not to be 100% accurate. It is rather an attempt to minimize risk for your business. Demand forecasting focuses specifically on the supply chain. An algorithm is built to predict consumer demand for goods and services.
Forecasting is a product of predictive
analytics based on past data and trends.
These algorithms use data mining and past customer history to predict how much product you will need and where you will need it. A lot of times, a company’s success can be determined by having the right amount of stock on hand to meet the demand of the consumer. One thing to remember about demand forecasting is that is not accurate 100% of the time. Other companies have lost millions of dollars due to botched analytics. It is imperative that you keep your algorithms and data current and constantly forecast multiple data trends to get the best overall picture.
Benefits of Demand Forecasting
As the customer mindset changes, so must the supply chain. Customers today are used to very specific product orders, and they are used to receiving them very quickly. When products are out of stock, that can mean loss of business. Because the business scene is so competitive, customer retention is a huge priority. When your company uses demand forecasting correctly, it ensures that the product your customer is looking for will be there at a fair price. This will lead to higher customer satisfaction and repeat business. Having this level of forecasting will also increase your customer service interactions. The more information that your customer service representatives have, the more they can promise and engage with the customer.
When your company uses demand forecasting correctly, it ensures that the product your customer is looking for will be there at a fair price.
Another issue that can arise is too much stock. When demand forecasting is ignored, companies can over-produce a product, leading to a loss in profits. Demand forecasting can help predict the optimum level of product different warehouses should always be carrying. Also, correct forecasting can lead to a decrease in the necessary safety stock. This enables your company to have more mobility as you won’t be left with tons of left-over product when trying to push out something new.
When used correctly, demand forecasting has your products in the right place at the right time. This reality enables your company to have a price advantage over other competitors. When your company delivers on time and with a competitive price, your relationship with suppliers is solidified. Because of the visibility and transparency of your forecasting, suppliers will know they are getting the best price and an on-time guarantee.
Demand forecasting can be an intimidating endeavor. But with the growing complexity of the supply chain in 2019, it is a necessary endeavor. You don’t have to start forecasting with some expensive software either. A simple Excel spreadsheet could start you down the path to better business practices. Pay attention to the changes in the industry and forecast accordingly. As Dr. Muddassir Ahmed of Supply Chain Digital said, “Master the present before trying to predict the future.”