Demand forecasting is a means of estimating what customer demand will look like in the future, and how it will affect your business’ supply chain. It’s essential for business health, continuity, and growth, ensuring you make the right decisions at the right times.
If you’re new to demand forecasting and keen to make it a fixture of your business, our guide can help. Here, we’ll be covering what demand forecasting is, why it’s important, and how to implement it alongside your ongoing supply chain management strategy.
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As the term alludes to, demand forecasting is the process of ascertaining peaks and troughs in future demand. To do this, you need to analyse all the internal and external factors which impact your supply infrastructure, giving you a clear view of any patterns and issues which might affect your demand forecasts.
Demand forecasting plays an important role in effective supply chain management, ensuring timely stock replenishment, enhanced capacity management, and optimal sales and revenue. It also improves decision-making and management, while accelerating prospective plans for growth and expansion.
Accurate demand forecasting relies on granular analysis of the factors which can impact a business’ supply infrastructure. From historical sales patterns to specific events or seasons in the retail calendar (e.g., Christmas); forecasting demand requires careful analysis of several variables to ensure business readiness, continuity, and an excellent end-user experience.
Typically, businesses that perform regular demand forecasting create multiple forecasts to predict the supply and demand of stock over different timespans. Using varying degrees of granularity as part of analysis, it’s possible to forecast future stock requirements from days to months in advance – allowing for enhanced planning, control, and business confidence.
Demand forecasting has many advantages, helping you to maintain the health and smooth operation of your business in the long term. And the benefits aren’t limited to maintaining excellent customer service levels; they can drive improvements across multiple functions, boosting business confidence and helping a firm realise its ambitions for growth.
Below, we take a closer look at some of the benefits you could enjoy by embracing demand forecasting.
When forecasting demand, it’s necessary to consider a broad range of factors that directly and indirectly affect supply. These include both internal and external variables, which together have a significant impact on sales volumes and required stock at different times throughout the year.
Let’s take a closer look at the factors you should consider when forecasting demand.
Demand forecasting might sound simple on paper, but to do so accurately across a broad inventory of different products and services is no mean feat. And given that consistent and timely forecasting can have a huge impact on ongoing costs, growth, and business continuity, it’s important to get it right.
Below, we share some simple tips on how to develop a robust demand forecasting strategy, and highlight how supply chain management software can simplify the process.
Forecasting demand is at its most valuable when it aligns with your goals and objectives. For example, if you’re looking to drive business growth through increased revenue, a demand forecast can help to highlight how and when an increase in revenue will start to have a real-world effect on growth.
Accurate and actionable demand forecasting relies on consistent, full, and complete data. Many of your assumptions about future demand will be based on historic sales data and customer behaviour, so it’s essential that you and your team can rely on comprehensive data sets.
Consider, also, that business functions will utilise forecasting differently. Therefore, your data needs to be accessible and integrated, but free from duplication and inaccuracies. Utilising an ERP system with a centralised database is among the best ways to ensure usable, accurate data sets for the purposes of demand forecasting. It can also use your data to provide your team with demand forecast estimates that consider various internal and external variables in their calculations.
While historic sales data is one of the first things you should consider to ensure demand forecasting accuracy, you need to account for qualitative variables too. Think of these as future events which will impact demand and supply, but that you have no real means of predicting.
Of course, accounting for qualitative factors isn’t easy, but any sales and marketing insights you can include in your forecasts will ensure greater accuracy and credibility. Be sure to liaise closely with department leads to understand their take on what could affect supply and demand in the coming weeks and months and lean on the forecasting functionality in your ERP or business software system to help you drive accurate demand forecasts.
On paper, demand forecasting can sound like an ambiguous exercise whose benefits are only speculative. That’s why it can be helpful to see how such a practice works in the real world, as well as the positive outcomes it can bring.
This case illustrates how one of our customers leveraged the capabilities of Intact iQ to effectively implement demand forecasting within their organisation. This was during the coronavirus pandemic, when firms were keeping a speculative eye on the future in order to align their operations with changing demands and developments.
The business in question, a janitorial supplier, was keen to assess which of their customers would remain open during the pandemic, as well as what products they were buying and how healthy their stocks were. They then looked at the products they wouldn’t be selling, particularly to customers in the hospitality industry, and put a stop to buying them until such businesses were able to reopen.
Rather than relying on manual processes and predictions to inform this strategy, they leaned on iQ for a quick and effective way to forecast changing demands. After all, it was important for them to be able to react quickly to changing demands and customer behaviour, to avoid wasted investment in unsellable products.
As a result of demand forecasting on the iQ system, their business was able to bring in new services they hadn’t offered before, such as cleaning machine hires. Their system enabled them to do all this within a couple of hours – highlighting the power of demand forecasting when paired with the right automation solution.
The COVID-19 pandemic also significantly affected one of our frozen food suppliers. However, following the recent implementation of Intact iQ, they were able to optimise their resources, resulting in tangible cost savings. The financial director believed that if it wasn’t for Intact iQ they would have really struggled through the pandemic.
Do you need help forecasting demand or managing your supply chain? Why not talk to Intact, and learn how our industry-specific ERP and business management solutions can elevate and strengthen your operations. For more information or to receive a free software demo, visit the homepage or contact us today.