Predicting demand accurately is an extremely pivotal part of running any company which is in the business of selling goods or services. Without being able to predict ebbs and flows in demand, inventory managers will inevitably struggle to keep things running effectively.
In this article, we explain why forecasting demand accurately is so important for the success of your company and provide a few tips for managing the process successfully.
What is demand forecasting?
Forecasting demand is essentially the process where predictive analytics are employed to try to understand and predict customer demand for a business, in order to optimise supply decisions by corporate supply chain and business management.
Why is it necessary?
As Steven Steutermann, research vice president at Gartner says, “It is critical that organisations develop the right demand planning process to improve effectiveness…without a functioning process, obtaining a consensus-driven demand plan will prove extremely challenging.”
It is essential to get your demand predictions as accurate as possible – doing so gives you the best chance possible to capitalise on stock through sales and removes much of the risk of ordering too much stock which won’t sell.
Here are four things to consider as you fine-tune your forecasting
When forecasting demand, managers should start by looking at historical data – previous sales statistics. Look at which products sold well, and which products’ performance were less than satisfactory. This is the easiest way to start seeing trends in demand, and it can give you a general overview of which products might continue to sell, and those which may not.
Remember to account for any special discounts, holiday sales or marketing plans that may have increased demand for your product in the past and take these into consideration when finalising your forecast.
Demographics like age, gender, location, and other sets of identifying characteristics can cause wide variations in demand. Different groups of people can have different sales trends too. For example, a drinks company might find that families might purchase more juice than young, single people. When conducting a demand forecast, it is essential that you identify the key demographic groups and what their demand trends are, in order to help narrow the data pool for the forecast.
Another important part of developing an accurate forecast is analysing what competitors, customers, bankers, and other people in your marketplace are saying and doing. See if your competitors are running major sales or promotions, and if so, consider whether you may also want to adopt a similar approach. It is vital that you keep your eye on the competition and ensure that your forecast predictions account for external factors like this as well.
Use inventory software
Especially as your business begins to expand and experience growth you may find that forecasting demand by relying entirely on your own know-how may become more and more difficult, especially with a larger inventory. In this case, implementing cloud-based inventory software can be a great tool for tracking inventory movement, and will help you improve the accuracy of future forecasts.