Why is Demand Forecasting the Way to Go?

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As discussed in this article, demand forecasting is a seemingly straightforward concept to grasp yet can be difficult to achieve with 100% accuracy. However, making it a focus of company operations is certainly worth the effort. In this article, let us consider some benefits of demand forecasting.

The customer experience

It stands to reason that finding methods of increasing customer satisfaction should in turn increase profits. Establishing an effective demand forecasting protocol within your business is one way of doing that, as supply is driven by demand but with a future focus so that whenever a customer demands an item, their request can be met in a timely fashion.

Control ballooning inventory costs

Inventory incurs a significant amount of costs associated with its procurement, storage, protection and management. In most cases, this is a cost you cannot avoid however it is futile to house inventory far over and above what is needed if, in doing so, you are costing the company dearly. Therefore, why not essentially let your suppliers absorb those costs while you only order and house what is most likely needed?

Lost opportunity costs and cash flow

Inventory sitting unsold in the warehouse represents capital that could have been used elsewhere, and so business opportunities are lost. Using demand forecasting in your production and inventory management systems helps to curb the build-up of stale inventory and optimises cashflow which helps to keep the company moving forward.

Stable operations

Failure to use demand forecasting in business results in the company embarking on a roller coaster ride where their ordering does not reflect the demand and so there is an element of simply reacting to orders as they come in, hoping that what is in inventory can fulfil their obligations.

This is not a smart way of doing business as it is all too easy to end up with too much inventory and not enough cash, or equally disastrous, not being able to fulfil orders and risking the loss of business. Both these scenarios place the company under increasing pressure to make sure ends meet and employees are looked after. Demand forecasting helps stabilise operations for both the business but also their staffing and their employees’ livelihoods.

Evaluating and improving performance

Demand forecasting provides a platform for evaluating and improving business operations which should be a primary goal of any company. Not only does it provide a metric for ensuring supply meets demand but if the actual demand is less than the projected demand, then the company can start asking questions and improving performance to increase it.

Without analysing the business process through demand forecasting, it is like treading water while hoping to get to a destination; one must actually make progress in a forward direction with drive and motivation.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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