Demand forecasting is a fundamental part of the business. It plays an integral role in shaping how a business operates each month and each year. If a business wants to be successful with their inventory control, it’s necessary to plan for the many components of supply chain management. Forecasting tools will never be 100% accurate, but they facilitate a way to minimise errors throughout the supply chain. That’s why it is important to incorporate demand forecasting into your business model.
Ultimately, demand forecasting allows a business to optimise for supply and demand. Using predictive analytics, you can closely gauge and understand consumer demand for your products. Algorithms can identify patterns and show where inventory control can be better managed in a business. With the right demand forecasting process, a business can be more effective overall and have a more accurate understanding of demand insights from their customers.
Whether you are looking to incorporate demand forecasting into your business or enhance your current forecasting process, you need to ensure that you look at the important fundamentals that are involved in the process.
Short-term and long-term forecasting
Short-term and long-term demand forecasting are both imperative to incorporate. Short-term forecasts usually comprise of periods less than a year; you will often see it broken down into three and six-month forecast blocks. Conversely, long-term forecasting covers a period of five years or longer.
Short-term demand forecasts can generate information that shifts daily operations and show a company how to utilise resources that are readily in stock. Long-term demand forecasts allow management to make overarching decisions that can shape their inventory control methods; this prepares them for years to come.
Forecast at multiple levels
Demand forecasts can be conducted across three different levels. Starting from the bottom and working up, a firm must conduct a forecast at this individual company level. This guides managers and allows companies to analyse their company’s individual sales data. It then acts as a guide to predict demand.
Next, a broader scope of forecasting incorporates the wider industry. Trade associations can be added to this level of forecasting. It provides a good assessment and prediction for the larger industry.
The largest level of demand forecasting comes at a macro level. The macro forecast considers the entire economy. It looks at country-wide and at global behaviours and includes economic conditions. For instance, it might look at industrial production which might indicate a boom or a slump in the economy going forward.
Check forecast accuracy
Once the demand forecasting system has been put into place, you need to check how accurately it works. Forecast accuracy is integral if you want to continue conducting demand forecasts. Looks at your sales and operations and see if it matches what you forecasted. Look at individual inventory stock amounts and the locations of where they are housed and distributed. Check to see if predicted demand patterns were the same as the ones predicted in the forecast. Getting into the habit of checking your forecasts will only help to enhance the process in the future.
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.