Demand forecasting and planning sounds like a complex task requiring input from a team of accountants and economists but, in reality, it’s an easy way to improve your inventory control. In simple terms, demand forecasting uses supply chain information to plan the levels of stock needed to meet expected demand which gives greater inventory control to the supplier.
There are various inputs to the demand forecasting process which is why it appears complicated to some, these include historical sales data, customer sales forecasts, manufacturing forecasts, seasonal influences and factors affecting inventory control which may be faced.
Why forecast demand?
There are many benefits to demand forecasting for businesses, notably giving greater inventory control by being able to predict future demands more efficiently, decreasing the need to hold large amounts of unused inventory stock.
Demand forecasting also ensures that manufacturing and sales data, which is often collected for other purposes, can be used in forecasting. The cost of collecting this data is often a sunk cost which already occurs as part of other inventory manufacturing processes which means the cost of implementing demand forecasting often isn’t as great as you would think. Online inventory management software is a cost-effective way of collating this data and presenting it in a meaningful and useful way that increases a manufacturers return on its business inputs.
A further benefit is that the information input into demand forecasting software is able to be continually updated to ensure that the forecasts are changing to reflect the changing needs of a manufacturers market.
Strengthening supplier relationships with demand forecasting
Demand forecasting isn’t just useful for a manufacturer in minimising the amount of underutilised stock they hold, it’s also beneficial to the supplier-manufacturer relationship. By ensuring that when more stock may be required due to seasonal effects or upcoming sales, the reasons for holding stock in larger quantity can be planned for and manufacturing can be adjusted to meet supply. This creates a more efficient supply chain and manufacturing process, decreasing costs in wasted inventory and storage space for both the manufacturer and supplier. Being able predict and consistently meet a customer’s demands for products strengthens the relationship and gives manufacturers an edge over their competitors.
A holistic approach to inventory control
Demand forecasting and planning takes into account the numerous factors effect a business and its production. So far we have explored that there are internal inputs through manufacturing inventory management data and supplier sales data that can be input into online inventory management software to create demand forecasts. There are also external influences that can be input into software to assist with a complete picture of future demands. Examples of external factors include the state of the economy or markets which the product is sold in, raw material availability and others. These inputs create a more complete picture of future demand for inventory and used to plan manufacturing cycles.
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.