When many businesses forecast demand, even the most studious companies will not get it 100 percent accurate, instead of perfection, the focus should be on minimising errors. Planning is one of the core functions of supply chain management that can help minimise errors and thus increase the accuracy of forecasting demand. Understanding and predicting customer demand is vital for businesses to avoid stock-outs, maintain adequate inventory stock levels and increase overall profitability. Here we give you the top emerging best practices in demand planning that help to forecast demand better.
Striking a balance
Find the equilibrium between statistical modelling and collaborative forecasting. Using both of these methods helps improve accountability for the businesses ability to forecast demand more accurately, and enables continuous improvement across the company.
Don’t just focus on historical data
Historical demand data is useful for establishing a baseline for forecasting future demand. However, historical data is not always the best indicator of a company’s final demand. To elaborate, if you only consider what happened the previous year and neglect everything that is taking place in the current market, your demand forecast will be incomplete.
Identify significant factors and adapt
There are many factors such as economic, social, climate, political and so forth, that can affect demand forecasts. These factors could be circumstantial or a more profound trend change. For example, the use of technology can account for directly influencing consumer habits in a very important way. Each customer segment, also called demand flows, has its own purchasing behaviour. Your business’ ability to adapt to changes will help you stay competitive.
Utilise demand sensing and shaping capabilities
Demand sensing refers to collecting and leveraging downstream channel data in supply chain decisions where as demand shaping refers to conscious activities that influence customer demand toward more profitable categories or specific products. Companies that utilise demand sensing and shaping capabilities as part of their demand planning processes have shown to significantly improve their forecast accuracy. As a company it is important to recognise that the demand plan is not a sales or marketing forecast, it isn’t a budget either, but it is a process where businesses determine the most profitable mix of items that could be sold, balanced by constraints and demand risks.
Measure forecast accuracy at different levels
Demand forecasting may be undertaken at three different levels: the item, location and customer level. Customer or sales forecast accuracy should be measured for continuous improvement and accountability. The appropriate place to measure for continuous improvement is in the sales and operations planning review process.
These best practices in demand planning help your company improve forecast demand by decreasing errors and therefore increasing accuracy. This, in turn, helps you recognise new business paths and identify changes you need to make in the demand planning process to foster more accurate demand forecasting results in 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.