Demand forecasting is tricky to get exactly right but there are ways to increase your forecast accuracy. A more accurate forecast can benefit manufacturers, distributors and retailers alike. It can support the supply chain and help suppliers along the product journey deliver results to their customers more effectively.
Essentially, demand forecasting is leveraging data and analytics about your product and the market to closely predict customer demand over a certain time frame. Demand forecasting is a critical component for many businesses, so let’s focus on some of the fundamentals that provide value.
Meet customer expectations
When you have accurate demand forecasting, you will have the products your customers want, when your customers want them. Problems arise when you don’t have the right amount of inventory stock to meet demand. Customers get frustrated and you risk losing them if you cannot provide the product.
If you consistently have low inventory stock, customers will look elsewhere and you can lose business. With ample data around customer demand during certain seasons, you can more accurately forecast demand. This allows you to prepare with the right amount of inventory stock to meet customer expectations.
Decrease the cost of inventory stock
Demanding forecasting can also play a significant role in decreasing the amount of money spent on inventory. If the amount of inventory stock is accurately forecasted then you only need to have enough inventory space and employees to manage it. Inventory costs can skyrocket when you have an excess of inventory stock and you bring too many people on board to look after it.
If you over-order inventory stock, then you need more space to house it. However, more space equates to more money. Your overhead will be higher and utility bills will also increase. With accurate demand forecasting, you can minimise costs in the warehouse because you only order what you need.
In addition, if you have perishable inventory stock, you might lose a lot of money if you can’t get the items off the shelf before they expire. Sometimes retailers slash the prices of products that will go off soon. Instead, use demand forecasting to buy perishable items smarter. Decreased waste will lead to decreased inventory costs.
Minimise safety stock
Safety stock can be helpful to provide a buffer when there is an unexpected change in demand or something goes awry along the supply chain. Weather events or accidents can impact shipments. Safety stock is there to protect against these problems. Still, many companies order too much safety stock. With demand forecasting, it can look at patterns and factors around these events and provide a more optimised amount of safety stock. With more accurate forecasting, there will be less of a need for large amounts of safety stock.Topics: demand forecasting, inventory planning