What is demand forecasting?  

Demand forecasting encompasses many processes in order to help predict the type of stock and appropriate levels to purchase. It plays a vital role in supply chain management where forecasting can ultimately help a business have enough supply to meet demands.

Two major benefits of demand forecasting 

Implementing detailed and comprehensive demand forecasting methods can benefit a business in many ways. Overall, it aims to improve performance and efficiencies throughout every stage of the supply chain. Two major benefits include:

1. Save time and money

When excess products and materials are taking up space in a warehouse, there are associated costs for inventory management, warehouse and product maintenance that can add to overall business costs Excess inventory also requires resources to manage and maintain processes, further wasting time and money.  

Demand planning and forecasting can shape what a business purchases, when stock will be needed and how much is likely to be required. This can help with the supply chain planning process, ensuring accurate inventory levels, the potential to reduce product waste and even better lead times and cost allocation.

2. Increased customer satisfaction 

In an ever-expanding world of products and services, customers know what they want and when they should expect it. Trying to meet these higher demands for better service are becoming the norm - the faster the turnaround, the better experience for the customer. 

With the right products and quantities, businesses can fulfil customer orders with ease and in a shorter timeframe. This can lead to faster picking and packing, shipping and an overall seamless experience for the end user. In turn, it can lead to a decrease in complaints, higher customer retention levels, the potential for referrals and a better customer service experience. 

What to consider when forecasting demand

The process of forecasting demand looks at more than just sales data. Effective forecasting is a complex process and uses a comprehensive approach, including many areas of the supply chain, collecting information on customer behaviours, cultural trends, seasonality and much more.  

There also needs to be a level of flexibility. Supply chains can experience constant changes to availability of raw materials and products that can affect the ability to obtain or provide required stock quantities. Demand forecasting is an essential tool to help navigate these changes and challenges. Here are two important aspects to consider:

1. Know your suppliers

Forecasting a supply chain should start with a look into suppliers. Demand planning should consider how much of a product or material a supplier has available, when their supply changes throughout different times of the year and when they're likely to receive quantities a business may require. This directly affects the ability to place an order and can help determine timeframes. 

2. Consider other trends

Forecasting largely relies on consumer trends and behaviour, but should go beyond anticipating only wants and needs. Analysis on previous customer data trends provides a good baseline, however, the current market and trends also need consideration. Understanding competitors in the same space also impacts demand. These insights can depict a better, more holistic, indication of demand.

Importance of demand forecasting

Demand planning and forecasting will likely change with the size of the company. Larger enterprises, especially global companies, will require extensive methods to forecast demand in order to include the complexities of larger supply chains. Smaller businesses may not need the same level of detail but can still use a variety of factors to form accurate forecasts. 

These accuracies can shape how a business allocates resources and improves their overall processes and systems to provide a better customer service experience and ultimately save on redundant stock and their associated costs. 

With proper and accurate forecasting, organisations (large and small) can benefit greatly. Throughout the supply chain management process, forecasting can help to satisfy customer orders, avoid unnecessary expenses, even improve timeframes on deliverables.