Forecasting Demand Like a Pro: Key Techniques for Supply Chain Success

Accurate demand forecasting is a groundbreaker for a business, without it, there would be no way to know how much material to purchase to meet the customer’s demand. 

In this blog, we have explained the process of demand forecasting and its importance in supply chain success. So let’s understand it! 

What is Demand Forecasting?

Demand forecasting is the process that helps supply chain managers and demand planners calculate and estimate a customer’s demand for a product. This is done by taking note of the prior sales, reviews, and other contributing data. 

This process helps companies maintain their inventory, predict the sales of their product, make better strategies, and make wise business decisions. 

Demand forecasting is a vital component for every product-based business as it tells about the requirements of the raw materials, logistics, purchasing, and distribution. 

Simply put, demand forecasting predicts the requirement for the material or service to meet customer demand and future demands. 

Now that you’re aware of this, let’s go ahead and understand the reason it is required. 

Why do Businesses Need Demand Forecasting?

Every business’s sole priority is to satisfy its customer’s needs and demands. And that is when forecasting plays its role in smooth supply chain management. Below are a few benefits of supply chain management: 

• Identifying Trends: There are seasons when the demand for the product fluctuates. Inventory management professionals need to know the peak and the drop seasons by analyzing the past months’ data. All of this helps to get an idea of the inventory and when to make price markdown strategies and campaigns to increase the customer’s purchase. 
• Keeping the Check of the Cashflow: Managing the cash flow of the business is required to invest in the expansion and the right opportunities. Demand forecasting gives you a heads-up about the expenses you will need to cover in the procurement of the product. 
• Better Planning: When you already have an idea of the customer’s demand, you will stack up sufficient products in your inventory. This will prevent you from paying extra rush charges and order cancellations. 

Thus, demand forecasting helps companies optimize their inventory, increasing turnover, and reducing warehouse costs. 

How Does Demand Forecasting in Supply Chain Work? 

This process might seem simple, but it is more than just looking after the sales reports. It can be fragmented into qualitative and quantitative forecasting that uses multiple resources and data to produce the outcome. 

Qualitative forecasting is also called active demand forecasting. It is done with the help of machine learning and artificial intelligence, producing lifecycle and updates, pricing and changes, and intuition. 

Quantitative forecasting on the other hand is passive demand forecasting. It relies on existing historical data and sales reports of the past months of each product. This uses mathematical formulations to get the analytics and forecast the needs in the supply chain management. 

So these are the two parts that go hand in hand with the demand forecasting process of the business. 

Techniques of Demand Forecasting

There are various techniques involved in forecasting the demand in supply chain management. Let’s understand them here: 

• Customer Survey Method:  This data is created by surveying many customers to understand their expectations, needs, complaints, and desires. This is useful to create a sales forecast, but not very reliable in terms of predicting actual demand. 
• Barometric Method: This is an active demand forecasting technique that uses economic indicators such as inflation to predict trends and measure past, present, and future data. 
• Market Experiment Method: This technique involves market experiments to control the conditions and inform the retailers about the customer’s behavior towards the product or service. 
• Statistical Method: Another great demand forecasting method that helps businesses identify and understand the relationship between variables like pricing, history, and trends to predict the future. 

These are the techniques used in the sphere of demand forecasting. Moving ahead, let’s understand the factors affecting the process. 

Factors Influencing Demand Forecasting 

Explore how a 3PL company Memphis who can comprehend the factors influencing the customer demand life cycle to forecast demand accurately. Different markets and products can have a wide variety of factors that can be analyzed to improve forecasting accuracy. Let’s take a take at the factors here: 

• Competition: The competition of a product in the market can influence customer demand. Keeping check on the competition and demand for your product will help you make pricing strategies accordingly. 
• Seasonality: Every service or product has a peak and low season at a certain time of the year. Demand forecasting and cash flow will work at their prime if you know about these seasons. 
• Type of the Product: The nature of the product or services can determine the demand. Edible items, tech products, and fashion and accessories items have different lifecycles and require different forecasting techniques. Forecasting might not go well if you use a single approach. 
• Geography: The location plays a vital role in determining the demand for the service. You must consider local market conditions, regional preferences, and other contributing data to understand the needs. 

So these are certain factors that might impact your demand forecasting in supply chain management. 

How to Improve Demand Forecasting?

These are a few tips you can consider for improving supply chain demand forecasting: 

• Collaborate with the Customers: Your customers can be your best friends who will tell you what they want and how much. Build a great relationship and interact with them to understand their needs. This will help you predict the quantity of product you need for them. 
• Review and Adjust Demand: You need to monitor the data constantly and note the fluctuations to make the necessary adjustments. This will help you save money from unnecessarily loading inventory. 
• Use Planning Software: Using supply chain software will help you get accurate stats. These tools identify past data, identify patterns, and make precise predictions. 

All these tips combined will help you make more accurate predictions, leading to improved forecasting accuracy. 

So this was all about demand forecasting in the supply chain. We hope this blog clears your doubts and provides all the necessary information. 

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