Significance of Demand Forecasting

AsprovaMost business decisions of an organization are made under the conditions of risk and uncertainty. However, an organization can lessen the adverse effects of such risks by properly determining the demand or sales prospects for its products and services in future. Demand forecasting is a systematic process that involves anticipating the demand for the product and services of an organization in future under a set of uncontrollable and competitive forces. It helps businesses find a proper balance between supply and demand. In order for this to work, the supply chain must ensure that the amount of items produced satisfies customer demands without a surplus of inventory being left over. At the same time, the forecast must be accurate enough to satisfy customer demand; otherwise, the manufacturer will fail to deliver the right amount of finished products to the customer. Forecasting is an imperfect science, but it is also a necessity for several reasons given below:

Support Deliverables Planning Proper forecasting can help determine when increases in deliveries are needed. Historical reports may be used to research whether demand for a certain product increases during certain times of the year. The inventory levels for the store can then be increased during that time of the year to meet customer demands. The same effort is used to reduce deliveries, as well. When demand decreases throughout the year, then fewer inventories can be ordered to reduce overstock. In essence, forecast information allows organizations to devise and execute transportation planning economically and effectively.

Enhanced Growth Prediction– Demand forecasting helps an organization in deciding about the expansion of its business. If the expected demand for products is higher, then the organization may plan to expand further. On the other hand, if the demand for products is expected to fall, the organization may cut down the investment in the business. This further helps an organization to hire human resource according to requirement. For example, if an organization expects a rise in the demand for its products, it may opt for extra labor to fulfill the increased demand.

Better Financial Management-Proper forecasting will lead to accuracy in the purchasing and planning department, which can provide savings to the company. Spending excess amounts on unwanted inventory prevents the company from using this money on other vital resources. Some of these resources, such as investments, are important for growth and development of the company. Proper forecasting also helps the company purchase smaller amounts of inventory. These smaller quantities allow the company to remain flexible by being able to quickly respond to any changes in consumer demand.

Accurate Inventory Levels-Accuracy in sales forecasting allows supply chain managers to make accurate predictions in the level of inventory required to meet customer demand. An organization that practices lean philosophies must have the ability to make accurate predictions on the level of inventory necessary to produce products. Lean management requires the company to keep the lowest level of inventory in stock to meet the demand. With lower levels of inventory, the accuracy of the amount stored on hand becomes even more important. Inaccurate forecasts can result in overstocking or stock outs.

By minimizing inventory investment and increasing revenue opportunities, best-in-class Asprova solution enables a clear look into the future. In collaboration with demand forecasting software, our advanced planning and scheduling features facilitate businesses to generate accurate forecasts based on true demand which eliminate poor results such as lost sales, product obsolescence and overstocks – all that can equate to lower revenues and margins.

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