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.

 

Improving Supply Chain Performance

asprovaGetting a 360-degree view of their supply chain is critical for manufacturers and distributors in today’s business world. Those that have unparalleled insight, visibility to their supply chain and understand how their company actually functions (versus how they expect it to) can find ways to optimize vendor relationships, focus on tactics that will increase supply chain efficiency and be able to monitor the myriad of factors that impact supply chain performance. By managing and improving environmental, social and economic performance throughout supply chains, the very best companies can conserve resources, optimize processes, uncover product innovations and save costs. Any manufacturing company that wants to enhance their performance must pay attention to the following key strategies:

Improve Demand Forecasting- Constructing a feasible, constrained and profitable demand plan is essential. Without accurate demand forecasting, manufacturers can only be confident in their ability to meet demand if they rely on inefficient stockpiling of inventory: The emphasis is on “just in case” processes, rather than “just in time.” Many companies now recognize that the only way to attack demand volatility is to expect it, and they are adopting the best practice and advanced technical tools to deliver improvements to forecast accuracy, inventory levels and working capital. For the rest, it is becoming increasingly clear that inadequate demand planning can do serious damage to shareholder value and overall profitability.

Create a Modern, End-to-End Supply-Chain OrganizationThe times of managing the supply chain in separate tiers is over. Sophisticated data analysis enables companies to manage supply chains end to end and, in industries such as manufacturing, almost in real time. Appoint a single leader with responsibility for end-to-end performance and for delivering improvement projects across tiers and traditional functions such as marketing, manufacturing, and procurement. Make sure your supply-chain organization combines operational excellence with strong analytical capabilities and data-driven, cross-functional decision making. Ensure your IT function is supporting them with nimble applications and platforms that enable collaboration and analytical decision making.

Join Industry Collaboration- Many companies recognize that complex supply chain challenges cannot be solved by individual efforts and that industry wide collaboration is required. Working in a pre-competitive environment, peer companies that share similar supply chains can set common standards and best practices for sustainability performance and allow suppliers to be evaluated on the same metrics. These collaborations help prevent audit fatigue, training redundancy and mountains of paperwork for suppliers working to meet similar requirements from their customers. Working with your industry peers is a great way to share knowledge about the sustainability performance of your suppliers.

Develop Training and Capacity Building ProgramsThis is an important step in improving sustainability and driving behavioral changes throughout your supply chain. First, formulate a comprehensive plan to increase productivity, reduce costs, and improve customer service and satisfaction levels. Then tie an incentive plan into the supply chain’s core mission, a critical element to building a performance-based approach. Incorporate your workforce into the culture of the supply chain by emphasizing ways in which employees and management may improve their workplace strategies and execution. This constructive training will drive a successful organization and improve supply chain productivity.

Asprova is the manufacturing industry’s leading performance improvement solution suite. Our advanced planning and scheduling functions help organizations achieve sustainable cost reductions and improve supply chain performance while remaining focused on quality, productivity and better service levels.

 

 

Phot credits: flickr © The U.S. National Archives