Supply chain management refers to managing the process starting from a raw product to delivering the finished product to the end-user. It includes planning for everything such as supply chain, product production, and demand forecasting. One essential process to supply chain management is demand forecasting. Companies use demand forecasting tools to study the demand (refers to customers) and supply (refer to businesses) curve for all products and services. The supply chain management team uses different types of demand forecasting techniques, which can help supply chains in one way or another. By using different types of tools and strategies together, businesses can ensure a balanced supply chain that can keep price margins low and profits high. The demand forecasting process uses historical data to estimate the demand for your product or service in the future. Demand forecasting helps to envision and estimate revenue, cash flow, risk assessments, and more.
Advantages of Demand Forecasting
- Learn From Past Mistakes: It can provide you with the opportunity to correct past mistakes. Demand forecasting gets you into the habit of learning from the past and predict demand for your products and services in the future. If you noticed in the past year that your demand was higher than usual during the holiday seasons and your supply wasn’t able to keep up in time, you can prepare for that situation in the future by increasing your supply to meet those expected demands
- Reduce Cost: Forecasting demand will help you understand what customers may want and when they want it. Correct demand forecasting can prevent an overage in supplies when demand doesn’t meet expectations. This will save you on inventory storage, and having excess supplies in hand that won’t sell.
- Improved Labour Management: When high demand is to be expected, the amount of work will increase as well. If you’re short on staff, not only will you put a strain on your team, but your revenue might suffer as well. When you forecast demand, you’ll know in advance when to hire more employees to increase production rates. On the contrary, hiring too many workers when the demand is expected to reduce, can waste time and money as well.
The Biggest Disadvantage of Demand Forecasting
Demand forecasting comes with tons of benefits, but it’s practically impossible to predict with 100% accuracy. One of the biggest disadvantages of demand forecasting is that not every situation is the same and can be predicted. A good example from this year would be the COVID-19 pandemic. A global pandemic can clobber the economy and impact consumers’ buying decisions in multiple ways. This pandemic has affected a number of factors such as the economy, and supply chain that play a big role in demand forecasting.
Demand Forecasting Techniques For Supply Chain
There are many different ways to forecast demand but not every way is universal. Here are the top five demand forecasting methods a business might consider using.
1. Trend Projection Technique
This method requires your sales data from past records to forecast your future sales. It is one of the most simple and straightforward methods of forecasting. Keep in mind, it’s important to consider sudden drops or incline in demand due to some anomalies. For example, if your past sales improved due to your appearance on a popular tv show, it is unlikely to repeat.
2. Market Research
The market research method depends on customer feedback. It requires time and money to send out surveys and to collect the data, but it’s worth it. This method can add value you can’t get from the first method. Market research can provide you with more information about your consumers. When filling out a survey, there are usually other questions involved that will provide you insight into their location, behaviours and lifestyle. Your surveys can save demographic data that can be useful in the future. It’s also something to consider for startups who are just entering the market and wants a better understanding of their target market.
3. Sales Force Composite Demand Forecasting Method
This method highly-depends on your sales team. It uses feedback from sales professionals to understand customer’s demands in the future. Your salespeople contact past customers and potentials customers to obtain information through a conversation. This is similar to the market research method but as mentioned prior, is more personal.
4. Delphi Method
This method considers a number of opinions from experts before coming to any conclusion. It allows you to bring together a group of knowledgeable people who are experts in that field and industry. They will then fill out survey questions and from the information gathered, will lead to a conclusion. No in-person discussion is involved so you can hire or look for experts from anywhere in the world.
5. Econometric Method
This method requires working with numbers. It combines sales data containing information on outside forces that have impacted demand. Then you can come up with a mathematical formula to predict the demand of customers in the coming years. The econometric demand forecasting method involves relationships between economic factors.
Consult With BrokerLii Today
At BrokerLii, we use our deep expertise in demand forecasting methods, to help start-up businesses forecast demand as accurately as possible. BrokerLii will work alongside you to help your business succeed in supply chain management. We can also provide our years of experience and extensive line of networks to help you balance supply and demand, increase sales, control costs, and approach buyers. If you are looking for professionals who can apply different demand forecasting techniques to take your business to the next level, don’t hesitate to contact us BrokerLii.
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