Demand Forecasting in Supply Chain Management-(1/2)

Forecasting plays three major roles in effective supply chain management:

  1. Pivotal in strategic planning of Business: Forecasting is the underlying hypothesis for strategic business activities like expansion planning, budgeting, financial planning, risk assessment, and mitigation. Critical business assumptions like turnover, profit margins, cash flow, capital expenditure, etc. are also dependent on Forecasting.
  2. Initiating all push–processes of Supply Chain: Forecasting is the starting point for all push processes of Supply Chain like raw material planning, purchasing, inbound logistics, and manufacturing. Better forecasts help optimize the inventory levels and capacity utilization.
  3. Driving all pull–processes of Supply Chain: Forecasting drives all pull-process of Supply Chain like order management, packaging, distribution, and outbound logistics. Better forecast improves the distribution and logistics and increases customer service levels.

Demand Forecasting Techniques

  • Collective Opinion, which leverages the knowledge and experience of a company’s sales team to aggregate historical data on customer demand.
  • Customer Survey Method, which provide key information on customer expectations, desires, and needs. This data is useful for creating a sales forecast but is harder to predict actual demand.
  • The Barometric Method, which involves using economic indicators to predict trends and measure current, past and future activity.
  • The Expert Opinion Method, which involves soliciting expert advice from external contractors to determine future activity.
  • The Market Experiment Method, which utilizes market experiments carried out under controlled conditions to inform retailers on consumer behavior.
  • The Statistical Method, which allows a company to identify and analyze the relationships between different variables; establish performance history over time, identify trends and extrapolate potential future trends.

How To Forecast Demand

Collect the Right Data

Adjust for Variables

Document Sales and Demand Trends

Budget, Purchase, and Allocate Accordingly

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