Benefits of Demand Forecasting for Supply Chains

Demand forecasting is an evolving business process that helps retailers and manufacturers more accurately determine customer demand and purchasing trends.

Without having a clear ability to forecast sales, supply chains will struggle to stay ahead of orders, fulfillment, and of course, create inefficiencies that lead to significant gaps in the chain. A relatively new concept called demand forecasting, which is a systematic process that helps to anticipate consumer demand, is a solution for many supply chains.

This process permits retailers, manufacturers, and suppliers to better forecast inventory levels, ensuring they don’t oversupply or run dry on products during seasonal or consumer-inspired shifts. 

Let’s explore a few of the reasons why leading logistics and supply chain professionals opt for activating a demand forecasting solution.

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Leading reasons demand forecasting benefits the supply chain

It’s a simple concept – the more information you’re able to collect, the better and more accurately you are able to make decisions. Demand forecasting gives a company the ability to plan raw material retention, manufacturing, allocation of resources, revise pricing, and expedite fulfillment based on multiple variables.

Each consumer's shopping pattern can be categorized into individual forecasting models, which permits the business to create a platform and strategic plan to address specific situations. When activated correctly, demand forecasting can provide multiple benefits including the following.  

Reduce out of stock situations

A significant supply chain impact resulting from elevated consumer spending or shopping is running out of stock of inventory.

When you’re able to customize your customer shopping forecasting solutions based on anticipated increases in volume shopping, manufacturing, retention of supplies, and expedited fulfillment can be implemented seamlessly. This allows retailers and others in the supply chain to maintain ample inventory – reducing the potential for out of stock situations.  

A lowering of on-hand inventory

It’s often assumed that the best way to reduce out of stock problems is to overstock. However, that isn’t practical in today’s retail world. Elevated inventory leads to additional space needed for warehousing, more payroll for controlling that inventory, and an increase in equity or capital spending.

Simply put – maintaining too much inventory is not practical.

Demand forecasting allows the business to increase stock when it’s feasible to do so. This flexibility helps them keep ample inventory levels, without breaking the bank or over-allocating their resources.  

Improving budgeting

At the source, forecasting models are mainly used in business to determine budgets. Forecasting allows a business in any industry to set aside resources to stay ahead of supply and demand as the future approaches. Demand forecasting gives stakeholders and financial planners better information to effectively budget for the upcoming year. This is especially critical with consumer goods or products that are in high demand for specific situations.

The recent COVID-19 pandemic introduced an unexpected or predictable situation – which saw a significant decrease in available raw materials used in textiles such as paper goods, cleaners, sanitizers, and more. Demand forecasting can help companies better budget for these types of potential pandemics, making sure to keep liquid capital available – just in case.  

Improved customer service

Ultimately, the main benefit of demand forecasting is to improve customer service. Out of stock situations are not acceptable to consumers these days. When items they expect to be available are not with one company, they will find another source – and frequent that business in the future.

When a company can better forecast their sales based on seasonal or elevated consumer demand, that business can benefit in multiple ways. They can be relied upon for having goods customers need when supply elsewhere is low.

Additionally, employees can feel confident that the potential of furlough or seasonal layoffs reduces. In today’s economic climate, and with many businesses having to layoff people, the benefits of demand forecasting can bring enormous dividends.