Demand forecasting and planning refer to estimating future demand for a certain product or service and developing a strategy to meet that demand. This requires studying previous sales numbers, market patterns, and other variables to forecast future demand accurately.
The fundamental goal of demand forecasting and planning is to guarantee that the right items are available in the right quantities and at the right time to fulfil the demands of consumers. Demand planning is a step in the sales and operations planning (S&OP) process that uses statistical sales forecasts and the experience of other areas to estimate future demand.
Demand forecasting and planning have become essential elements of supply chain management in today's fast-paced corporate atmosphere. Planning and forecasting demand with accuracy may assist organisations in maximising inventory levels, cutting expenses, and enhancing customer happiness.
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How to Do Demand Forecasting and Planning?
Demand forecasting and planning can be a complex process, but it can be simplified by following these steps:
Collect Data: The initial stage in demand forecasting and planning is gathering data on previous sales, market trends, and other pertinent elements that might influence demand.
Analyse Data: After gathering the data, the subsequent step is to analyse it to uncover patterns and trends. This study can assist you in identifying demand-influencing elements like seasonality, promotions, and economic situations.
Develop a Forecast: Based on the data analysis, you can anticipate future demand. This projection should be as precise as feasible, considering factors that influence the market.
Plan Inventory: After creating a prediction, the following step is to plan inventory levels to satisfy that demand. This process includes choosing how much inventory to purchase, when to order it, and how to maintain inventory levels to minimise stockouts and overstocking.
Types of Demand Forecasting Techniques
There are several types of demand forecasting techniques:
- Survey methods, which involve collecting data through customer surveys
- Statistical methods, which use historical data to identify trends and patterns
- Trend projection, which consists in extrapolating past trends into the future
- Market research, which uses customer data to identify demand patterns
- Sales force composite, which involves aggregating sales forecasts from individual salespeople
- Delphi method, which consists in collecting and aggregating expert opinions
Each technique has strengths and weaknesses, and the appropriate strategy will depend on the specific forecasting problem.
Factors Affecting Demand Forecasting
Here are some of the most important factors that influence demand forecasting:
Type of goods: The type of goods being sold can have a significant impact on demand forecasting. It can be goods that are already established in the market, or it can be new goods that are yet to be introduced.
Economic conditions: Economic conditions such as GDP, unemployment rate, inflation rate, and consumer confidence are key factors that affect the level of demand for products or services.
Product cost: The price of goods is also a factor affecting forecasting. Even a subtle change in pricing can have a significant impact on demand forecasting.
Competition: The number of competitive products also influences product demand. Additionally, new products can also shift the market dynamics. Demand forecasting becomes challenging and complex in this situation.
Other factors affecting demand forecasting include market fluctuations, cyclical economic trends, and seasonal highs and lows in demand.
Best Practices in Demand Forecasting and Planning
To ensure that your demand forecasting and planning process is effective, here are some best practices to follow:
Use Multiple Data Sources: To develop an accurate forecast, it is essential to use multiple data sources, including historical sales data, market trends, and customer feedback.
Collaborate with Stakeholders: Demand forecasting and planning should be a collaborative process that involves stakeholders from across the organisation, including sales, marketing, and operations.
Use Technology: There are many tools available that can help simplify the demand forecasting and planning process, such as demand planning software and inventory management systems.
Monitor Performance: Once you have implemented your demand forecasting and planning process, it is essential to monitor performance regularly to identify areas for improvement and make adjustments as needed.
Benefits of Effective Demand Forecasting and Planning
Demand forecasting and planning provide several benefits to businesses. These are:
- Optimising inventory by predicting future sales, which allows demand managers to make informed business decisions about inventory planning, warehousing needs, running flash sales, and meeting customer expectations.
- Reducing risks and making profitable financial decisions that increase profit margins and opportunities for expansion while also making the allocation of resources, inventory accounting, staffing, cash flow, and overall spending more efficient.
- Providing valuable information regarding prospects in current and other markets, allowing managers to make informed pricing, business growth plans, and market potential decisions.
- Maximising revenue and reducing costs by helping businesses strike the right balance between sufficient inventory levels and customer demand.
- Creating accurate budgeting by estimating demand, including sales timing, allows firms to be more precise.
- Reserving cash or negotiating bridge loans or credit terms in advance by forecasting demand, which helps businesses avoid an inability to supply customers.
- Helping businesses better plan production, financing, labour, and marketing by determining the timing of sales.
Future Outlook on Demand Forecasting
Accurate demand forecasting is critical for organisations to satisfy consumer demand, optimise inventory levels, and maximise profitability. There are several approaches and tools available for demand forecasting, including statistical models, machine learning algorithms, and market research. While predicting overall market demand might be tough, it can give useful insights into future market circumstances and help organisations make better strategic decisions.
IIT supply chain management course on demand forecasting and planning covers the components like, including averages, linear trend, seasonality, and cyclical, irregular, and random factors. Getting certified in such a course will help one build a career in supply chain management.
Imarticus Learning offers a Professional Certification in Supply Chain Management and Analytics in collaboration with the Department of Management Studies (DoMS) and the E-learning Centre at IIT Roorkee. The programme is designed to provide candidates with cutting-edge experience to enter the operations and supply-chain industry.
Supply chain performance, drivers, metrics, demand forecasting, inventory management, logistics, and supply chain analytics are all covered in the curriculum. Supply chain analytics allows managers to make data-driven choices at the strategic, operational, and tactical levels.
The certified IIT supply chain management course prepares candidates for high-demand job roles such as demand planner, data scientist, and supply sales and operations planning. The programme delivers live online training sessions and discussions with some of the best faculties in India and leaders from the industry.