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What is Demand Forecasting in Supply Chain Management?
It’s always been a delicate balance to forecast consumer demand and inventory management, to have just the right amount of inventory to meet consumer demand for a product — and to procure products at a reasonable price point to deliver the margins you want.
With today’s global supply chain environment and evolving consumer buying habits, forecast accuracy of future demand and fulfillment has been challenging. Yet, it is critical to your success.
Running out of high-margin inventory in eCommerce businesses when there’s strong demand is frustrating for both you and your customers. Having inventory sitting on your shelf because you overbought, fearing further supply chain disruptions ties up unnecessary capital and can throw your sales forecasting out of whack.
It all starts with accurate demand forecasting for your supply chain management (SCM).
What is Demand Forecasting in Supply Chain Management?
Demand forecasting in supply chain management is the process of analyzing historical sales data, current market research, and consumer trends to accurately predict demand. These forecasting techniques allow you to manage your supply chain to ensure you have enough products to meet consumer demands without overbuying.
When you get it right, you maximize profitability.
Why is accurate demand forecasting important? Let’s count the ways accurate demand forecasting impacts your business:
- Optimize inventory levels and reorder points
- Reduce storage space and excess safety stock
- Reduce stockouts
- Plan for promotional activities and product launches
- Manage seasonal variations
- Predict product demand in changing environments
- Fulfill customer demand with shorter lead times
- Reduce rush order fees for high-demand products
- Maximize supply chain management
All of this creates that balance that’s important to satisfy customers and optimize profitability.
The Challenges of Demand Forecasting in 2022
Matching demand and inventory have been especially challenging since the pandemic began. Consumer demand changed rapidly. Combined with supply chain disruption, product shortages, and rising costs for raw materials and inventory, it’s been a wild ride for many of us — especially when it came to trend projection and optimizing operations management.
In 2022, the supply chain remains fluid as disruption to logistics and delivery times continue to unfold. Production delays, clogged shipping ports, drayage and freight driver shortages, equipment problems, and workforce issues aren’t going to be solved overnight.
While there are (finally) some signs that indicate an easing of supply chain issues and product shortages in the second half of the year, demand forecasting is more important than ever and will continue to be for some time to come.
If you are still using manual methods or gut instinct for planning, you are at a severe competitive disadvantage.
More likely, you are using legacy systems to track your customers and business. For many organizations, this means separate systems for ERP, CRM, and maybe even other systems for warehouse or inventory management or marketing and promotions. In some cases, this can require duplicating data in multiple systems, leading to human error or inconsistent data, or siloed information that is inaccessible to other systems. Either way, it can make for messy and inaccurate demand forecasting and supply chain management.
Here’s an example of how challenging this can be without the right tools. Based on historical demand, the sales and marketing team may decide to create promotional pricing or incentives to drive demand for a particular product. What happens when the supply chain is clogged, supplier costs have skyrocketed, or warehouse capacity results in reduced or vanishing profit margins?
The solution is to integrate planning and pricing to mitigate risk and shape demand in a more predictable, controllable, and profitable way.
Overcoming Demand Forecasting Challenges
Business advisory firm KPMG says it’s critical to de-risk the supply chain by taking proactive steps, including improving flexibility and resiliency to adapt to real-time changes. They recommend companies deploy better technology to increase visibility to accurately forecast demand and pricing while managing supply chains.
As customer demand evolves, organizations must have the capability to adapt digital operations, fleet management, and supply chain networks to be responsive.
When you have a better handle of demand forecasting and a resilient supply chain, you can better anticipate, react, and plan for whatever comes next.
The best way to overcome demand forecasting challenges is by employing a holistic solution that tracks everything you need, including:
- Accurately monitoring of every SKU and stock level in real-time
- High availability of historical sales forecasting data with statistical modeling to manage seasonal variations and time series forecasting
- Sophisticated forecasting tools for calculating accurate supplier lead times by tracking each supplier and vendor for more accurate reorder point planning.
- A single source of truth for accurate data modeling
- The ability to see accurate pricing and lead times for suppliers to meet demand and maintain margins.
- Forecasting and projection tools to quickly adapt to new supply chain disruptions, pricing anomalies, or unexpected consumer demand
- Artificial intelligence and machine learning to continually improve your demand forecasting, pricing, and supply chain management
A big part of getting demand forecasting right is managing the pricing. As little as a 1% change in price can result in more than a 22% change in gross profits.
With the right price optimization tools as part of your SCM strategy, you can quickly and easily intentionally shape demand. By lowering prices on inventory that’s not moving or raising prices on fast-moving inventory or when supply pricing increases, you can maximize profitability. However, you need to be able to manage pricing rapidly across your entire inventory and supply chain and do it at scale.
To learn more about how you can maximize your profitability, download our whitepaper: 5 Ways Price Optimization Is Evolving the Demand Forecast from Guess to Max-Profit Decision
Navigating Supply Chain Instability with Better Demand Forecasting
The best way to navigate through today’s supply chain instability is to combine the power of forecasting and pricing to shape demand planning. The Blue Ridge Platform allows you to:
- Make more informed business decisions earlier: Combining data-rich statistical methods and analysis tools, we get a high-definition picture of your supply chain, so you can manage your assets with speed, confidence, and agility.
- Discover untapped dollars: Uncover opportunities for cost savings, incremental sales, and improved margins for future sales by marring planning for inventory levels and pricing.
- Experience seamless integration: Deep industry experience, partnerships, and ERP integrations provide a seamless, fast startup that can accommodate your workflow
- Ongoing support: LifeLine™ drive incremental value by providing ongoing support, including continuous monitoring as your needs evolve for long-term demand forecasting.
The Blue Ridge pricing and forecasting models provide a competitive advantage to more accurately forecast customer demand, so you can improve your capacity planning and supply chain management. Many of our customers have saved millions of dollars in inventory reduction by better supply chain management and improved margin through strategic demand shaping and optimizing pricing.
Contact Blue Ridge today to request a demo.