Demand forecasting in supply chain management is crucial when it comes to strategic business planning. The new terminology demand forecasting in supply chain management is the ultimate estimate of expected customer demand based entirely on historical sales data. The dichotomy of accurate intuitive approximations and input into play demands forecasting software to make more precise aggregate forecasts. This new form of forecasting also sets in motion for the push processes of supply chain management, including raw materials like purchasing, planning, and logistics. It is known to steer the pull processes, also including distribution and order management.
The Future of Demand management in the Supply Chain
Like many business needs, supply chain and demand planning are going digital. Advances in machine learning applications within the supply chain make it possible to adapt and update forecasts in real-time, allowing inventory to run leaner without missing the mark on demand. A better-connected supply chain means demand planning can be conducted even more at the moment. When implemented well, demand planning can be a crucial process in boosting a supply chain’s profitability.
Importance of demand forecasting software:
Demand Forecasting facilitates critical business activities like financial planning, budgeting, marketing and sales plans, production planning, raw material planning, formulation mitigation plans, and risk assessment.
Below outlined are few impacts of forecasting on the supply chain:
• Improved purchasing terms and supplier relations: Demand Forecasting is all about driving the raw material planning process, which is further known to facilitate the purchasing managers to release timely purchase plans to suppliers. Transparency and visibility of raw material demand improve relations with suppliers and empower purchasing managers to negotiate favorable terms for business and organization.
• Better allocation of resources and capacity utilization: Based on the availability of raw materials, current inventory levels, and anticipated customer orders, production can be planned effectively. This eventually leads to a reasonable allocation of manufacturing resources and improved capacity utilization.
• Optimization of inventory levels: Sound and accurate forecasting provide vital information for desired raw material and finished goods inventory levels. This eventually reduces the effect across the chain, which further leads to optimization of inventory levels and reduction in stock-out or over-stocking situations.
• Improved logistics and distribution planning: This is particularly evident in small companies that deal with wide distribution networks and multiple SKU’s. Logistics and distribution managers are enabled to balance inventory across the web followed by that they negotiate accordingly for favourable terms with dealers and transporters.
• Better customer service levels: With more improved distribution planning of logistics and optimized inventory levels and customer service metrics like on-time delivery, on-time in-full, case-fill/fill-rate, etc. is enhanced due to proper positioning ad sizing of inventory.
• Better product lifecycle management: Medium to long-range forecasting provides better visibility for the launch of new products and old product discontinuations. This eventually drives manufacturing, inventory planning to support new product launches, synchronized raw material followed by reducing the risk of discontinued products obsolescence.
• Optimizing performance management: Management can easily set targets and KPIs for various functions like finance, purchase, sales, manufacturing, logistics, etc. It entirely depends on the medium to range and plans evaluated from the forecasting process. Effectiveness, improvement initiative and organizational efficiency can be designed specifically for critical areas of an organization.
Demand forecasting in demand chain management:
• Purchasing terms and supplier relations: Transparency and visibility of raw material demands improvement in supplier relations and empowers the purchasing managers to negotiate favourable terms for a company.
• Allocation of resources and capacity utilization: Everything is based on the availability of raw materials, current inventory levels, and expected customer orders. Accordingly, production can be scheduled effectively. This further leads to reasonable allocation and improved capacity of manufacturing resources.
• Logistics and planning: When dealing with businesses dealing with multiple SKUs and wide distribution networks. Managers are allowed to balance inventory across the web and negotiate favourable terms with transporters.
• Satisfying Customers: With optimized inventory levels and improved Distribution Planning and Logistics, customer service metrics like on-time delivery (OTD) and on-time in-full (OTIF) are enhanced due to the proper sizing and proper inventory positioning.
• Lifecycle of the product: Medium to long-range Demand Forecasts provides better visibility of new product launches and old product discontinuations. This drives synchronized raw material, manufacturing and inventory planning to support new product launches and, most importantly, reduces the risk of discontinued products’ obsolescence.
Key Features of Demand management in supply chain:
• Warehouse Management
• Supplier Management
• Demand Planning
• Transportation Management
• Billing Management
• Inventory Management
• Purchase Order
• Order Management
• Sales & Operations Planning
• Supply Chain Planning
• Procurement Management
Forecasting and Planning
· Supply Chain Collaboration
Three significant roles of forecasting supply chain software
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 the Supply Chain: Forecasting is the starting point for all push processes of the Supply Chain like raw material planning, purchasing, inbound logistics, and manufacturing. Better forecasts help optimize inventory levels and capacity utilization.
3. Driving all pull–processes of Supply Chain: Forecasting drives all pull-process of the Supply Chain like order management, packaging, distribution, and outbound logistics. Better forecast improves the distribution and logistics and increases customer service levels.
The importance of demand forecasting is increasing at an alarming rate. No super algorithm or special software is required to start forecasting; a sorted and straightforward excel spreadsheet forecast does most of the work. Ideally, forecasting should not be shouting of VP or a knee-jerk reaction of complaints to the supplier; there are many more productive reasons to get into trouble to gather data by bringing it into shape to analyze and create base demand forecast.