What is supply chain forecasting?
Supply chain forecasting involves analyzing historical data, market trends, and other related factors to predict the quantity and timing of future customer orders or sales. Its main objective is to optimize inventory levels, manufacturing schedules, and distribution plans.
Supply chain planning software helps businesses plan and organize various parts of a supply chain. Forecasting supplies ensures correct products are accessible at the right time and in the right amounts.
Supply chain forecasting enables companies to plan for demand fluctuations, reduce stockouts and surplus inventory, and increase overall operational effectiveness. By precisely forecasting future demands, organizations can coordinate their resources to fulfill consumer needs while reducing costs and maximizing customer satisfaction.
Types of supply chain forecasting
Supply chain forecasting examines multiple data sources to identify trends and generate precise projections about product availability, customer purchasing trends, and prices. In general, suppliers make their choices based on one of three forecast types mentioned below.
- Forecasting supply involves looking at the supply chain from top to bottom to determine the goods each supplier can supply and to establish the maximum quantity a business can order. It also informs users of the anticipated arrival time at the warehouse for storage and potential shipping.
- Demand forecasting predicts consumer demand for particular products. Effective supply chain management ensures that an adequate amount of merchandise is on hand during the busiest seasons of the year. Advanced analytics helps businesses understand when customers will likely purchase specific products.
- Price forecasting estimates how product pricing and operating expenses might change over time. It involves gathering and processing market data. Forecasting prices is essential for managing budgets and purchasing goods in advance.
Benefits of supply chain forecasting
Forecasting in supply chain management predicts demand, supply, and pricing within an industry. Below are some notable benefits that arise as a result of effective forecasting.
- Improved planning: Forecasting significantly improves the process of planning and scheduling. A supply chain may stay competitive by tracking past and present product demand.
- Anticipation of product demand: Demand forecasting can predict product demand in even the most specific circumstances. No business can accurately foresee the future, but by relying on trends and making judgments based on past and present circumstances, companies can come as close as possible.
- Better customer satisfaction: In product-focused industries, it’s important to understand the needs of consumers. Being able to anticipate clients' demands makes sure orders are filled promptly, no matter the lead time.
- Less safety stock: Safety stock is extra inventory kept as a backup if a product's demand rises. However, with forecasting, no more precaution is required. This reduces storage space and stress.
- Preparation for seasonal variations: Supply chain forecasting helps organizations anticipate seasonal fluctuations in demand.
Supply chain forecasting methods
Supply chain forecasting uses past and present data, hard data, and sometimes intuition to make predictions. Understanding how to properly forecast supply chains is critical to success. These five methods are the most commonly used.
- Moving average forecasting analyzes data points by generating an average series of subsets from the entire data. It’s one of the simplest approaches to prediction. Based on historical averages, it doesn’t consider recent data as a better indicator of the future.
- Exponential smoothing takes into account historical data while placing more emphasis on recent observations.
- Auto-regressive integrated moving average is an accurate, but more expensive and time-consuming method of forecasting the supply chain. It works best for forecasting within timeframes of eighteen months or fewer.
- Multiple aggregation prediction algorithm (MAPA) is a relatively new technique designed especially for seasonality. It helps smooth out trends to prevent under or overestimating demand.
- Bottom-up forecasting predicts how a firm will operate in the future and how it will increase its revenue. It considers the production schedules of a brand's suppliers before adding important growth projections and planned marketing activities.
Best practices for supply chain forecasting
Forecasting supply chain facilitates staffing, delivery, and scheduling, all while saving money. These metrics are important to keep in mind for improving operations over time.
- Consider seasonal patterns. Some seasonal trends remain constant year after year. For example, snow tires are mostly sold in autumn and winter. During the onset of spring and summer, people are interested in buying pool chemicals. Businesses can predict when to start stocking products by understanding the seasonal pattern.
- Observe market trends. In the digital era, consumers' purchase habits vary daily. Suppliers must stay on top of these changing tendencies in order to cut costs and respond appropriately to customer requests.
- Analyze internal data. Utilizing information from the company's sales, marketing, and production teams is one of the best ways to forecast demand. Critical insights are frequently found in discussions with clients and suppliers, as well as in market studies and sales data.
- Listen to expert views. Businesses should seek assistance from specialists like consultants, contractors, and analysts. They offer unbiased data that helps to foresee market activity and identify new trends.
Learn more about inventory forecasting and understand how companies calculate inventory to fulfill demands for the foreseeable future.
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Sagar Joshi
Sagar Joshi is a former content marketing specialist at G2 in India. He is an engineer with a keen interest in data analytics and cybersecurity. He writes about topics related to them. You can find him reading books, learning a new language, or playing pool in his free time.