The first fundamental principle for any supply chain to be fruitful & efficient requires it to be cognitive of the current demand & supply. Given the ever so fluctuating nature of the economy & its retrograde reaction to the various industry’s challenges, planning the output & input metrics of production becomes imperative for an organization.
This roadblock in planning gets lifted by Demand Forecasting. A company uses its historical data and applies predictive analysis to forecast sales of new or current products. Demand forecasting helps an institution make better-informed decisions accounting for market trends & customer behavior to ensure that its sales & revenue goals match its intended targets. Employing demand forecasting for new products is especially beneficial to companies as it helps the management outline inventory planning and warehousing needs, which smoothes out the supply chain process from procurement to delivery. Here, we will list why having a marquee planning model is essential for an efficient industrial process.
Why Is Demand Forecasting for New Products Important?
Money is an important asset whose even slight improper spending can hamper a company’s cost sheet. And when it comes to supply chain verticals, these expenses need more accountability. Demand forecasting becomes an indispensable aspect from an organization's planning point of view for a production process to be efficient & intelligible.
Preparing the budget
A new product forecasting process needs its budget sorted out as it helps reduce risk during a good's life cycle. It benefits efficient financial decision-making that drives cash flow, allocation of resources, profit margins, expansion opportunities, inventory accounting, operational costs & overall expenses. Better Inventory Control
The critical aspect that new product demand forecasting models drive is it lets your business know which product your customer base is looking out for and when they are looking to acquire it. Thus, helping your inventory operations complete the order fulfilment targets by having better inventory & warehousing control. This also saves your partners & stakeholders the shortage of supplies during sudden customer demands during peak season, while upping the credentials of your brand value. Tapping into Market Potential
Dynamic Pricing is a well-known concept in today’s ecommerce driven business. To create a sudden splurge in demands, companies employ flash sales with reduced prices to attract higher conversion rates. This is a strategical business action which is a byproduct of smart demand forecasting process. A company’s understanding of market opportunities based on demand forecasting gives them foresight to house inventory beforehand and cash-in with a promotional sale at a later stage to edge out its competition. Not only does it improve an organization’s digital footprint but also keeps you trending considering your marketing plan has made you the sole player providing the most sought-after product in the market. Better Profit Margins
Every business thrives on good profits at the end of each quarter. With demand forecasting providing you with accurate marketing insight which later translates into intelligent sales decision bringing in attractive numbers – a business model more often than not will end up returning profit on its investments. Any industry which proactively invests in demand planning based on relevant sales data, market trends & the current economic situation will have a thriving commerce statement.
What Are the Methods of Demand Forecasting for New Products?
Demand forecasting is inclusive of various analytically borne methods whose end-goal is to help organizations come up with a new product which is relevant to current consumption behavior of its targeted user base. Here are a few coined processes inclusive of fruitful demand planning.
- Substitute Approach
This method runs on the assumption that the introduction of a new product in place of an existing one will give the organization some workable marketing insights. It generally is inclusive of opinion analysis/survey which helps the production vertical with some constructive feedback.
- Evolutionary Approach
This course of action assumes that the new product will be a default improvement over the one it is replacing. This demand forecasting technique allows the new product to follow the same life cycle as the existing products. Hence, the sales figures of the existing products acts as default baseline targets for the newly launched product.
- Buyers or Consumers view
This action plan accounts for an organization’s loyal user base as its early bird consumers for the new product and relies on their first-impression view. A company runs predictive analysis on these first reviews to set demand forecasts for a fully-fledged market launch.
- Expert’s View
The approach accounts for the expert’s view of the marketing field who are well-equipped with the ever-changing trends of a retailing filled with capable competitors. An expert’s opinion is treated as a gospel helping an organization find its footing for a new product launch.
- Trial Run
As the name suggests, this method applies a trial run for the new product in certain selected retail areas for a specified period. Its response sets the base for forecasting the sales of the latest development.
Why Is Forecasting New Products Difficult?
For an organization to start with its demand forecasting for new products, there are quite a few catches to begin with.
- Lack of Data Insights
Any business initiating a novel project requires historical data to chart its course. The unavailability of relevant data is in short supply for a new product launch. This statement holds more accuracy if the latest product is utterly independent, right from its ideation to development. However, companies can get workable information if the offering is a slight improvement of an existing product.
- Small Timeframe for Forecasts
With stiff competition in retail, companies are always in duel mode to edge out their competitors. This often pushes organizations to design a new launch without accurate information leading to demand forecasting full of errors. Such pursuits of excellence in shorter duration are generally lacking in fruitful results.
- Organization’s Internal Policies
Every company’s final decision leading to a new offering in the market is driven by optimism that it will take the consumer’s interest by storm. This may be misleading as demand forecasting for such scenarios depends more on hope than actual data-centric decision-making.
- Unknown Uncertainties
Predicting consumer & market response is a tough gig. There can be times when a product fails to register its mark even with advanced data analytics foresight. These uncertainties cannot be planned for and are only known once the product launches.
- Overlooking Red Flags
A classic case when a conglomerate chooses to overlook the red flags from historical data projections and still ventures ahead with a product launch. Usually, a final management decision takes precedence over the potential warning signs a demand forecasting for new products showcases.
Though demand forecasting for new products will never be 100%, an organization can take steps to enhance its operation efficiency, & production capacity, meet the hike in demands and maintain elite customer satisfaction metrics with 3SC’s Demand Forecasting solutions. Our advanced data analytics-based SaaS analyses demand-driving variables which uses AI & machine learning to provide demand projections by factoring calculated risk and its business impact – leading to optimized end-to-end supply chain operations.