Knowing the demand for their products is crucial for any business to plan its operations. Only when the demand trends are clear to the planners can they optimize their operations, logistics, inventory, and other aspects of their supply chain network. To understand demand patterns, it is required to analyze historical and real-time sales data. Features of demand forecasting can be used for understanding short-term and long-term demand trends. Businesses need to understand the importance of demand forecasting to make their supply chain seamless without disruptions.
Demand forecasting is the process of predicting demand patterns by analyzing historical data and real-time sales data. The more accurate the forecast, the more efficient the business operations planning. It helps business planners make well-informed decisions by estimating total sales revenue for a given period in the future. With the forecast in hand, planners can do everything from optimizing their inventory to warehouse management to logistics planning that helps them meet customer requirements.
Without demand, one cannot imagine a business, and without understanding the demand thoroughly, businesses are not capable of making well-informed decisions that cost them huge, big money without any ROI.
The accuracy of demand forecasting can never be 100%, but it can help you improve production lead time and demand latency and increase operational efficiency. Here are some ways demand forecasting is important for your business.
1. Prepare Your Budget
When you have the demand trends for the future, you can make better financial decisions and allocate your finances correctly, impacting your profit margins, cash flow, possibilities of expansion, and optimizing inventory levels and operating costs. All the strategic and operational planning is formulated around demand prediction to get the best efficiency.
2. Planning and Scheduling Production
Scheduling and planning production is important to ensure that you can provide your customers with what they want at the right time. Forecasting demand can help your production is synced up with the marketing before launching the products. Proper demand prediction can help you prevent scenarios such as being sold out when the demand is high or having extra stock when the demand is low.
3. Improved Infrastructure
Another significance of demand forecasting can be seen in improving the infrastructure. When the accuracy of the demand forecast increases, it helps in enhancing the production capacity and optimizing the warehouse spaces to ensure that the demand latency is reduced and the products are delivered to the customers at the right time.
4. Optimizing Inventory
A better forecast can help you save money on big inventory purchases as well as huge warehousing costs. The more inventory you carry, the higher will be the storage costs. As the accuracy of demand increases, the inventory levels can be adjusted to reduce warehousing costs as well as purchase costs.
5. Better Control
To control business activities better, it is essential to understand the cost budget and profit analysis, which can be achieved through advanced analytics and prediction of future demand. Uncertainty is a critical factor that can make decision-making extremely difficult and hence can cause delays and impact stakeholders. Demand forecasting can help eliminate uncertainty and improve control over business operations.
6. Developing a Pricing Strategy
Forecasting demand not only helps in improving business processing and supply chain management, but it also helps in developing a pricing strategy for a business. Once the planners can understand market opportunities and potential to grow, they can formulate pricing that is competitive and profitable.
7. Cost Reduction of Expiring Products
Planners can take advantage of demand forecasting by estimating the number of products that may expire in the future. They can get rid of such product from the inventory and hence reduce the cost incurred by those products as well as the expenses of transportation and storing such products.
Traditional ways of forecasting have been used for ages, but now the market scenarios are dynamic and change rapidly. Once businesses understand the importance of demand forecasting, they need to use advanced technologies for data capturing and data analysis to perform real-time analysis and give better results. Understanding the importance of demand forecasting in the supply chain is so vital that businesses need to use advanced planning solutions based on artificial intelligence and machine learning to analyze and capture data and give recommendations based on the analytics obtained that can help enhance supply chain efficiency.
3SC offers intelligent supply chain planning solutions that are based on advanced technologies, such as artificial intelligence, that provide end-to-end visibility and real-time insights into every aspect of your entire supply chain network. Our product, Demand AI helps in accurately forecasting future demand trends and helps you ensure that all your business operations are in alignment with the forecasted demand.