Importance of Demand Forecasting in Supply Chain

Demand Forecasting in Supply Chain Management

Demand Forecasting defined as the process by which the historical sales data are used to make an estimate of the expected forecast of customer demand. Demand Forecasting gives an estimate of the goods and services that customers will purchase in the foreseeable future. Here are some major advantages of demand forecasting in supply chain management:
Increased customer satisfaction:
The only way to keep your customers satisfied is by providing them with the product at the right time. Therefore, demand forecasting will help predict product demand so that enough product is available to fulfill customer orders within a short period of time.
Reducing inventory stock-outs:
It is vital for organizations to understand the importance of demand forecasting, even if they are working in a JIT System or with long lead time suppliers. When buying products from long lead time suppliers, all you have to do is to send a demand forecast so that suppliers can arrange raw materials in anticipation of actual customer orders.
Lowering the safety stock requirement
With an effective demand forecasting process, there will be a direct impact on the planning of inventory levels:
1. Developing production requests to manufacturing operations
2. Development for new product launches
3. Preparation for promotional activity
4. Forecasting for seasonal variations in demand
A company using forecasting to plan any of the above scenarios doesn’t need to carry high safety stocks to manage those events
Preparing the budget:
Demand forecasting plays a major role in making budget by estimating costs and expected revenues. Therefore, demand forecasting enables organizations to prepare their budget which leads to better planning of product costs.
Expanding organizations:
Demand forecasting helps to take the decision about the expansion of a business. It depends on the expected demand; if the demand for goods is higher, then the organization may plan to expand further. Then again, if the demand for products is expected to drop, the organization may cut down the investment in the business.

With right demand forecasting, business performance can be considerably improved, resulting in numerous benefits. From reducing prices to keeping customers happy, demand forecasting is an essential component of supply chain management, helping companies complete orders on time, avoid unnecessary inventory expenses and arrange for price fluctuations. For getting more updates on demand forecasting, visit Tenaxx Logistics.