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Series: The Ultimate Supply Chain Irony
Part 2: Forecasting Isn't Just for the Weather
Last time, we tackled the ultimate supply chain irony by pointing out common replenishment
mistakes and how to fix them.
This time, it's time to talk about the backbone to a great, efficient and profitable
supply chain – demand forecasting.
As the last article discussed, while having out-of-stock products means that some
shelves and warehouse racks are empty, the irony is that there are billions of dollars
wasted each year in excess stock. Poor demand forecasting contributes to that irony
too.
Much like the forecasting the weather, forecasting demand isn't an exact science.
However, with the right solutions, companies can create accurate demand forecasts
that reduce excess stock, limit out-of-stocks and increase profitability.
Is Demand Forecasting Really All That Important?
In a word... yes!
In a recent article by Deloitte
about managing assets in volatile times, the company explains that "improving demand
forecasting and inventory planning processes to lower inventory requirements… can
dramatically reduce working capital requirements." And who couldn't use a little
extra cash on hand these days?
As Deloitte suggests, all it takes is looking at inventory to recognize the importance
of demand forecasting. Demand forecasting uncovers the true amounts that you should
be replenishing while taking into account holidays, seasons, promotions and all
those things that make it impossible to just order a flat quantity of 1,000 widgets
each month.
Demand Forecasting Done Right
When demand forecasting is done right, the ironic cycle of overstocking and understocking
items is broken. Instead you'll see improved accuracy in forecasts, gain a better
hold on how seasonality affects your demand and bring collaboration to your company
through one single view of demand.
Improving Accuracy through Automation
Like weather forecasting, demand forecasting involves using different methods to
improve accuracy, which can be time consuming. The good news is so much about demand
forecasting can be automated. With a proper software solution in place, forecasting
becomes less of a guestimate and more accurate. Plus, since software automates most
of your forecasting, you gain more time to just focus your efforts on the exceptions.
Strong calculating engines like JustEnough's Demand Forecasting software can also
run a lot of what-if simulations, such as what would happen to sales if you lower
or raise the price, introduce new products or enter a new market.
This leads to faster and more accurate decision-making that drive a successful sales
and operations planning process.
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