Demand Forecasting: A Game-Changer in building Supply Chain resiliency

by Punita Chhabra

In the dynamic realm of Supply Chain Management, one widely acknowledged truth reverberates: “Forecasts are always wrong”. While this statement holds true across industries, the effectiveness of a company’s processes determines the extent of inaccuracy and its consequential impact on customer support, operations and financials. The distinction lies in how organizations treat Demand Planning as a discipline rather than a mere formality.

Some of the factors that shape resilient Demand Forecasting processes, and empower companies to outperform their competitors are explored here.

- Leveraging Customer-Facing and Business Planning Teams: Collaborating with these teams ensures a comprehensive understanding of market dynamics and customer behavior, leading to more accurate projections.

- Data Sources: Utilizing diverse data sources, including customer forecasts, orders, and market trends, provides a holistic view and enhances the precision of demand projections.

- Granularity of Data: Determining the detail at which to forecast, based on leadtimes. Leadtimes also influence the decision on whether to use orders, forecasts or a blend of the two.

- Segregating Demand using ABC-XYZ Methodology: Adopting methodologies such as ABC-XYZ classification enables organizations to focus their efforts on the critical few for bottoms-up analysis and using statistical forecasting techniques for stable products.

- Customer intimacy: Ensuring teams spend time in understanding customer demands for key customers. Know their demand better than customers themselves.

- Consensus-Based Forecasting: CBF meetings chaired by business leaders responsible for revenue generation is important for effective demand forecasting. This collaborative approach encourages cross-functional alignment, resulting in more accurate forecasts and enhanced decision-making.

- Measuring Forecast Accuracy and Driving Improvement: Regularly measuring forecast accuracy using MAPE (Mean Absolute Percent Error), and evaluating Forecast Bias, enables organizations to identify areas for improvement. By holding senior leaders accountable and implementing actions for continuous enhancement, companies can drive forecast accuracy and refine their demand planning processes.

While robust demand forecasting is essential, equally crucial is how organizations plan for inaccuracies and respond swiftly in dynamic and evolving times. Forecasts are inherently prone to error, and supply chains must adapt accordingly. Understand the forecast error rate, and plan your manufacturing and strategies accordingly. Inventory planning, capacity buffers, operations strategies, customer engagements, and the frequency of forecasting all contribute to the resiliency of your Supply Chain.

By harnessing the power of accurate forecasting, flexible capacity planning and optimum inventory planning, companies can gain a competitive edge and optimize resources, thereby staying one step ahead in the ever-evolving market landscape, to revolutionize their supply chain.

Although forecasts are inherently imperfect, some companies excel at achieving greater accuracy than others. Strive to be the best and ensure your supply chain thrives in the face of uncertainty