Once a supply chain strategy has been established, forecasting the demand of goods and services (and their fluctuations) is the key driver of most supply chain related decisions. It facilitates critical business activities like financial planning, sales and marketing plans, material requirement planning, production planning, risk evaluation and formulating mitigation plans. Business performance can therefore be considerably enhanced with effective demand forecasting, resulting in numerous benefits including:
- Increased customer satisfaction – Customers are provided with the right product at the right time
- Better decisions – Visibility on future demand enables the business to make informed decisions on which product portfolios to expand or scale down, to improve productivity and profitability.
- Reduced inventory stock outs & lowering safety stock requirement – The timing of ordering & production can be optimised and linked accurately to sales, thus freeing up working capital and capacity.
- Reducing product obsolescence costs – Reducing the production of excess stock that is not used or becomes obsolete trough aging.
A multivariate forecasting approach, customised to suit the business’ specific requirements, considers:
- Sales history: Organic growth of the business
- Seasonality: Repetitive events that affect demand, e.g. weather
- Macroeconomics: GDP changes, taxes, others.
- Sales & marketing activities: Impact of promotional activity on demand
- All capacity constraints: Production, Procurement, Storage, Distribution & Logistics, other