Supply chain and logistics explores the necessary skills to succeed in a dynamic and fast-paced global environment. When it comes to business management, you need to know how to deliver the right products in the right quantities to satisfy customer demand. Demand forecasting is all about predicting customer demand and making mindful business purchases based on those estimations.
Nowadays, businesses can make use of historical sales data and software to make accurate forecasts that can shape strategic business planning. Demand forecasting can guide the processes of supply chain management, including raw material planning, as well as order management and distribution. For students exploring careers in supply chain and logistics, here’s a look at the impact of forecasting in business management.
Role of Forecasting Explained to Students in a Supply Chain and Logistics Program
Demand forecasting plays a number of key roles in effective supply chain management. At the most basic level, forecasting provides a guideline for essential business activities, including financial planning, risk assessment, and expansion planning. Demand forecasting is also the starting point for numerous processes in the supply chain that deal with raw material planning and purchasing. At those stages, businesses can draw upon estimates of consumer demand to optimize their inventory levels. Without proper forecasting, businesses run the risk of creating a costly surplus of product or materials.
Students in a supply chain and logistics course will explore modules in demand forecasting and inventory management to learn how to implement effective business planning strategies at each stage of the supply chain.
Why Is Demand Forecasting Important?
Demand forecasting is a crucial practice because it allows a business to devise their operational strategies based on real data. By using historic information such as sales data, businesses can develop a clear picture of what future demand will look like. The goal is to promote clarity and informed decision making in the business. When a business can estimate consumer demand, they can set accurate inventory levels and price their products strategically. Additionally, by examining past data, businesses can better understand how to expand their future operations.
On the other hand, a lack of forecasting can lead to a drop in sales, revenues, and customer satisfaction. A customer will have a positive experience with your business if they receive the product they ordered on time. If they have a positive experience, they are more likely to return to your business. In that case, demand forecasting can enable more efficient distribution and impact the resulting customer experience. A good supply chain and logistics program will teach students how to manage product inventory and distribution to facilitate the wider operations of a business.
Methods of Demand Forecasting
The process of forecasting can be broadly divided into qualitative and quantitative forecasting. While both methods make use of sales data to determine future consumer demand, each relies on different resources to extract that information. Quantitative forecasting may be used when there is existing sales data for certain products. This data may include revenue figures or financial reports. On the other hand, qualitative forecasting draws upon customer surveys, product life cycles, changes in pricing, and the experience of a business’s sales team on customer demand. Each of these can be used to establish performance history and identify trends from which to develop business strategies for the future.
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