Demand forecasting is arguably the most important process of any business which is demonstrated annually as every business projects revenue for the budget purposes, but the real benefits of demand forecasting is downstream where operational costs and inventory capital can be reduced, and customer service levels increase, are all too often overlooked.

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The objective of all businesses is to achieve cost effective customer service and holding the right amount of inventory, both in finished goods and materials, and maximising operational efficiency is key to achieving that goal.

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Maintaining a robust and accurate demand forecast is key to ensuring the right amount of inventory and resource is available to maximise customer service and revenue and to minimise costs.

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A robust demand forecast is managed bottom up from customer level with statistical base demand from historical volume, trend, and seasonality overlaid with planned event volumes and market intelligence.

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Depending on the number of SKUs in the product portfolio and number of customers being supplied, demand forecasting can be effectively managed in Excel based forecasting spreadsheets however for larger SKU portfolios and customer base, best practice is to utilise a specialist demand forecasting solution that interface directly with ERP and other business systems to automate routine tasks and generate management reporting.

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Maintaining a robust demand forecast can seem a daunting and time-consuming task but breaking the numbers down to the key elements and having the right solutions and process in place makes it much more manageable.

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Demand Forecasting is made up of 3 key elements:

• Base – demand that is aligned to historical volume levels, trends, and seasonality and that is not influenced by planned activity i.e. promotions or targeted marketing.

• Activity – planned activity intended to increase sales or market penetration via promotions or marketing.

• Events – events that occur outside of business control that influence sales levels, i.e. Easter (moves each year), sporting or industry media events etc.

 

Just having a demand forecasting solution in place, whether it’s a specialist solution or a tailored excel demand forecasting solution, won’t deliver the accuracy and efficiency required by itself, it needs to be periodically reviewed against accuracy (MAPE) and BIAS metrics and supported by a Sales & Operations Planning (S&OP) process, to be successful.

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If you’re considering development of your demand forecasting tasks and improving customer service while reducing inventory costs, feel free to contact us to discuss further. HMS can develop an integrated and semi-automated excel demand forecasting solution tailored to your company needs or alternatively supply an industry leading advanced demand forecasting software solution.

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Read our article 'Is Less Than 75% Forecast Accuracy Good Enough to Achieve Business Targets?'.