In both volatile and stable sectors, demand can be hard to predict and prepare for without the right tools. In this article, we will explore what demand forecasting is, how it works, the types of demand forecasting and what factors can affect demand.
What is demand forecasting?
Demand forecasting is the process of estimating the future demand for a product or service. It is an essential tool for businesses because it helps them plan production, inventory, marketing and pricing strategies. A demand forecast provides information that helps businesses optimise their operations and make informed decisions.
How does demand forecasting work?
Demand forecasting works by analysing historical data and trends to predict future demand. The data used in demand forecasting can include sales data, customer data, market research and economic indicators. Forecasting models use statistical algorithms to identify patterns in the data and make predictions based on those patterns.
The accuracy of demand forecasting depends on the quality of the data used and the forecasting model. A good forecasting model should be able to handle different types of data, such as seasonal patterns, market trends and customer behaviour. It should also be flexible enough to adapt to changes in the market and the business environment.
Today, technology plays a huge role in demand forecasting and planning. With the rise of Enterprise Resource Planning (ERP) software, businesses can model future demand with ease based on accurate data from the ERP’s database. The software itself can even suggest purchase orders that need to be moved forwards, backwards or even cancelled based on predicted demand.
Why is demand forecasting important?
To put it simply, with no demand, you have no business. An in-depth understanding of demand and how it may increase or decrease ensures your business can make the right decisions. For example, understanding demand will ensure you can accurately plan stock levels, production, staffing and marketing budgets. Even the most high-quality demand forecast unfortunately won’t be 100% correct or accurate, but it does help a business prepare for increases or potential falls in demand.
Top 6 Benefits of Demand Forecasting
1. Improves Inventory Management
By forecasting demand accurately, businesses can better manage their inventory levels and avoid overstocking or being out of stock of an in-demand product. This can also help significantly with cash flow as good demand forecasting shouldn’t see you sitting on too much unsold stock.
2. Optimises Production Schedules
Demand forecasting helps businesses plan their production schedules more efficiently, reducing the risk of under or over utilising resources. This is extremely valuable in the manufacturing industry.
3. Enhancing Customer Satisfaction
By accurately forecasting demand, businesses can ensure they have enough stock on hand to fulfil customer orders promptly, improving customer satisfaction and loyalty.
4. Supports Financial Planning and Budgeting
By providing insight into expected sales volumes, demand forecasting can help businesses plan and allocate resources effectively and make informed decisions about investments and expenditures.
5. Facilitates Expansion and Growth
By accurately forecasting demand, businesses can identify new opportunities for growth and expansion, enabling them to enter new markets and increase their market share.
6. Enhances Strategic Decision-making
Demand forecasting provides businesses with a valuable tool for strategic decision-making, allowing them to make informed choices about pricing, marketing and other key areas of their operations.
What are the types of demand forecasting
There are different types of demand forecasting, depending on the level of detail and the timeframe given. The most common types of demand forecasting are:
Short-term forecasting is used to predict demand over a period of weeks or months. It is usually based on recent sales data and analyses factors such as seasonal patterns, holidays and promotions.
Medium-term forecasting is used to predict demand over a period of six months to two years. It takes into account trends in the market, changes in customer behaviour and economic indicators.
Long-term forecasting is used to predict demand over a period of two years or more. It considers criteria such as population growth, technological advancements and changes in the competitive landscape.
Qualitative forecasting is based on expert opinions, surveys and other non-quantitative data. It is often used when there is a lack of historical data or when there are significant changes in the market or the business environment.
Quantitative forecasting is based on statistical analysis of historical data. It is used when a significant amount of data is available.
What factors impact demand?
- Seasonality: Demand for certain products may vary depending on the time of year, such as winter clothing, Christmas decorations and outdoor equipment in the summer.
- Geography: Demand can also be influenced by location, as certain products may be more popular in certain regions or countries.
- Economic Conditions: The state of the economy can also impact demand, as consumers may have more or less disposable income to spend on certain products.
- Consumer Trends: Changing consumer preferences and behaviours can also impact demand, such as the rise of veganism or interest in eco-friendly products. Pop culture can also drastically increase demand for certain products.
- Marketing Campaigns: Successful marketing campaigns can increase demand for a product, while poor marketing can reduce it.
Can NetSuite ERP handle demand forecasting?
NetSuite ERP provides functionality to handle demand forecasting and planning through its NetSuite Supply and Demand Planning module. This module allows businesses to forecast demand and plan inventory levels based on various factors, such as historical sales data, seasonality and promotions. The software also includes tools for demand planning collaboration, scenario modelling and exception-based management to help businesses respond to changes in demand quickly and effectively.
Demand forecasting is a useful tool for businesses looking to stay competitive in today’s fast-paced marketplace and predict consumer behaviour. Accurately predicting customer demand can help companies make informed decisions about inventory planning and reduce waste. With customer expectations constantly evolving, the need for accurate demand forecasting is more critical than ever before.
With the right tools and strategies in place, businesses can make confident decisions that drive growth and success in today’s dynamic business environment.
Why choose Eventura as your ERP implementation partner?
Eventura has been providing robust business solutions to countless organisations (big and small) for over two decades. We are ERP experts and can identify all of your business needs, and deliver a comprehensive ERP solution that works for you.
As Sage 200 Partners and NetSuite Solution Providers, we can help you identify which solution will fit your business needs the best. Our expert team of business analysts, developers, consultants, technicians and support staff can guide you through your entire project, from initial scoping through to implementation and on-going support.
We’re also managed IT service providers meaning we can help you identify your entire IT infrastructure requirements from day one. If you would like to speak to one of our ERP experts to discuss your options or request a free demo, you can request a free call back here.