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8 Reasons Why Forecasting is Important in Supply Chain Management

Posted by [email protected] on Jun. 20, 2019  /  Subscribe 0

What is Forecasting in Supply Chain Management?

In supply chain management, forecasting is the act of predicting demand, supply, and pricing within an industry. Forecasting involves investigating the competition, collecting supplier data, and analyzing past patterns in order to predict the future of an industry. Forecasting is an important skill for a supply chain manager to have, and it encompasses multiple skills that one should acquire as they grow in their career.

1. Planning Processes
The scheduling and planning process is vastly improved through forecasting. Paying attention to the past and present demand for products allows a supply chain to stay on top of the game.

2. Seasonal Variations in Demand
Among the many reasons that forecasting is needed in supply chain management is being able to predict and plan for seasonal variations in demand. In a similar vein, planning for promotional activity and product launches are just as important and benefit greatly from demand forecasting. With data to back up predictions, there is less guesswork to fret over.

3. Predict Product Demand
In a broader sense of the term, demand forecasting allows for the prediction of product demand in even the most specific of situations. While no company can predict the future with complete accuracy, relying on patterns and making informed decisions based on past and present data will get a company as close as possible.

4. Customer Satisfaction
Understanding customer needs is essential in product-focused industries. Being able to predict customer demand will result in fulfilling orders with short lead times on time. This will also have the effect of increasing trust between customer and supplier. 

5. Reduce Safety Stock
By definition, safety stock is the excess stock that is kept around as a safety net in case demand for a product increases. With forecasting, however, this extra measure is not needed. This frees up storage space and saves time and worry.

6. Reduce Inventory Stockouts
When it comes to JIT (Just In Time) systems and buying from long lead time suppliers, forecasting demand is essential. When it comes to JIT systems, demand forecasting allows for products to sit in storage for less time, thus less money is wasted than if items were to take up space in the warehouse for an extended period of time. For long lead time suppliers, forecasting demand is needed in order for suppliers to get your products to you in a timely manner. 

7. Improve Shipping
Supply and demand affect every aspect of the supply chain process. For example, being able to predict the demand for a certain product will allow supply chain managers time to ensure that enough workers are present to ship a certain amount of product. Not having enough workers results in orders not getting to customers on time. Likewise, having too many workers on the clock results in high labor costs.

8. Improve Pricing
Price forecasting puts the power back into the hands of a company. The impact price changes have on a particular area of a supply chain can be predicted and handled accordingly. 

Get Certified in Houston

Now that you have an answer to the question “Why is forecasting important in supply chain management?”, your next step to understanding supply chain management is to seek certification. With several certification options to choose from, the path to a fulfilling career in a growing industry is well within reach at APICS. Learn more about your options here.

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