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How Demand Forecasting Can Boost Business Efficiency

The art of predicting the future is nearly as old as civilization itself. Oracles, fortune tellers and soothsayers of all kinds have long claimed to be able to see the course of future events, and they’ve often found a receptive audience in humans who want desperately to know what’s just around the corner.

These days, of course, the world has more scientific and data-based methods available. The business community, in particular, has embraced what has come to be called Big Data: the practice of taking the mountains of information that businesses accumulate and putting it to work. One of the most widely-used applications of Big Data is the practice of demand forecasting, in which analysts attempt to understand what customers will want next by understanding what they’ve wanted in the past.

What kinds of methods do businesses use to perform these calculations, and what goals do they typically want to accomplish? Perhaps most importantly, how can they improve their accuracy and make them a smart use of resources?


 
Basics of Demand Forecasting

Businesses of all kinds use demand forecasting to estimate future demand for their goods and services. A basic primer on today’s demand forecasting methods begins with the difference between each major type of forecasting:

  • Short-Term Demand Forecasting: Focuses on customer demand within several months to a year and how best to prepare ordering and shipping practices for seasonal demand cycles and approaching campaigns.
  • Mid- to Long-Term Demand Forecasting: Focuses on strategic deployment of resources to meet anticipated customer demand in the next one to five years.
  • Active Demand Forecasting: A more intensive technique used to evaluate how aggressive plans for expansion and scaling will interact with consumer demand.
  • Macro Demand Forecasting: The “big picture” demand forecasting technique that looks ahead at broader market conditions to help plan a business’s overarching strategies.

Beyond that, there are two broad categories of methods that each type of forecasting can employ. Many businesses use both, combining techniques to achieve better results:

  • Qualitative Forecasting: Uses methods that focus on opinion and consensus, such as market research and the Delphi method, to arrive at a reasoned conclusion.
  • Quantitative Forecasting: Uses statistical techniques and computer modeling to crunch the hard numbers and create a data-intensive picture of future demand.

Businesses use all kinds of tools and technologies to implement these methods, from relatively simple research surveys to complex data modeling tools. That’s certainly a big investment—so what, exactly, do these methods achieve?

Why Demand Forecasting Is Important

Most businesses consider demand forecasting to be critical for achieving a better deployment of resources. The individual goals that each business hopes to achieve through demand forecasting are as diverse as individual business plans, but there are some common themes:

  • Optimizing Inventory: In a business climate where warehouse space and fulfillment capacity are perpetually at a premium, it’s essential to ensure that valuable space and logistics resources aren’t being wasted on inventory that does not create value.
  • Improving Cash Flow: By the same token, it’s important that businesses keep their cash flow situation agile and not over-allocate resources to projects that aren’t aligned with market conditions.
  • Serving Customers Better: Whether it’s disposable consumer goods or high-end B2B services, every business wants to give its customers what they want. Accurate demand forecasting helps to improve customer satisfaction by ensuring that supply matches demand as closely as possible.

Obviously, there are some excellent reasons to implement demand forecasting—assuming that it works. All too often, though, businesses experience frustration with inaccurate forecasting. Thus, the relevant question becomes: How can forecasting be implemented in a way that provides solid ROI and improves efficiency, rather than simply prognosticating?


 
How to Boost Efficiency Through Better Demand Forecasting

Nearly every large- or medium-sized business today uses some form of demand forecasting, and thanks to the advent of affordable cloud-based ERP software, it’s more easily available than it’s ever been. However, to improve the accuracy and efficacy of demand forecasting, it’s important to implement some best practices used by the top forecasters in business. Although there are many ways to do demand forecasting right, these key tips can help a business get more out of their investment in the practice:

  • Remember that demand is not monolithic and try implementing a disaggregated model. Break down demand by demographics, product lines, regional differences and any other statistical segments that matter. Again, the powerful reporting features available in many distribution software products can help establish what these segments are and how they can be separated.
  • Focus resources not just on forecasting demand itself, but in determining the variability of demand forecasts. A forecast with a five percent margin of error and one with a 20 percent margin of error can both be useful, but building a business plan around a high-variability forecast is much more risky. Uncertainty will always be present, so a smart business will take steps to identify just how much uncertainty is present and allocate resources more or less flexibly based on that understanding.
  • Use automated systems to monitor how a demand forecast is matching up to actual expressed demand. Collaborate with data experts to identify breakpoints at which divergence will require revision of demand models and then set up alerts at those points. Many modern manufacturing ERP systems allow for sophisticated real-time modeling of demand that allows this kind of rolling analysis to take place.
  • Diversify forecasting methods. No one approach can capture every element of a system as complex as market supply and demand, so try out a variety of models and evaluate their accuracy using the previously discussed principles such as real-time monitoring and variability forecasting.


 
Planning for the future is a key part of any business, and demand forecasting is now an indispensable tool for making that planning useful and effective. So, although tools, techniques and goals may vary, one thing is clear: Establishing a forecasting system and evaluating its efficacy should be high-priority goals for a business that’s trying to grow, compete and innovate.

Can Your Business Keep Up With Consumer Demand?

StrategyDriven Managing Your Business Article |Consumer Demand|Can Your Business Keep Up With Consumer Demand?When you’ve got a good thing going, you want to keep it going. But success only comes in intervals in business, and therefore no one is ever guaranteed a permanent seat on the throne. So you should do you best to stay one step in front of the next interval, and make sure you are consistently achieving what you want to achieve. Maybe your product is selling very well, or perhaps your service is making headway in your industry. Suddenly you’re looking like a brilliant alternative for customers around the world. Consumer demand for your commerce is only going to stay high if you know what they want. Then logistically you will be tested to deliver on that expectation. Practically, you will need to be ready to smartly use your resources, to continue improving your products and services in the ways being demanded. Do you have the capacity to fill such new demands and live up to the anticipation? There are numerous ways you can do this.

Don’t believe the hype

Your first bout of success is going to have you smiling from ear to ear. It’s going to feel wonderful and finally you’ll say to yourself, things are working out as planned. However, you must snap yourself out of this euphoria that success can bring and make sure you are keeping your finger on the pulse. Why are you having this great period of rising sales and profits? What are the exact reasons for this. It may not be because the majority of consumers think your product is better but rather, that you were simply cheaper than the next rival. On the other hand it could be because there is a key feature they like which no other competitor has. There’s always a reason or multiple for why you are getting a new and consistent sales increase.

Plan your improvements

Of course business cannot stand still, you are in the annals of constant improvement. You may have the best product one year, but the next year you could so easily be toppled from your perch. The large corporations like Samsung always begin to plan ahead for the improvements they will make for their next iteration even before the current product is released. Therefore you need to begin planning on what you would like to see be done more thoroughly, made stronger, more complex, optimized and just the sheer overall quality increased.

All this entails, going back to the drawing board and being totally honest about what you think were the shortcomings of your current product and or service line. In a perfect world, what would you change? Slowly but surely you should work your way towards making that perfect goal a reality.

Keep them fixated

Is there such a thing as customer loyalty? Yes. But is consumer loyalty real? No. Consumers on the whole look for what’s best for them. And price has a huge part to play in what choices they make. Consider using netsuite pricing which has the world’s leading ERP system. In this system there is a section for ecommerce. It will help you organize your strategy for reaching out to online consumers. This external strategy is by far the most important in the modern age of internet shopping. Everything from marketing, software applications, and real world connections via ecommerce can be decided and managed using this ERP.

Upscale your production

Perhaps the most crucial but by far the most expensive is the upscaling of your production. It’s the dream come true when you simply don’t have enough products being made to satisfy the sudden overwhelming demand. Yet, if it’s allowed to continue for too long it can be a nightmare. Consumers don’t wait around for any business, they want what they want, and they want it now. So if you can see that your units are being sold far quicker than you can currently produce in a short space of time, you need to upscale your production capabilities.

Instead of one manufacturing facility or storage warehouse, double both and start creating the right amount of products that will keep up with the rate of purchases. This way the increase in demand is met with the equal supply. Avoiding backlogs of orders also avoids the big headache of going back and rectifying outstanding and late orders.

Every business wants to have that feeling of being overwhelmed by so much demand for their product. You’re obviously doing something right, but you can’t be in a production deficit for too long. Using an ERP you can manage your online strategy for reaching out far and wide to new customers.