Are you looking for a way to prepare your inventory for the onslaught of customers that will descend upon your company in the heat of your busy months? Demand forecasting can help - in more ways than one - prepare for not only the stressful and busy time of the year, but the rest of the year as well. But to know if demand forecasting is what you need, it’s important to understand what it can do. And why your company may benefit from putting it into practice.
Demand forecasting is a type of predictive analytics which attempts to predict and understand customer demand to optimize supply decisions. It's the process of using data, most commonly historical sales data to make estimations about future consumer demand. Proper demand forecasting gives companies crucial information about their potential in their market and other markets. That way, business owners can make educated decisions about pricing, business growth strategies, and market potential.
Without demand forecasting, businesses gamble on making bad decisions about their products and target markets – and ill-informed choices can have adverse effects on inventory holding costs, supply chain management, profitability, and most importantly customer satisfaction.
There are a few different types of demand forecasting; Predictive Analytics, Conjoint Analysis, Client Intent Surveys, and the Delphi Method. Each of these has its own unique flavor and we choose one over another to ensure a fit with the specific methodology we’re using to accomplish the goals of a project.
We use demand forecasting for several reasons. Some of the more critical reasons are optimizing inventory - ensuring that turnover rate is excellent and keeping holding costs low. It also gives you an insight into cash flow, which can give owners and directors much-needed information to budget for paying vendors, shipping, and employee pay and quantity.
Ultimately, demand forecasting provides an estimate of the number of goods and services that customers will purchase in the foreseeable future. Critical business assumptions like profit margins, turnover, cash flow, risk assessment, and mitigation plans are given data-driven information through demand forecasting.
But this type of analysis is rarely the end-goal for our work. The output of demand forecasting models goes on to become a part of our research to answer larger strategic questions.
A great job with demand forecasting can translate into making other aspects of the business better. It can drive new abilities in customer experience, may allow companies to branch out into new markets, or deliver on brand promises in more efficient ways.
Remember that for every company, the customer should be the primary focus. Demand forecasting allows the needs of the customer to be properly anticipated and strategized against.