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Los Demand forecasts are crucial for strategic business leaders, who seek Anticipate market needs and optimize your supply chain.
It is well known that achieve a highly accurate forecast is what makes the difference between success and failure in managing inventories and resources.
With the above in mind, it is essential for your company to know how to correctly carry out this type of projections, and for that reason, we have prepared this article where we will tell you everything you need to know about the demand forecast.
If you work in a company with a turnover of more than USD10 million that is losing money due to errors in demand forecasting, an alternative is to implement a demand planning and inventory management platform such as Datup, which integrates with your data sources and helps you predict demand.
Now, we will review step by step how to correctly forecast demand.
The first thing we would like to address is when the demand should be forecast. For this, it is necessary to highlight that this is essential information in situations where uncertainty about future demand may affect the company's operations, however, it is a practice that companies must include in their processes to ensure successful resource management.
Some of the cases in which demand forecasting is required are: when it comes to industries with seasonal demand cycles, the introduction of new products, there are changes in consumer preferences, etc.
Demand forecasting, being a process for predicting or estimating the products and the quantities of these that will be purchased by consumers in a given period, provides multiple benefits.
By developing these sales projections precisely and with the right method, your company will be better prepared to meet the needs of the market and have the right inventory. An accurate demand forecast allows companies to:
Now it's time to share with you a step by step to forecast the demand for a product or service for your business. The Key to More Accurate Projection, is to ensure that each of the following steps is carried out.
The first thing to be clear about in this process is what you want to achieve with the result of this analysis, so you can have a greater focus and not stray from the information you want to obtain. Remember that demand forecasting can be used to make better decisions, identify opportunities, reduce risks and design solid, data-driven strategies.
By understanding your objective, you can now clearly define which items or products you want to analyze and project. In addition, you must establish what the period will be, making sure that it does not exceed 12 months, this is because accuracy can be greater in shorter periods of time.
Using the right data is essential to ensure a complete and accurate forecast. Therefore, in this step you should gather historical sales, inventory and demand data, together with any type of information that may contribute to this analysis. The longer the time period analyzed, the more effective your forecasts will be.
At this point, we recommend having data such as:
Consider the sales volume of each product during specific periods, such as months or quarters.
Evaluate trends that may affect demand for your products, such as changes in consumer preferences, pricing, competition, or special events.
Issues such as economic growth, unemployment, inflation, and interest rates can influence demand for your products.
Consider the current inventory level of your products and the variations it has experienced in the past. Available stock may affect future demand, especially if there is a shortage or excess of stock.
Evaluate the impact that your promotional or marketing activities have had in the past and how they could influence your sales and, therefore, future demand.
Include, in this analysis, the availability and delivery times of your suppliers in order to verify that you can meet the expected demand.
Identify existing seasonal or cyclical patterns in demand for a product and analyze how they may affect your forecasts.
If possible, include information about the buying behavior of your customers, for example; purchase frequency, product preferences, geographical location, etc.
Now you should take into account your objectives and the data you have available, to choose the most appropriate method for your business needs, which will really help you make strategic decisions.
Here are some of the most used models for demand forecasting:
These are a series of methods that allow an analysis of the causes that influence demand to be carried out.
Within this category, there are 2 types of models: linear regression and multiple regression. The first method makes it possible to identify relationships between variables, and the second involves different independent variables.
Focused on observations that have been collected sequentially. Here you can use any of the following; simple moving average, exponential smoothing, time series decomposition and collaborative forecasting (this involves areas such as marketing, sales, service and supply).
With this method, you can use technology to analyze large volumes of information and take into account much more complex variables. It is the alternative that offers greater speed and accuracy when forecasting demand.
Now that you have applied one of the methods for forecasting the demand for a product or service in your company, you should buy that projection with the real data and determine its accuracy or even make an adjustment if you consider it necessary.
From here on, your planning can be more strategic and based on data.
There are aspects that must be taken into account when forecasting the demand or sales of a product, and that can make the difference between a successful analysis and an inaccurate one.
As you carry out this process, you will be able to observe seasonal, cyclical, and random patterns in historical data to predict future demand. Make sure you always pay attention to these trends, and that way, when this practice is incorporated into the dynamics of your company, you can guarantee ever greater precision.
When your company decides to forecast demand, it will be essential to take into account all those factors that can affect both demand itself and supply in the market. Let's see what these aspects are:
You should always take into account these aspects of the supply of a product or service, before forecasting its demand: price, competitive supply, joint supply, availability of resources and production costs.
When making a sales forecast, it is essential to consider the factors that will impact your consumers and, therefore, demand.
Here you should consider the following aspects: the purchasing power of the target audience, their tastes and preferences, the prices of complementary and similar items, in addition to the actual number of potential customers.
It should be mentioned that it is common for errors to be made in the sales forecasting process, regardless of the method chosen, so we share with you what are those errors that you should always avoid:
Now we want to share with you the best recommendations to have a high accuracy in your demand forecasts.
These will not only help you reduce errors when forecasting demand, but they will also provide you with greater control and less burden when carrying out an analysis.
As we have seen throughout this article, forecasting demand requires time, dedication and the use of appropriate tools and methods. However, this effort will only pay off if a high level of accuracy is achieved when projecting market needs, leading to informed decisions for the success of your business and a better experience for your customers.
If you want to go deeper, you can read How to calculate demand | Step by step and examples
