Avoiding Surpluses and Shortages: Why Accuracy Matters in Demand Planning

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Many companies face inaccurate demand planning issues, mainly because predicting demand with accuracy requires some estimations.

It may seem like taking a guess and hoping your inventory plans work out since you’re using predicted values. 

But demand planning doesn’t have to be a shot in the dark. Good forecasts can protect your business from problems.

You can manage your inventory correctly with the correct predictions of customer needs. This saves costs and keeps customers happy. 

Understanding Demand Planning Forecast Accuracy

Demand planning forecast accuracy helps you predict the number of products your customers want over a set time by using sales forecasting, supply chain management, and inventory management to create good predictions. There are many reliable demand planning software options available out there that can help.

By leveraging historical sales data, market trends, and other key factors, these solutions use advanced statistical algorithms and machine learning to generate demand forecasts that are more precise than those created manually.

woman in black shirt walking on market

Why Accuracy Matters

Let’s explore why accuracy matters in demand planning. 

1. Keeping the Right Inventory Level

If you underestimate your demand for a season, your products will be out of stock, frustrating customers and making you lose valuable leads and prospects to competition. Similarly, if you have more stock than you need, you may run out of your products’ shelf-life, especially if you stock perishables and chemical goods. 

Demand planning looks at past sales and forecasts to know how much to order for replenishing stock. This makes restocking more efficient. It lowers the chances of having too much or too little inventory, saving money and time.

2. Preparing for Changing Customer Demand

Planning protects profits from stock outs during busy seasons. It keeps cash flow steady when sales are highest. Having forecasts on hand also keeps you prepared, giving you enough time to resolve procurement challenges in stark contrast to last-minute solutions that you may have to adopt to overcome unforeseen procurement hurdles.

3. Improved Supplier Relationships

Supplier relationships are significant for companies, and transparent exchange of valuable information, like expected demand, helps nurture them. For instance, sharing your 12-month demand plan with suppliers leads to better demand and production planning on their end, too.

When a company’s plans constantly change, it causes issues down the supply chain, like canceled orders. When a company changes its forecast often, it signals to the vendor that it does not have a good grasp or handle on its actual needs. As a result, the vendor may feel they are taking on unnecessary risks by trying to meet an unpredictable, unstable forecast from the company. With no visibility or stability, vendors may direct attention to more transparent customers they can count on.

4. Improve Labor Scheduling

Good demand predictions give precise sales numbers, and staff managers can use these forecasts to make the best work schedules.

When demand is estimated correctly, enough employees can be scheduled for expected busy times. New forecasts also help quickly redo schedules if demand changes suddenly. This prepares staff better than rushing to find help during unplanned, busy days. Accurate forecasts also help determine if a company needs to make or reduce hires to align the workforce with predicted demand levels. 

5. Using Forecasts as Performance Benchmarks

An accurate demand forecast is a benchmark or standard to gauge your results. If your actual sales or orders are trending below forecast predictions, this could indicate potential problems that must be addressed. Catching underperformance early allows you to make changes and get back on track.

Conversely, if sales are trending above the forecast, you want to understand what external factors in the market or internal changes in your business led to over-performance. This variance from the forecast could point to opportunities to capture more demand or provide insights to improve future predictions.

Endnote

Accurate demand planning is essential for avoiding big problems like running out of stuff or having too much stuff sitting around and not selling. When a company uses good estimates to predict what customers want, they can manage how much stock they have smartly. Customers are happier because they can find what they need, and the company saves money by not spending it on extra inventory, just taking up space.