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Demand Forecasting: What it is and Why It’s Important

June 16, 2021 Published by

tracking numbers on spreadsheet

In 2020, the COVID-19 pandemic changed many of the rules of Ecommerce shopping. Now, we’re seeing just how important it is to be prepared for unpredictable spikes in demand and come up with solutions well in advance to deal with them.

One of the most important things your business can implement to prepare for unexpected shifts in purchasing behavior is demand forecasting. Read on to learn what demand forecasting is, how it works, and some of the benefits of using it.

What Is Demand Forecasting?

Simply put, demand forecasting is the outcome of using predictive analysis to determine what demand will be at a certain point in the future.

Forecasts are made using complex algorithms that analyze historic sales data, past trends, and potential events or changes that could affect demand in the future.

Why Is Demand Forecasting Important?

A lot of your success in order fulfillment will come from planning ahead for unexpected events or changes.

By using demand forecasting, you can order the right amounts of inventory, so you don’t run out of stock. As we’ve covered in a previous article, running out of stock can be just as disastrous as overstocking, so it’s important to keep a handle on your stock levels.

How To Forecast Your Supply Chain

Many third-party logistics providers (3PLs) use Supply Chain Management Software (SCMS) to forecast their supply chains, but many supply chain managers are trained to use other methods as well.

Some of the methods we’re presenting don’t require SCMS, but most work well together with software to create an efficient supply chain from top to bottom.

Here are a few methods you can use to create an effective demand forecast:

  1. Buyer trend analysis

When it comes to consumer behavior, trends don’t tend to stay the same for long. In-demand goods or delivery methods can go in and out of style and often without warning.

Keeping track of buying trends can help you to plan ahead and make more money.

  1. Seasonal planning

Seasonal demand is a trend that tends to stay the same each year. For example, people are much more interested in buying heavy jackets in the fall or winter season while bikinis and swimming trunks are more popular in the summer.

While these trends may seem obvious, it’s important you understand them to ensure you are keeping up with the competition. Your competitors likely know when to plan for shifts in demand due to a seasonal shift, so it’s important you have as specific a forecast as possible.

  1. Demand exception management

If trends stayed the same every year, it’s likely that demand forecasting would lose its importance very quickly. Having the right demand exception management strategy can help you to act effectively should an unexpected change in demand occur. Why? Exception based demand management uses a forecasting process that can identify anomalies in your forecast.

If you’re not sure how to create a good demand exception strategy, it could be useful to partner with a 3PL that can find potential exceptions to expected demand and monitor them.

  1. Use your intuition and past experience

While you should use hard data and analysis to make your forecasts, this doesn’t mean you should ignore your past experiences and intuition. Sometimes, when you feel an unexpected factor could affect your supply chain, one good choice might be to trust in your instincts.

This kind of instinct often comes with experience, so it’s important to pay attention to it.

3PLs Can Help With Supply Chain Management

While trying to manage your supply chain on your own could work, should it begin to get overwhelming, 3PLs can help you. Consider using a 3PL like Fulfillment Works that has the software, experience and skilled staff to implement measures like demand forecasting and inventory management into your business quickly, consistently, and effectively.