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Demand Planning & Forecasting
Demand Planning & Forecasting
8 min read

Demand Planning And Forecasting Explained

Published on:
January 18, 2024
Demand planning and forecasting are all about using historical inventory and sales data to predict future demand, in conjunction with a wealth of other information like market trends or expert domain knowledge. It’s a continuous process that’s vital to keep customers happy and inventory costs under control.

When you accurately forecast demand and plan to meet it, you’re in great shape to right-size your inventory. You can prevent stockouts that cost you sales and overstock that sucks up cash flow and bumps storage fees. Even better, you can avoid the need to shed dead stock at a big discount or write it off entirely.

In short, effective demand planning and forecasting keeps your business agile and adaptable in the face of changing market trends — letting you order the right stock, at the right time, and in the right quantity to meet customer orders. So, how should you approach it?

It all starts with quality data

The first step on your demand planning and forecasting journey is to make sure you’re gathering reliable and relevant information to feed into the forecasts. Focus on key areas:

  • Historical sales data: What products were sold, when, and in what quantities?
  • Inventory data: What are your stock levels, item turnover rates, and replenishment times?
  • Customer data: What are their buying patterns and order frequency?

You’re likely already gathering some or all of this information through your enterprise resource planning (ERP) or customer relationship management (CRM) systems, but you should consider bringing external information into the mix as well. Track economic trends that point to changing patterns of customer demand or market disruptions. For instance, your forecasts will be less reliable if you’re using historical sales data recorded during the COVID-19 pandemic without updating it.

To leverage data effectively, you also need to ensure it’s consistent, accurate, up-to-date, and well-organised. Ultimately, it’s combining data around inventory, sales, customers, or markets that makes demand forecasting so powerful. For example, tracking sales data but not stock levels might give you a forecast of zero sales for an item that’s been in stockout for three months because it’s so popular!

Don’t forget the importance of bringing in collaborative insights. Your sales and marketing teams can give you vital qualitative data — essentially their expert experiences — or update you on factors that will affect future sales, such as planned promotions or marketing campaigns.

Step forward on forecasting

Don’t simply copy last year’s data into your demand plan. Even if you currently rely on Excel, there are several straightforward statistical techniques you can harness. Methods like simple moving averages, exponential smoothing, and linear regression can provide valuable insights without the complexity of more advanced algorithms:

  • Simple moving averages: Useful when you have very little historical data available, this method smooths out fluctuations and highlights trends in sales data by calculating simple moving averages.
  • Exponential smoothing: With this method, you can smooth out random noise from your data. It puts more weight on recent time periods and is useful for quickly spotting changing trends and patterns, such as seasonal demand shifts.
  • Linear regression: By identifying relationships between a dependent variable (like price) and one or more independent variables (like time), linear regression can forecast future sales. This method is useful for understanding how different factors collectively impact demand.

Moving beyond Excel

While Excel can be affordable and has useful features like conditional formatting, forecast functions, and basic data visualisation, it’s also very time-consuming. Data needs to be manually updated and checked — and the more products you stock, the longer the process takes. Worse, you can find yourself relying on the knowledge of just one or two people in your business. What happens if they leave?

 If you’re managing more than 1,000 SKUs, you should consider moving over to specialised demand planning and forecasting software. Today’s cloud-based tools can bring together real-time data from both inside and outside your business with no IT management headaches. The ability to automate manual tasks also frees up your time and improves data accuracy. The best tools offer many different forecasting methods too, going far beyond simple spreadsheet capabilities. Some tools also offer the ability to adjust forecasts based on user knowledge, which is a good way to capture and retain the expertise of key employees.

Solutions that include AI or machine learning capabilities can make data analysis, forecasting, and collaborative planning much more accurate and efficient. Machine learning can be particularly useful for pulling third-party data, such as market trends or economic indicators, into your demand forecasting process, or for predicting demand when items have patchy sales histories. Combining the most advanced machine learning with proven statistical forecasting methods is likely the best approach to moving beyond spreadsheets.

Driving success with a new solution

When adopting advanced demand planning and forecasting tools, it’s important to start small. Don’t try to do too much too quickly. Take the time to train your team to make the most of the new system. Help everyone to gain trust in the software, to understand the forecasting process, and to steadily enhance accuracy.

Building your approach is all about continuous improvement and learning. For instance, don’t just manually correct forecasts that seem inaccurate, rather take the time to look under the hood and understand what’s happening to fine tune the process. Ultimately, this will make demand planning and forecasting much more efficient and accurate.

You might want to narrow your initial focus onto order proposals for just one supplier. Next, you could set up rules to tell you if items aren’t behaving as forecast, for instance with exception reports on stockouts or overstocking. After automating manual tasks as much as possible, you can also focus your time on problem items — like those with little to no sales history or drastically changing demand.

We can help!

Fast to implement, easy-to-use and highly scalable, our cloud-based software has everything you need to drive accurate demand planning and forecasting. With cutting-edge tools rolled into one risk-free subscription, it’s the missing link in your business success. Our capabilities include:

  • Advanced data visualisation: Make informed decisions quickly with all your data clearly visualised in one place. We make it easy to customise your view or filter information with tools like our item card, where you can see the effects of any changes you make right away.
  • Flexible planning: Our system can recalculate on the fly — letting you plan bottom up, middle out, or top down. We enable powerful customer-level planning, and you can also set seasonal profiles to better predict demand — such as sales of a Christmas product that will drop off after December.
  • Extensive forecasting capabilities: With around 20 different forecasting methods, we can run predictions and check the results against reality to focus on the most accurate approach per item.
  • Easy integration: We make it simple to aggregate data from your existing ERP or CRM systems with an open API.
  • Personal customer service: We’re known for going the extra mile to give you the best possible training and support. We ensure every customer has a dedicated success manager — not only to help you through onboarding, but also to offer long-term guidance on best practices and reaching your goals.

Learn more about how we can help or book a personalised demo.