Why is it important for organizations to accurately estimate the demand for a good or service?
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In 2014, Walgreens had a $1 Billion forecasting blunder that led to the exit of two executives. In 2001, Nike also had a demand planning software implementation failure that led to a $100 million loss in sales. These examples show how imperative demand forecasting and having the right demand forecasting systems play in the overall profitability of businesses. Demand forecasting forms an essential component of the supply chain process. It’s the driver for almost all supply chain related decisions. While demand forecasting is undeniably important, it’s also one of the most difficult aspects of supply chain planning. Demand is often volatile making demand forecasting both an art and a science. Demand Forecasting defined as the process by which the historical sales data are used to develop an estimate of the expected forecast of customer demand. Demand Forecasting provides an estimate of the of goods and services that customers will purchase in the foreseeable future. Read More: Demand Management Best Practices Why is Demand Forecasting important for effective Supply Chain Management?Demand Forecasting facilitates critical business activities like budgeting, financial planning, sales and marketing plans, raw material planning, production planning, risk assessment and formulating mitigation plans. Outlined below are the impacts of Demand Forecasting on Supply Chain Management:
Read More: Everything You Need to Know About Demand Forecasting
3 Main Roles of Forecasting in Supply Chain ManagementForecasting plays three major roles in effective supply chain management: Read More: Using Demand Planning Statistical Models to Enhance Your Sales Forecasts
Enjoyed this post? Subscribe or follow Arkieva on Linkedin, Twitter, and Facebook for blog updates Why demand estimation is important for any organization?Demand forecasting helps reduce risks and make efficient financial decisions that impact profit margins, cash flow, allocation of resources, opportunities for expansion, inventory accounting, operating costs, staffing, and overall spend. All strategic and operational plans are formulated around forecasting demand.
Why is demand forecast accuracy important?Forecast accuracy is the degree to which a forecast matches actual demand. Understanding and monitoring forecast accuracy is essential because it impacts how well your organization can meet customer needs and improve its business results: the more accurate forecasts, the better decisions.
Why is accurate forecasting important for an Organisation?Forecasting allows businesses set reasonable and measurable goals based on current and historical data. Having accurate data and statistics to analyze helps businesses to decide what amount of change, growth or improvement will be determined as a success.
Why the firm might need accurate demand and supply information?To maximize profitability, supply chains need to be as efficient as possible. Accurate demand planning is critical in ensuring supply chains are efficient for inventory and, ultimately, revenue.
Why do organizations care about forecasting and demand planning?Research has shown that poor internal forecasts negatively affect the accuracy of earnings guidance as well as the extent of misreporting, all of which undermine investor confidence. This is why demand forecast accuracy is critical to operational decisions and ultimately to companies' overall financial performance.
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