Advantages and Disadvantages of Forecasting: What’s The Best Option for My Supply Chain?

5/13/20 10:30 AM

Within any manufacturing operation, forecasting is always a challenge. With forecasting, there is always absolutely no guarantee that the forecast will be correct, which will lead to excess inventory or worse - a shortage. While excess inventory does cut into profits and increases inventory costs, having a shortage is by far the greater evil out of the two considering that a shortage could lead to potential unfulfillment of delivery times. As manufacturers come across these challenges with forecasting time and time again, many are wondering if conducting forecasts even benefits their operation at all. While all operations do need some form of a plan for their production process, what is the point of spending a substantial amount of time on developing forecast when they are almost always wrong? 

Advantages and Disadvantages of Forecasting: What’s The Best Option for My Supply Chain?

We all know that forecasting isn’t easy, but when it is conducted in a correct manner, it can offer tremendous advantages to companies. In today’s ultra-competitive business landscape, any advantage over the competition is positive. Having said that, there are various disadvantages that are worth exploring within manufacturing operations. While forecasting is a must for your operation, any potential obstacles should be weighed when considering which forecasting process is the best for you.

Advantages and Disadvantages of Forecasting 

The advantages pertaining to forecasting include the following: 

  • Insight Creation - Gaining insight is a must for operations that are seeking to generate adequate forecasts. Forecasting gets you into the habit of looking at the past and real-time data to predict future demand. While doing this, you will be able to anticipate demand fluctuations more effectively. It also will provide insight into your company’s supply chain health and provide you with an opportunity to make any corrections or adjustments based off of new information that is received through real-time data. 
  • Learning From Past Mistakes - Forecasting also enables you to make decisions based off of past errors and could provide insight on how to correct these in the future. You don’t start from scratch after each forecast. Even if your prediction was nowhere close to what ended up coming to pass, it provides a starting point. It is common to review where and why things didn’t happen the way you had predicted and you should be able to see an improvement in your forecasts. You will also get into the habit of reflecting upon past performance as a whole. 
  • Cost Decrease - Cost decrease is another substantial factor within manufacturing operations considering that forecasting can reduce the amount of errors due to following a schedule based off of the past. Anticipating demand will aid you with tweaking your processes to increase efficiency all along the supply chain. Because you are able to predict what customers will want and when they’ll want it, you will ultimately be able to decrease excess inventory levels and increase overall profitability. 

The disadvantages pertaining to forecasting include the following: 

  • Forecasts are Never Completely Accurate - Forecasts are never 100% and it is almost impossible to predict the future with certainty. Even if you have a great process in place and forecasting experts on your payroll, your forecasts will never be spot on. Some products and markets will have a high level of volatility, especially during times of crisis. The coronavirus has definitely enhanced and increased this volatility within the market - which is why understanding what factors influence your demand can potentially aid with developing forecasts during this time. Having said that, the main drawback of forecasts are that they are almost always wrong - which leads to excess or shortage of inventory. 
  • It can be Time-Consuming and Resource-Intensive - Forecasting pertains to data gathering, data organizing, and coordination. Companies will employ a team of demand planners who are responsible for coming up with the forecast. In order to adequately conduct this function, demand planners will need a substantial amount of input from sales and marketing teams. It is also not uncommon for process to be manual and labor-intensive, which will ultimately take up a lot of time. If you have the correct technology in the right place, it is much less of an issue. 
  • Could be Costly - Forecasting can be extremely costly - especially if it is done right. If you want adequate and close-to-accurate forecast, you have to spend the money, time, and resources to do so. Hiring a team of demand planners is a significant investment and adds to the cost of utilizing quality tools. While it is costly, you should easily see a return on this investment over time and your forecast should be much more accurate, thus saving you money and paying for itself in the long run. 

A software that can aid with adequate and appropriate forecasting pertains to PlanetTogether’s Advanced Planning and Scheduling (APS) Software. Advanced Planning and Scheduling (APS) Software can aid with forecasting through utilizing real-time and historical data and ultimately coming up with a production plan that enables manufacturers to reduce waste and increase profitability. Advanced Planning and Scheduling (APS) Software increases operational efficiency through utilizing these forecasts and ultimately coming up with a production plan that is the most efficient for their manufacturing operation. PlanetTogether’s APS Software is a must for manufacturing facilities that are seeking to maintain a competitive edge and take their operation to the next level. 

Advanced Planning and Scheduling Software 

Advanced Planning and Scheduling (APS) software has become a must for modern-day manufacturing operations due to customer demand for increased product mix and fast delivery combined with downward cost pressures. APS can be quickly integrated with a ERP/MRP software to fill gaps where these system lack planning and scheduling flexibility and accuracy. Advanced Planning and Scheduling (APS) helps planners save time while providing greater agility in updating ever-changing priorities, production schedules, and inventory plans.

  • Create optimized schedules balancing production efficiency and delivery performance
  • Maximize output on bottleneck resources to increase revenue
  • Synchronize supply with demand to reduce inventories
  • Provide company-wide visibility to capacity
  • Enable scenario data-driven decision making

Implementation of Advanced Planning and Scheduling (APS) software will take your manufacturing operations to the next level of production efficiency, taking advantage of the operational data you already have in your ERP.

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 APS Resources

Topics: supply chain

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