Why Forecasting is Important in Supply Chain Management

10/23/19, 10:30 AM

With many businesses and manufacturing operations, forecasting is necessity in the regard that it pertains to accurate sales and demand fulfillment. While forecasting is extremely important, forecasting is an imperfect science that is challenging to get “spot on” - especially within manufacturing and supply chain management. 

Why Forecasting is Important in Supply Chain Management

Adequate forecasting within operations ensure that you always have enough supply on hand to properly fulfill orders and satisfy demand. Business analysts will use supply chain management systems and other tools needed in order to forecast demand as far as months in advance. Utilizing a supply chain management system and the tools provided will aid in providing further insight into your operation and attempt to move your forecasting closer to the accurate range. Before implementing various forecasting methods into your operation, it is essential to understand the importance of forecasting in supply chain management. Therefore, here are four aspects pertaining to the importance of forecasting in supply chain management. 

Importance of Forecasting in Supply Chain Management 

The importance of forecasting within supply chain management pertains to the following: 

  • Forecasting Demand and Coordinating Activities - Forecasting demand and coordinating activities to meet demand are incredibly time consuming tasks. While global companies use complex software and systems to forecast demand, your small business may be unable to afford this. Fortunately, small businesses can forecast supply chain needs using simple techniques. These methods of moving average and exponential smoothing try to smooth out demand to allow for seasonality in the results. 
  • Shortage of Inventory - Inventory shortage is a substantial problem that needs to be addressed immediately. Being unable to fulfill orders is detrimental to a manufacturing operation, which is why using adequate forecasting methods is a must. If your company finds itself being unable to fulfill orders, you may find out that your customers are taking their business elsewhere. Attempt to use adequate forecasting methods in order to fulfill orders and ensure that you maintain your customers. 
  • Insight in the Supply and Demand Cycle - Utilizing supply chain management (SCM) software can aid with the facilitation of forecasting and measuring the supply chain synchronization of supply and demand through the use of real-time information. A result of this will be that inventory is less likely to sit unused. 
  • Higher Inventory Due to Demand Overestimation - If a business or manufacturing operation overestimates demand, you may found out that you end up with more inventory than needed. While this is not as hurtful as having less inventory than needed, there are still inventory holding cost associated with it - which cuts into your profit. This may also increase your labor and storage costs if workers have to move this inventory to another storage facility to make way for new inventory. In order to aid with this, forecasting is a must. If you find yourself during a time of volatile demand, then you may need to sell inventory at a discount using a promotional strategy in order to sustain your company’s profit margins and income. 

A software that can easily aid with elimination of forecasting errors is Advanced Planning and Scheduling (APS) Software. Advanced Planning and Scheduling (APS) Software has become a necessity for manufacturing operations around the globe and are key in enhancement of production. Advanced Planning and Scheduling (APS) Software enable you to have thorough insight within your production process and manipulate areas that are in need of utilization and efficiency enhancement. As MRP and ERP systems are falling short in various areas, APS has stepped in to fill in the gaps. APS software is being implemented into manufacturing operations around the world and these operations are reaping the benefits. 

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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Topics: Forecasting

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