In the traditional ‘push’ supply chain (Sell What You Can Make), forecasting tends to follow someone’s plan. In a modern ‘pull’ supply chain (Make What You Can Sell), demand forecasting should be independent of demand planning.
In the context of an external consumer-driven pull paradigm of a supply chain, a demand forecaster is in the business of making detailed statements about future demand for products and services in the face of uncertainty. Demand forecasting and planning is the process that drives inventory levels to improve a company’s ability to replenish or fulfill product to meet customer (and ultimate consumer) needs in a timely and cost-effective way. If forecasting does not have a good link to drive inventory stocks, improving it won’t necessarily improve customer service levels or reduce costs.
Demand planners and managers use detailed item-level (disaggregated) by product/location/period) forecast data from a number of sources to create a clear view of what product demand is likely to be, and then link inventory and replenishment processes to that future view. This bottom up demand forecast incorporates a logical and coherent series of steps that, if performed in a consistent, management-supported fashion, can improve forecasting effectiveness, reliability and credibility throughout the supply chain. (Visual courtesy of Simon Conradie)
Demand managers must then reconcile their planning approaches with the assumptions for the future so that the most credible methodology will produce accurate and reliable forecasts. The Demand Management (DM) process makes use of computerized intelligence to synchronize and optimize essential elements of manufacture and distribution
A demand forecast is not just a number, outcome or task. It is part of an ongoing process directly affecting sales, marketing, inventory, production and all other aspects of the modern supply chain. In the supply chain pull paradigm, demand planners and managers should start by reviewing an independently derived, unbiased baseline demand forecast, instead of first focusing on the targets that planners hope will result from a sales forecast, as in an internal company-driven push paradigm.
In my new business forecasting book Change&Chance Embraced the introductory chapter describes
- what a demand forecasting process is
- why it is a necessary discipline for demand planners and managers to become familiar with
- a new role for demand managers in a modern, consumer data-driven supply chain
- ·how, when, where, and by whom the demand forecasting job is done
- ·the systematic steps for an agile execution of the demand forecasting process in the supply chain
Customer Review of Change&Chance Embraced: 5.0 out of 5 stars. You don’t need an MBA or a degree in mathematics to get significant value out of this book. By Charles ReCorron August 26, 2018. This book is an easy read for what most people believe is a difficult subject. It’s not written to impress you, but rather to educate you to make better, more useful, forecasts supported by data not simply opinions. It is extremely functional and well written. If your job description includes forecasting, or you want to learn how to forecast, this is a must have.
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