In the supply chain business, there’s nothing as vital as speed. Nowadays, consumers don’t buy just products. They also buy experience from the companies. Consumers need every product at their doorsteps in the shortest possible time. Every company sweats out day and night to match with consumers’ ever-rising expectations and keeps supply chain planners on their toes.
The supply chain planners maintain hawk eyes on the market trends and demand volatility in order to meet desired goals and maximize the profit of the companies in the long haul.
Using past experiences and forecasting of the future market, the demand for various items is estimated at several instants in a supply chain. A seasoned supply chain professional not only forecasts the demand trends but also ensures a cost-effective, timely and efficient operation in the complete supply chain of a business.
Managing demand volatility poses a significant challenge
In a demand-driven environment, management of demand volatility poses a significant challenge and companies tackle it by employing robust supply chain strategies. For tackling demand uncertainties, a statistical forecast is prepared and its sole purpose is a demystification of one question – “How to proceed in the supply chain?”
A demand planning and forecasting team are usually formed from the sales, operations, technical and manufacturing departments. The team reviews available information, historical data on the sales, the current market research and trending surveys in order to derive a prototype for an organization. The team also keeps on adding new data and makes changes in the planning prototype accordingly.
Demand planning involves gathering and analysing data, accumulation of point-of-sale (POS) terminal data that can be used to predict the market demand and trends. Retail inventory, wholesale inventory, data from loyalty programs and POS data are stored as demand signals for future reference as a demand signal repository.
Often conducted in the early stages of sales and operations planning, demand planning and forecasting have now gained more popularity than ever.
According to R Shankar, CEO of TVS Logistics Services Limited, “Demand forecasting is the first and foremost stage for an effective supply chain planning. The demand plan plays a significant role in matching customer expectations with robust production and inventory planning.”
“In this connected world, doing businesses with customers from around the globe have become a lot easier than before with effective planning.”
“Demand planning drives the entire supply chain and ensures a smooth flow of operations. Anticipating the demand in advance reduces the lead time in delivery. Quality of the products can also be improved with prior planning. Demand planning ensures the right amount of inventory is being managed in the warehouse leading to reduced inventory holding cost.”
Artificial Intelligence enabled demand forecasting
With artificial intelligence and automation making its way almost through everything, demand planning and forecasting is not an exception. It is one of the most promising applications of AI in the supply chain.
The technology incorporates machine learning, where the machine “Learns” from the past experience and can analyse the swarm of complex relationships and factors that influence the product demand and thereby lead to a demand planning prototype.
Artificial intelligence enabled demand forecasting is still in its infancy stage and much more is yet to come.
On the question of how ‘real-time automated demand forecasting’ is useful in supply chain optimization, Gurpreet Singh Gill, Regional Head of the Supply Chain and Logistics Solution, Samsung SDS said, “Speed and time are very crucial in the current industry and the role of demand forecasting through automation cannot be underestimated. Today’s demand forecasting works on an ‘automated’ and ‘intelligent’ integration of information flow right from procurement to the point of sales and backwards.”
On the efficiency of demand forecasting tools, Mr Gill said, “Historically, most organizations were dependent on disconnected technologies which barely communicate without an efficient human interface. Nowadays, demand forecasting tools utilise algorithms which can analyse massive amounts of data and come up with potential forecast figures in less than a minute.”
However, though an automated forecast gives the planner a relevant guide to future demand, no forecast is totally accurate. A planner’s experience and knowledge of the current and the future environment are important in determining the future demand of a company’s product.
Accurate demand forecasting helps in cost optimization & facilitating timely delivery
With the customers and the target audience increasing on an everyday basis, ensuring on-time delivery of goods is a real challenge in itself. Demand planning and forecasting not only predict the demand for a product but also aid in numerous other ways like scheduling and on-time delivery of goods.
On the role of ‘Demand forecasting’ in scheduling and ensuring on-time delivery of goods, Peer Rasmussen, Managing Director of Kuehne+Nagel India told Logistics Insider, ” Accurate forecasting is essential to meet our customers’ increasing needs for hourly, same or next day time-sensitive deliveries. ”
“The ability to serve a customer on time, on a tight schedule, while being flexible enough to accommodate the rapid changes in demand is the permanent test for any service provider. Companies expect their logistics service providers to create a highly responsive and flexible supply chain, which can be customised and scaled to meet individual customer expectations.”
Mr Rasmussen concluded by saying, “Planning the right inventory is key for business; excess and shortages can hurt. Hence, accurate demand forecasting, while maintaining a certain level of flexibility, must form the spine of every logistics solution.”
On the same lines, Mr Shankar said, “Demand forecasting helps in estimating/predicting the future demands of the customer to optimize the entire supply chain, right from procurement of raw materials to the source of consumption. It ensures a smooth physical and information flow across the entire supply chain. By promoting visibility and reducing the bullwhip effect, all the stakeholders in the supply chain stay well prepared to take required measures on meeting the changing customer requirements.”
With better demand planning, manufacturers can leverage the elements in the supply chain to provide value-added services to their customers and deliver defect free products on time.
According to Mr Gill, the role of demand forecasting in scheduling and on-time delivery of goods depend on factors like the type of industry and geographic location where a business is in operation.
He said, “If the industry is mature, there is enough historical data available to tabulate and interpret market demand and thus production requirements, line feeds and delivery fulfillments can go undeterred. And, if we see less organized sectors and industries heavily impacted by market and external forces may not be an easy win.”
“Customer’s quick change of taste, lack of innovation, inadequate brand loyalty, higher pricing can lead to a negative impact which can be measured over a period of time but looks hard to me to evaluate on a daily basis for order fulfilment,” signed off Mr Gill.
With progressing technological advancements, supply chain planning is all set to get an edge in all its processes. In the near future, we can expect better strategic and automated changes in the process of demand planning and forecasting which will improve the inventory management, the product quality and its deployment in the market, effective cost management and timely last mile delivery.
Application of artificial intelligence in demand forecasting is in its nascent stage and once the technology will attain maturity, the accurate demand forecasting will help supply chain planners in lowering the logistics cost to a great extent.
(The article is co-authored by Gaurav Dubey )