Effective forecasting offers many benefits for modern supply chain management. It allows businesses to predict demand, determine inventory needs, and calculate costs in advance. However, as beneficial as forecasting is, outdated methods hamper your business’s progress.
Here are 5 signs that your forecasting model needs an upgrade.
What Is a Forecasting Model?
Business forecasting involves making predictions based on specific metrics, such as consumer behavior, product supply and demand, or sales growth. It is thus very useful in all sales environments and also in supply chain management.
Forecasting allows businesses to set realistic goals and plan how they will attain them. There are two forecasting model approaches: qualitative and quantitative.
Quantitative Approach
In quantitative forecasting, business predictions are based on exact numbers and metrics.
Various methods are used to analyze and interpret historical data, including seasonal patterns and averages.
Qualitative Approach
In qualitative forecasting, the predictions are based on opinions, emotions, and ideas rather than facts and figures.
Methods include market research into customers’ preferences, internal polling for employee insights, executive decisions based on intuition, and projections based on expert knowledge and experience.
Why Upgrading Your Forecasting Model is Crucial
Supply chain management relies on forecasting, as well as robust supplier and inventory management. Together, these processes allow for proactive planning and strategizing.
Upgrading your supply chain forecasting models using the most up-to-date, reliable data and data analytics improves forecast accuracy. This supports data-driven decision-making and allows you to streamline your operations.
Technology plays a big role in modern approaches to supply chain planning. With the right tools, like supply chain planning software, businesses enjoy seamless forecasting integration with their other processes.
So, how do you determine that your forecasting model needs upgrading?
1. Inaccurate Demand Predictions
Have your latest demand predictions proved to be inaccurate? Allow this to continue, and there will be serious consequences for your business. You will either not have enough inventory on hand to meet demand, or you’ll have a surplus.
Both of these situations are undesirable as they will ultimately impact your profits. Without the most crucial data, updated in real-time, your forecasts will not reflect new realities in demand and in the supply chain.
2. Over-Reliance on Manual Processes
Are you relying mostly on manual processes for your inventory management? There are several problems with this.
Manual data entry, recordkeeping, and forecasting methods allow inaccuracies, whether deliberate or through error, to creep into supply chain forecasting models. This can take time to detect, by which time your business has started to suffer.
Manual processes, whether for inventory management, stock control, bookkeeping, or other processes, take up valuable time that would be better used for other critical tasks. This is why modern businesses have turned to innovative software and automation instead.
3. Difficulty Adapting to Market Changes
When you base your supply and demand planning on the interpretation of historical data, you assume that future trends will follow the same patterns. However, this is not a realistic worldview and can make it difficult to adapt to market changes.
Both supply and demand patterns can change at any time. Market volatility, supply shortages, and emerging trends can all dramatically impact businesses that are caught unprepared.
Modern supply chain planning using the latest software and tools gives you the best chance at adapting to market changes and remaining competitive. It relies on real-time data and realistic insights, not sentiment. This is how you handle whatever the market throws at you.
4. No Integration with Other Systems
One of the biggest problems with outdated forecasting models is data fragmentation.
Different departments within the business have access to specific data, and thus, forecasts are based on siloed data sets. When forecasting models don’t integrate with other processes, you won’t have the full picture, and you won’t be able to make accurate predictions.
Modern supply chain planning software offers this integration for a more comprehensive picture of your supply chain needs.
5. Inefficient Inventory Management
Do you have insufficient inventory on hand, despite your inventory needs forecasts? You’ll quickly see that your forecasting is letting you down if your inventory management is not up to scratch.
Modern inventory management tools help businesses to manage inventory and stock levels properly. They also offer accurate metrics and data analytics that can be used for more reliable future forecasts.
Conclusion
When your forecasting relies too heavily on manual processes or focuses solely on qualitative models, forecasts will likely be inaccurate. By clinging to outdated methods, all you can safely predict is that you will experience stock and inventory inefficiencies.
Modern, data-driven forecasting, supported with tools like supply chain planning software, offers a more reliable interpretation of current and future supply and demand.
