Question

In your own words to explain "the role of demand forecasting in a supply chain" topic in depth. At lease 500 words

Thank you very much

Answer 1

An essential component of the supply chain system is the demand forecasting. It is the catalyst of almost all decisions relevant to the supply chain. Although demand forecasting is undeniably important, supply chain planning is also one of the most challenging aspects. Business is often unpredictable and business forecasts an art as well as a science. Demand Forecasting facilitates critical business activities such as budgeting, financial planning, sales and marketing plans, planning of raw materials, manufacturing planning, risk assessment and mitigation plans.

Improved supplier relationships and terms of purchase: Demand Forecasting guides the process of scheduling raw materials which allows purchasing managers to launch a timely procurement schedule for suppliers. Visibility and visibility of demand for raw materials improve supplier ties and enable purchasing managers to secure favorable terms for their companies.
Better capacity usage and resource allocation: production can be planned easily based on current inventory levels, availability of raw materials and anticipated customer orders. This leads to an improved utilization of capacity and a sensible allocation of production resources.

Inventory level optimization: A proper Demand Forecast provides vital information to drive the desired inventory levels of raw materials, WIPs and finished goods. This reduces the Bullwhip effect across the supply chain, leading to stock-level optimization and reduction in stock-out or over-stock situations.
Better logistical planning and logistics: this is especially evident in companies dealing with numerous SKUs and wide distribution networks, apart from small businesses. Distribution and Logistics Managers are able to balance stocks across the network and negotiate with Transporters on favorable terms.

Increase in customer service levels: Customer service metrics such as on-time delivery (OTD), on-time in-full (OTIF), case-fill / fill rate, etc. are improved with optimized inventory levels and improved distribution planning and logistics due to proper sizing and inventory positioning.
Better product lifecycle management: medium to long-range demand forecasts provide better visibility of new product launches and discontinuation of old product. This drives coordinated scheduling of raw materials, production and stock to support new product launches and, most significantly, to reduce the risk of discontinued product obsolescence.

Forecasting is the underlying concept of strategic business practices such as growth preparation, budgeting, financial planning, risk assessment and mitigation. Often based on Forecasting are critical business factors such as revenue, profit margins, cash flow, capital expenditure, etc.
Initiating all supply chain push-processes: forecasting is the starting point for all supply chain push-processes such as planning of raw materials, purchasing, inbound logistics, and production. Better forecasts help optimize the level of inventory and utilization of capacity. Conducting all supply chain pull-processes: forecasting powers all supply chain pull-processes such as order management, packaging, delivery, and outbound logistics. Better prediction improves supply and logistics and raises the level of customer service.