Learn about demand forecasting in manufacturing operations

In the manufacturing industry, every activity is performed based on demand forecasts . Therefore, businesses always pay attention and consider this work as an important factor in providing effective production processes. So what is demand forecasting ? Let's explore with 1C Vietnam right in the article below!

1. Overview of demand forecasting

In all production and business activities, demand forecasting plays an important role, helping businesses shape strategies and make appropriate decisions. To better understand this method, let's briefly outline the concept, role and advantages with 1C Vietnam below:

1.1 What is demand forecasting?

Demand forecasting is the process of analyzing data to understand and predict future customer demand for a product/service. From there, businesses will make accurate decisions about supply chain operations, profit margins, cash flow, capital expenditure and enterprise capacity planning. Although the accuracy of demand forecast will not completely reach 100%, however, businesses can completely boost production and business efficiency based on forecast results.

1.2 The importance of demand forecasting

Businesses need to forecast demand to maintain their position in the market, promptly adapt to continuous market fluctuations, and provide quality products and outstanding services to potential customers. Demand forecasting is part of the Enterprise Resource Planning (ERP) system, which is responsible for estimating the quantity of raw materials to produce, while also estimating customer shopping habits to optimize inventory. inventory as well as meet customer needs.

In addition, this method also allows the production team to incorporate hypothetical situations in the plan and come up with appropriate strategies to ensure production goals. Those strategies are developed based on forecasting data, so demand forecasts greatly affect the performance of production planning and management of processes and systems in businesses such as: Sales sales, finance, manufacturing, supply and distribution.

Above all, demand forecasting is also a tool for manufacturers to accurately plan the optimal supply rate of goods, thereby drawing up appropriate material purchasing plans to keep production levels at a satisfactory level. Sufficient threshold, optimal cost. Demand forecasting also helps promote collaboration between internal and external departments, such as Sales and Production. The production department always needs demand forecast information from the Sales and Marketing department to produce just enough product to meet market demand, rebalancing supply and demand of that product.

1.3 Advantages of demand forecasting

Demand forecasting has many outstanding benefits, greatly influencing the business decisions of enterprises such as: Budget planning, implementing demand planning and production planning, saving storage costs, deadlines, etc. prevent scarcity of goods as well as develop pricing strategies. Below is the detailed content of each advantage:

• Prepare a suitable budget

Businesses rely on demand forecasts to estimate total product sales and revenue over a future period of time. From there, businesses can easily make appropriate financial decisions for Marketing - Sales activities, shipping costs or inventory storage fees.

• Implement demand planning and production planning

Demand forecasting allows businesses to provide products/services that meet customers' needs and desires. Specifically, businesses will know clearly what customers need to easily determine the quantity and type of products to save costs.

• Save on storage costs

Demand forecasting helps businesses save inventory storage costs and limit capital stagnation thanks to good inventory management.

• Limit scarcity of goods

Forecasting appropriate product demand will help businesses ensure enough goods to supply customers, as well as have a plan to be ready to replenish goods thanks to forecasting inventory over time.

• Develop pricing strategy

The demand forecasting method not only helps businesses complete production plans but also helps determine the appropriate price of the product. Through reports on the market and development opportunities, businesses can build competitive prices and apply appropriate e-commerce marketing strategies, earning profits.

2. Common types of demand forecasting

Demand forecasts are divided into 5 main types: Short-term demand forecasts , long-term demand forecasts, active demand forecasts , passive demand forecasts and macro/micro demand forecasts. Each type has its own unique characteristics and application methods. As follows:

2.1 Short-term demand forecast

This is a method of analyzing data over a short period of time, from 3 to 12 months. These forecasts are often highly accurate and extremely suitable for supply chain management that supports just-in-time production models, helping businesses respond quickly to changes in demand and consumer trends. of cutomer.

2.2 Long-term demand forecast

Long-term demand forecasts are made over a period of one year or more. Thereby, this type of forecast will help businesses determine their growth trajectory and support planning for promotional campaigns such as: Marketing, capital investment and supply chain operations. Above all, this is also a premise for businesses to prepare the necessary conditions for sustainable development in the future.

2.3 Proactive demand forecasting

This method is often applied by newly established businesses and growing companies. Proactive demand forecasting takes into account growth plans such as: Marketing or product development, competitive environment, economic outlook, market growth forecast, etc.

2.4 Passive demand forecasting

Passive demand forecasting is the use of past sales data to make estimates of future sales data. This process is often done easily, but is only really useful for businesses that have a lot of data and aim for stable sales rather than rapidly growing sales. .

2.5 Macro & micro demand forecast

Macro demand forecasting focuses on exogenous factors that affect the business situation of enterprises such as: Economic conditions, competitiveness and consumption trends. Thereby, businesses will seize opportunities to expand production and develop services, as well as predict the financial challenges they will soon face...

When businesses are concerned with stability instead of growth, paying attention to external market factors can still help businesses identify issues affecting the supply chain. Micro demand forecasting still considers external factors, but is limited to a specific industry or customer segment.

3. The data required to perform demand forecasting

Below are some important input data for businesses to make accurate production demand forecasts :

• Past purchase history: Data from the past 2-5 years will typically be used to perform sales analysis.
• Supplier forecasts: Businesses need to clearly understand supplier trends to promptly adapt to all circumstances.
• Seasonal fluctuations: The quantity of goods sold will vary at certain times of the year, so manufacturers need to rely on this information to make appropriate production plans. In particular, other factors such as the life cycle of raw materials should also be included in the analysis.
• Limitations or rules of the business: Re-examine and redefine the limitations of the production cycle in terms of warehouse capacity limits to consider the quantity of product production.

In general, the accuracy of demand forecasting will depend on the data mentioned above. In fact, businesses can completely apply many different methods, however, there is always a certain gap between forecast data and actual data. The higher the distance, the lower the accuracy of the demand forecast and vice versa.

4. Demand forecasting process

Enterprises will have many processes to perform demand forecasting suitable to each of their business characteristics. In this section, 1C Vietnam will introduce to your businesses the popular forecasting process with the following 5 steps:

4.1 Set forecasting goals

Before analyzing data, businesses need to determine the clear goals and objectives they want to achieve. The goal of forecasting can be to predict what products customers will buy in the near future, how much they will buy, and when they will buy them.

4.2 Data collection

After your business has identified its goals, choose one or more forecasting methods and collect data. The more data a business collects, the more accurate its demand forecast will be.

To ensure product demand is predicted effectively and reliably, businesses need to collect data both internally and externally, such as: Integrating all data from the business's sales channels to Create an overview of actual product demand and insights into sales forecasts.

4.3 Data analysis

Data analysis will include the process of finding criteria and trends to help businesses make demand forecasts. Criteria that recur over some period of time are often good predictors of future results, businesses can examine historical sales data and look for consumer trends based on the following criteria This:

• Every season of the year
• Holiday
• Geographical location
• Customer demographic information
• Product line

Particularly for small businesses, data analysis can be done manually. However, the most effective way is through AI tools to retrieve information from business data quickly and save time.

4.4 Build a forecast model

In this step, businesses will rely on data analysis and develop forecasting methods such as statistical methods, market surveys, Delphi methods, sales force combination methods... to choose from. Demand forecasting model suitable for businesses. At the same time, businesses must also regularly check and adjust to ensure the model is always effective.

4.5 Evaluate and adjust forecasts

This is an important step in the demand forecasting process. Businesses need to adjust forecasts based on actual feedback and assessments. This helps ensure forecasts are up to date and accurately reflect the current and future situation of the business.

5. Ways to increase demand forecast accuracy

Improved collaboration is key to accurate and seamless demand forecasting . That way, departments and employees in the business will be provided with data quickly and predict production needs through discussions and modifications.

Most businesses today choose Excel to process data to serve the process of forecasting production needs . However, this tool is not designed specifically for collecting and processing large amounts of data or sharing data between departments and employees. This forces users to negotiate or make assumptions during the work process, hindering progress.

Therefore, to improve collaboration and optimize time, businesses can apply the 1C:ERP system with production management capabilities, connecting internal and external departments, helping to increase accuracy. accuracy in demand forecasting . Below are some specific strengths of 1C:ERP software:

• Enhance collaboration: Provide purchase history information, collaborate between businesses and external factors to provide a comprehensive view of the market.
• Optimize the business's forecasting process: Support businesses in eliminating duplicate work or manual operations, helping to optimize the forecasting process.
• Real-time reporting system: Businesses can completely create management reports as needed anywhere, ready for cooperation and changing reporting plans without needing to understand programming.
• Improve product/service quality: Quickly check inventory levels, quickly check shipping policies and record information to help businesses optimize services and promptly detect arising problems .
• Commitment to security: With the ability to encrypt data and strictly decentralize, 1C:ERP will help businesses easily layer and flow information. At the same time, the system also records modified versions to ensure transparency in information and user operation history.
• Improve investment efficiency: 1C:ERP solution helps businesses optimize operating costs and control performance goals (KPIs), while estimating the performance of departments/employees to achieve goals. financial goals and accurate forecasting of needs.

In general, all businesses need to build a demand forecasting system to promptly respond to market fluctuations, as well as provide quality products to customers. In the above article, 1C Vietnam and your businesses learned about the importance of demand forecasting, forecast classification, process and how to increase the accuracy of demand forecasting in your production activities. enterprise. For more detailed advice on this 1C:ERP solution, please contact 1C Vietnam via hotline (+84)247 108 8887.