A key concept of supply chain management

Abstract

Demand forecasting is the process of estimating the quantity of products or services consumers will purchase (Hugos, 2011). This work looks at an introduction of supply chain management and focuses on demand forecasting. It explores the features, scope and significance of demand forecasting and its contribution to effective supply chain management. It also explores some methods of demand forecasting and their beneficial use in providing accurate information to supply management in a business.

Key words: demand forecasting, supply chain management

A key concept of supply chain management

Supply Chain Management is the process of streamlining the supply side of business to maximize customer value. It involves creating measures that ensure supply is efficient and to the required quality standards. Management ensures coordination of all departments in a business to ensure that the business products are constantly available. A manager has to be flexible because of the tastes and preference changes of consumers. Effective supply chain management gives a business a competitive edge over other businesses. It requires a business to pay attention to what happens within the business all the way until the product is delivered to the final consumer (Hugos, 2011).

Supply chain management focuses on several areas that include in-store, sustainable supply chains, logistics and strategy and planning (Hugos 2011). In-store looks at processes involve in the actual store. This include measurements of on-shelf availability, retail ready packing and back-of-store processes. Sustainable supply chains are another area of focus for this management. This looks at sustainable distribution, transport collaboration and consolidation channels. The aim is to come up with sustainable channels that suit customer priorities and avail products to consumers without fail. Logistics is an area that focuses on strategies that agree with market trends and make sure the business is on top of the market. It considers details concerning inventories, location, transportation and information. Strategy and planning discusses forecasting and demand planning. It is a critical focus area for supply chain management. This looks at the challenges of demand forecasting and how it affects demand planning.

Demand forecasting is simply estimating the quantity of a product or service that consumer will buy. It involves analysis of past events and existing trends. Demand forecasting involves identifying how consumers are likely to purchase products or services. This requires critical analysis of whetherconsumers prefer online shopping or actually visiting the business centers to purchase the products or services. This is often demanding because it requires a study of different groups of people and their preferred method of purchase. This information makes it possible to provide accurate forecasting. Demand forecasting also analyzes when they may make this purchases. The importance of when consumers make their purchases defines whether the business products have peak and off-peak sale seasons. This information helps in forecasting because demand that is influenced by seasons makes it possible for the business to avoid excess supply and save on unnecessary cost. This is one of the tasks of demand forecasting that determine whether supply chain management is effective or not.Demand forecasting mainly focus on how much consumers will purchase. This is estimating how much demand a product or service will have in the near future.

Demand forecasting consists of several features that make it possible to understand the concept better. It is the basis of planning production program. A business is able to know the quantity of input for producing an estimated number of products. This guides the budgeting for production since the sector has an estimated target or goal. Demand forecasting is an estimate of sales in the future. Knowing the estimated quantity of products or services consumers will purchase gives the estimated sales. This makes it possible to project sales graphs and plan on the best strategies to use in order to meet the sales target. The basis of demand forecasting is present economic conditions and past trends. Past trends give an overview of consumer response to certain changes and how these affect their purchasing habits. Having past trends provides solid basis to project into the future while incorporating the current economic conditions. For example, if demand for clothes was high during the recession, it is possible to forecast that the demand may reduce as people have other priorities. The forecasting process tries to identify lines of profitable investment. This means that forecasting acts as a guideline to a business on what areas to invest in, for example, moving into new market, diversifying supply of demanded products and services and expanding to other countries.

Chase explains that it iseasier to predict the immediate future than the distant future and this defines the purpose of demand forecasting (Chase, 2013). Short-run forecasting helps in coming up with production schedules, creating price policies and setting sales targets for the business. Long-run forecasting facilitates planning of expansion to new markets, long-term financial and man power requirements as well as developing a suitable strategy to keep the business in the market for the long term.

When aligning the supply chain with the business it is important to identify the scope of forecasting. It determines the appropriate methods to use to make the business succeed. The business must determine whether the forecast is short, medium or long term. This is the length of time for the forecast (Mentzer, 2005). The specific purpose of the forecast also helps make the most accurate estimations concerning demand for a product or service. It is also necessary to identify the type of commodity because some commodities have a pattern of demand (Wallace, 2008).

Since demand forecasting is merely estimation, it is important to understand its significance. It helps in producing the right quantity of products. This avoids excess supply that causes a business to incur losses or more expenses to sell the excess products. It also helps in organizing the factors of production. Demand forecasting helps a business access probable demand and thus ensures effective production and planning. It also allows for estimated budgets and this helps in controlling the business expenses. It allows for stable management of production and employment of workers. Demand forecasting also makes planning of future investments and employment because it provides reliable information about the future.

Coming up with the most efficient method of demand forecasting requires consideration of factors like finances, expertise, purpose of the forecast and the nature of available information (Chase,2013). The first method is opinion polling. This is where buyers, experts and the sales force provide information about market trends. Involving potential customers ensures accuracy of the information, though the process is expensive and time consuming. The business may also choose to use collective opinion method by gathering information from the salespersons that are assumed to have accurate information about the market. The expert’s opinion method is also effective because it involves consulting people with actual experience in demand forecasting.

References

Chase, C. (2013). Demand-driven forecasting: A structured approach to forecasting.

Hugos, M. H. (2011). Essentials of supply chain management. Hoboken, N.J: Wiley.

Mentzer, J. T., & Moon, M. A. (2005).Sales forecasting management: A demand management approach. Thousand Oaks, Calif: Sage Publications.

Wallace, T. F., & Stahl, R. A. (2008).Sales forecasting: A new approach : why and how to emphasize teamwork, not formulas, forecast less, not more, focus on process improvement, not forecast accuracy. Cincinnati, Ohio: T.F. Wallace & Co.