Read this blog to discover the seven steps to improve demand forecast accuracy for increased operational efficiency and profit. Show
There is no crystal ball that can allow planners to perfectly predict product demand by giving insight on everything happening in the market. However, there are quite a few ways to improve demand forecast accuracy. Here are seven ways to improve demand forecast accuracy for increased operational efficiency and profit. Question and Communicate AssumptionsThe first step in the forecast process is to determine assumptions, or starting values. Take care to derive these values statistically, analyze them, and communicate them; they are the basis of your forecast quality. Communicating them to team members provides context for generating the initial forecasting model.
It’s important to leverage the collective knowledge and expertise of the various teams involved to validate these assumptions before you start the forecasting process. Use a granular modelYour forecasting models, especially those used for predicting short-term demand, need to be detailed and granular.
Keep in mind that even though a high-level or aggregated demand plan is easier to create, and in some cases helpful, it may not have sufficient granular detail to address consumer behaviors or purchasing patterns. Produce a range of forecastsIt is also possible to achieve a broader perspective for demand plans by producing a range of forecasts that can be re-calculated frequently to reflect market conditions, changing assumptions, and probabilities. Minimize delaysDelays happen when market demands are not reflected in the supply chain with minimal lapse time and they can severely impact the demand forecast accuracy. To minimize the impact of such delays, use fully integrated supply and demand forecasting models to increase adaptability and operational efficiency. Employ a variety of forecasting methodsWhile the most common and essential models are based on purchasing intentions, there are other models that can be used to consider different angles and perspectives. Continuously check forecastsRegular checks on actual sales against forecasts based on quantitative and qualitative data should be performed as soon as data becomes available. Use any discrepancies to fine-tune future forecasts to ensure that they are grounded in real market conditions. Improve planning with integrated supply-demand forecasting ontinuously check forecastsAccurate forecasting is fundamental to supply chain management, as well as to sales and operations planning for the entire organization. Improve demand forecast accuracy by employing different models and drawing data from a variety of sources. The faster data is pulled and shared within an organization, the more valuable the information will be for everyone involved. For further reading, download our case study on Fountain Tire to learn how they improved their forecast accuracy by 15% with CCH® Tagetik. How can you make a forecast more accurate?Create Realistic, Accurate Forecasts. Begin With Your Baseline. Accurate forecasting is built on an accurate base. ... . Focus On Key Factors. When forecasting, focus on the most meaningful data.. Build From the Bottom Up. When making forecasts, you could work from the top down or the bottom up. ... . Use Good Tools and Be Thorough.. What is the most effective forecasting method?#1 Straight-line Method
The straight-line method is one of the simplest and easy-to-follow forecasting methods. A financial analyst uses historical figures and trends to predict future revenue growth.
Which is the most accurate forecasting method and why?Exponential Smoothing
It can often result in a more accurate forecast. It is an easy method that enables forecasts to quickly react to new trends or changes. A benefit to exponential smoothing is that it does not require a large amount of historical data.
Which type of forecasting is more accurate?Short-term forecasts are generally more accurate than long-term forecasts. Forecasting process includes consideration of factors which can influence future demand. Hence, the short-term factors are more predictable than long-term.
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