Sales forecasting and demand management are the two primary activities that precede the supply chain planning process.
Sales forecasting has a mid-to-long-term view and uses historical data along with assumptions and qualitative factors. On the other hand, demand management mainly deals with near-term demand including custom orders. Sales forecast provides information necessary for capacity decisions, inventory projections, product development, and similar strategic views, whereas demand management aims at optimizing the current supply to meet the near-term demand, dealing with customer service matters and cash flow.
These are important factors for the supply chain – this is where it all begins. The forecasting process is aligned with the monthly sales report, replacing the previous month’s forecast with the actual sales data and adding another month of forecast at the end of the planning horizon. This reflects the ‘rolling’ nature of the forecast, hence called Rolling Forecast.
Each month, the demand forecast for the rest of the budget year is updated to reflect how sales are tracking against the total plan, i.e., actual sales plus the remaining forecast should equal the total budget on an ongoing basis to stay aligned with the supply plan and capacity.
Using the right forecasting tool and data can improve forecast accuracy significantly, resulting in higher efficiency for the supply chain. An improvement in forecast accuracy also reduces the need for safety stock, bringing in savings in inventory holding costs and improving product shelf life.
The demand forecasting methods and calculations are discussed in detail in BRASI’s CISCOM – Certified in Supply Chain & Operations Management training course. The CISCOM course is now offered as a hybrid training course of six months duration, which you can start any time and review at your own schedule with the help of an instructor on a need basis.