Forecast accuracy

Planning and coordinating the supply chain is a vital to ensure availability of the products to consumers.

Here, forecasting plays a key role as its accuracy drives inventory, hence supply chain efficiency and return on assets.

Accurately forecasting product demand is probably the single most important and most challenging measure of a company’s supply chain proficiency.

* It is necessary to check the accuracy of past forecasts against present performance and of preset forecast against future performance. Some comparisons of the model with what actually happens and of the assumptions with what is borne out in practice are more desirable.

*The larger the number of items involved, the more accurate the forecasts. Because of the statistical law of large numbers, the size of forecasting errors decreases as the number of items being forecast increases and vice versa.

*Another factor is the elasticity of demand. The more in-elastic the demand, the more accurate the forecasts. Therefore, the demand for necessities can be forecast with a higher degree of accuracy than that for non-necessities and demand for non-durable goods with a higher degree of accuracy than for durable.

*Also, as many supply chain practitioners have experience, it is usually possible to accurately estimate total demand three months in advance, while it is virtually impossible to forecast precisely on which day or even during which week a particular customer order will arrive.
Forecast accuracy

What is demand planning?

Supply chain processes in general span the areas of demand planning, order fulfillment, distribution, production and procurement.

Demand planning controlling has the task to control the quality of the forecast and the quality of the demand planning process itself.

It is the process that an organization takes to anticipate customer demand and ensure sufficient product is available – in the right place, at the right time, to the required level of service and at the lowest possible supply chain cost.

This process using the forecast as a foundation for their decisions (pre-production, purchasing, provision of additional capacity, etc) need a quality measure to understand the accuracy of the forecast and the dimension of possible deviations of the forecast from the actual demand.

As a result of demand planning, independent requirements are created, triggering further production, distribution and procurement planning.

Demand planning has the task to provide the production planning process with forecast to trigger production before the customer places the sales order.
What is demand planning?