There’s no crystal ball that can tell you everything happening in the market so you can perfectly predict product demand. However, there are quite a few ways to improve the accuracy of a demand forecast so you can increase operational efficiencies and profit throughout your organisation.
7 Ways to Improve the Accuracy of Demand Planning
1. Question and communicate assumptions
The first step in the forecast process is to determine your assumptions or starting values. Take care to derive these values statistically, analyse them, and communicate them. They are the basis of your forecast quality. Communicating them to your team members provides context for generating the initial forecasting model.
Some basic assumptions might include:
- Number of buyers in the target market
- Percentage of consumers in the target market that will purchase
- The timing of their purchase, taking economic cycles and holidays or seasonal events into account
- Pattern or frequency of repeat or replacement purchases
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.
2. Use a granular model
Your forecasting models, especially those used for predicting short-term demand, need to have enough detail and granularity on the purchasing patterns of the various segments of the market.
A granular model can inform:
- When customers will make a purchase
- The different purchasing behaviours exhibited by markets in different locations
- The optimal price point to help maximize revenue
Keep in mind that even though a high-level or aggregated demand plan is easier to create and in some cases most helpful, it may not have sufficient granular detail to address consumer behaviours or purchasing patterns at the sub-SKU level.
For example, a car manufacturer may be able to predict accurately the number of SUVs they sell in a year. However, if the demand planning team doesn’t take into account regional preferences, the company may fail to produce the correct number of models in the sub-SKU level and distribute them to the right locations.
3. Produce a range of forecasts
You can achieve a broader perspective for your demand plan by producing a range of forecasts that you can re-calculate frequently to reflect market conditions, changing assumptions, and probabilities.
Besides historical data, you can use the demand sensing approach to get a more accurate, daily demand plan for the short-term horizon (4-6 weeks) so you can respond quickly to immediate changes on both the supply and demand side.