Inventory planning is like putting on a pair of jeans before a long trip. In other words, you need the perfect fit. Otherwise it quickly becomes uncomfortable.
If you run out of product, you will have trouble fulfilling orders and customers may turn to other suppliers. On the other hand, if you have too much of a particular product, you end up paying for excess storage and inventory management. Neither is desirable for your business if profitability is important to you.
In the past, it was difficult to keep the right amount of material in stock - and to order the right items. Managers didn't have much visibility or insight into their supply chains.
However, recent advances in supply chain forecasting and data collection are making this process easier and more efficient than ever. This post examines what supply chain forecasting is, why it's important to companies like yours, and how you can incorporate it into your shipping operations.
What is supply chain forecasting?
Supply chain forecasting analyzes various data points to uncover trends and provide accurate estimates of product availability, consumer purchasing behavior, and pricing, among other things.
In general, suppliers use three types of forecasts to guide their decisions.
1. Supply Forecast
This type of forecasting is all about looking down your supply chain and determining how much product your partners can deliver.
This is necessary to determine how much product you can order. It also tells you when to expect it to appear at your warehouse for storage and eventual shipping. It's also important for sales and marketing teams. It allows these teams to create custom campaigns and strategies that reflect current economic realities.
While supply forecasting has always been important, it took center stage following the onset of the pandemic. Overnight the market shifted and consumer demand exceeded supply for many commodities.
For example, consumers' fear of using public transport, as well as boredom and the urge to move, have led to widespread bicycle shortages. Companies had to adjust their strategies accordingly when it became apparent that the demand for new bikes and parts and accessories far outstripped supply.
2. Demand Forecast
Another type of forecasting involves predicting consumer demand for specific products. This way you can ensure you have enough product in stock during the busiest times of the year.
Effective demand forecasting requires the use of advanced analytics to determine when customers are likely to purchase specific items.
Coming back to the bike example, COVID-19 has required retailers to look ahead and predict future customer demand for these items. Whether there would still be increased demand for bikes after the pandemic or whether public interest had already peaked was not easy to determine.
According to McKinsey, the forecast is based on the base valuecausal drivers of demandreplacing previous results can improve forecast accuracy by 10% to 20% and result in a potential 5% reduction in inventory costs. That's pretty incredible.
3. Price Prediction
The third most important type of analysis is price prediction. This type of forecasting involves collecting and processing market data to determine how product prices and operating costs may fluctuate over time.
Price forecasts are vital for budgeting purposes and purchasing products in advance. For example, a team can use price forecasts to anticipate rising gas prices. That team could then change their dispatch strategy to reduce the number of truck rollouts on specific routes.
How to forecast your supply chain
As you can see, supply chain forecasting is critical to success. It helps streamline inventory. And it makes planning, staffing, and distribution easier and more affordable.
So how do you forecast a supply chain?
As it turns out, there is no one-size-fits-all strategy for supply chain forecasting. Rather, it is about putting together a large number of data points.With that in mind, here are some general things to track to improve your operations over time.
Some seasonal patterns tend to be consistent year after year.
For example, people are usually more interested in buying winter tires in the fall and winter. Eventually the weather begins to change. And pool chemical purchases tend to increase in spring and early summer, when more pools are open and in use nationwide.
By understanding when consumers tend to buy certain products, you can predict when to start stocking and shipping.
We are now in the digital age. Consumer buying behavior changes from day to day – and even hour to hour.
Suppliers need to be aware of these changing patterns. This allows them to respond appropriately to consumer needs and reduce costs.
To illustrate, many items that people used to buy primarily in retail stores are now commonly purchased online. By understanding where and how consumers buy specific goods, vendors can more easily forecast inventory and stock items for delivery.
One of the best ways to forecast demand is to leverage insights and data from your own sales, marketing, and production teams.
You can often uncover important insights in discussions with customers and suppliers, as well as in industry reports and sales literature. Wherever possible, teams need to incorporate internal insights into the forecast.
Companies also seek advice from external experts - such as consultants, contractors and analysts. These sources can provide independent data to help predict market activity and spot emerging trends.
For example, an outdoor retailer might speak to a marketing consultant. During this discussion, the retailer might learn that the majority of their target customers want winter jackets rather than coats or vests. More specifically, these jackets must be ethical, sustainable or locally produced.
This type of insight can help a company determine its sourcing and shipping strategies. With the right approach, this can lead to increased profits and happier customers.
How Vector can improve supply chain forecasting
There is no right or wrong way to forecast supply chains. Every company is unique. Therefore, each requires a tailored approach to supply chain forecasting. If you try a "one size fits all" strategy, it just won't work. As simple as that.
For example, a grocery supplier will have different forecasting requirements than a company that sells car tires or clothing. In this case, seasonal, environmental and economic data can be of significant importance.
What all businesses need
However, there is one critical need that all companies have when forecasting the supply chain: a powerful onedata pipeline. For best results, data must flow quickly into the company. This allows teams to process them quickly and turn them into actionable insights.
Vectoroffers custom mobile apps to help you collect and report on a variety of supply chain metrics. For example, with Vector you can track unplanned pickups in real time, gain insight into transportation, and see how items are moving over time.
You can combine these types of internal metrics with larger economic and industry data points, allowing your team to compare performance and plan more effectively.
At the same time, Vector can help your companymigrate away from ineffective, old-school, paper-based systems and accelerate your digital transformation efforts.
All in all, Vector can turn your shipping and logistics team into a robust data pipeline and uncover a multitude of insights that you can use to create leaner and more effective operations.
Look at thatLearn more about how Vector can transform your supply chain function.
This post was written by Justin Reynolds. Justin is a freelance writer who enjoys telling stories about how technology, science and creativity can help workers be more productive. In his spare time he enjoys watching or playing live music, hiking and travelling.