Effective supply chain management is all about effective forecasting in supply chain. And forecasting is a combination of data, historical evidence, and a bit of intuition. Through this combination a business analyzes previous and present supply to forecast future demand. But, how to do this forecast effectively? How to ensure your supply chain will enhance the relationship with your suppliers? How to prepare for predictable and unpredictable disruptions? Here are the 6 crucial methods you can use:
- Regression Analysis
This method works by measuring some determinations with the help of current assumptions such as:
- Normality.
- Seasonality.
- Linearity.
- Homoscedasticity.
Regression analysis is a quantitative method. And, it offers a quick and simple way to make predictions when compared to other methods.
- Exponential smoothing
This is a sophisticated method of making supply chain predictions. The method employs weighted averages with past events and trends’ assumptions. It is also a quantitative method that makes it easier to make data-driven predictions without analyzing various data.
This method, with the right tools, can be easy to use. In fact, it is perfect for short-term predictions.
- Moving average
It is also one of the simplest quantitative forecasting methods in the supply chain. It works by evaluating data points by producing an average subsets series from the data. Predictions regarding future demands are based on the average. It is then reevaluated monthly, quarterly, or yearly.
For example, if your business starts in the start of Q1, you may take the sales average of the last 3 quarters to make a sales prediction for Q4.
This method does not consider that the latest data have more weight and is a better future indicator. Moreover, it does not permit for trends or seasonality. Consequently, the moving average is ideal for low order inventory control.
- Market research
Market research is a qualitative method and ideal for any business selling products or services. This method can be used to forecast supply and demand for e-commerce sales. It helps determine if there is a great demand for a service/product. This forecasting will support the profit goals of the business.
Market research can be carried out by:
- A third-party specialized in market research.
- Internal sales and marketing experts.
Different tactics are used to conduct this market research, such as:
- Performing a competitive analysis.
- Interviewing experts in a specific industry or field.
- Developing stakeholder surveys.
- Historical analysis
This method uses a product’s sales history, having an analogous link with a current product to forecast sales.
Historical analysis can be used to forecast the response of the market to a new service or product. For example, if you’re selling skincare products, you’d look at previous performance on your highest-selling items. You’d then compare if the new product’s features are similar as well as have something unique to offer to the customers.
This method also works by evaluating the high-selling items of your competitors. Then you compare similar products that you’re offering to identify the demand.
- Delphi method
This method involves judgments and market orientation within a group of experts. These judgments are then:
- Sorted.
- Grouped.
- Analyzed.
Further, to avoid the influence of opinions, the judgments are gathered from the experts individually. Hence, this collection differs from a focus group or a panel discussion. Once the opinions are collected, experts from a third party analyze the information. This information is then summarized after careful review. The summary emphasizes on various trends and patterns. Once, it is completed, it is handed over to the business to review.
Delphi method is one of the qualitative methods that proved to be effective for long-term forecasting.
All in all, different businesses use different methods for effective forecasting to improve their sales and grow their businesses. Some of them rely on quantitative methods while some use a combination of both. So, if you’re new in this industry, choose the method that suits your needs and situation the best. After all, effective supply chain forecasting is the heartbeat of the supply chain. And, it doesn’t only help you build a meaningful relationship with the suppliers, but also help you plan for expected and unexpected disruptions.