What’s Supply Chain Forecasting?

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Supply chain forecasting is a method companies use to reorder the components and other materials they need on a regular basis. Sometimes called material forecasting or demand forecasting, the supply chain forecasting process primarily involves recognizing the need for items and notifying the appropriate supplier. Companies that produce a large volume of the same or similar commodity and keep it in their inventory tend to integrate this forecasting system into their overall supply chain management plan. This type of logistics management is typically not feasible in companies that build custom products to individual customer specifications.

The process by which a company goes about designing, executing and modifying the way raw materials are moved from supplier to production to customer is called the supply chain. The first step in developing a supply chain forecasting plan is defining all the links in the chain. For most businesses, this may include suppliers, intermediaries and other businesses with whom they need to establish coordination and collaboration. Once all links in the chain have been identified, the company’s available inventory supply should be in sync with its manufacturing demand.

In most business organizations that use it, the primary goals of supply chain forecasting are to determine the best method of meeting customer needs and making more efficient use of resources, including distribution methods, inventory capacity, and elements of the workforce. The basic reasoning behind supply chain is to find the best way to match supply with demand using as little inventory as possible. Many manufacturing companies use supply chain forecasting to help them balance supply and demand. In an effort to create this balance, a supply chain forecast must ensure that the level of items produced meets customer demand without creating excess inventory. Similarly, a company’s supply chain forecast cannot fall short of customer demand, which would prevent the manufacturer from delivering finished products to its customers.

Manufacturing teams and leaders use supply chain forecasts to develop production plans. In these plans, available components are reviewed so that purchase orders can be created for components to be ordered from suppliers. Forecasts should be designed for each link in the supply chain, such as components, service parts, and finished goods. For a forecast to be effective, companies usually need to review it consistently at regular intervals throughout the year. This typically provides some insight into future trends that allow for more accurate supply chain forecasting.

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