In Part 1 of this post, we discussed the importance of demand forecasting and its benefits. We also highlighted five trends that will undoubtedly affect your supply chain operations in the coming months and years.
In Part 2, we'll continue with supply chain KPIs that inform demand forecasting, demand forecasting techniques, and how to optimize your supply chain demand forecasting.
How supply chain KPIs inform demand forecasting in Dynamics 365 ERP
Supply chain Key Performance Indicators (KPIs) are measurable metrics used to assess the performance and effectiveness of various supply chain activities. KPIs should align with a company's strategic goals and help monitor vital areas such as inventory management, procurement, and customer relations. With a clear picture and in-depth analysis of supply chain KPIs, companies can determine processes needing improvement and optimize their demand forecasting to achieve better outcomes.
Some KPIs that will enhance demand forecasting:
Stock holding KPI gives you a clear picture of all products and materials in your warehouses or storage facilities. Customer demand, production lead times, and order quantities will all influence this KPI. Knowing your exact inventory on hand is critical for demand planning. It allows accurate forecasting, appropriate allocation of resources, and prompt discharge of customer orders. With visibility into your stock holdings, you can balance your inventory levels to ensure you can fulfill customer orders promptly while avoiding having excess stock on hand, tying up capital, and incurring additional storage costs. You'll have a model stock holding value, and you'll want to bring your actual stock holding as close as possible.
Fill rate measures the percentage of customer demand you can fulfill from available inventory. This KPI significantly influences demand forecasting. It improves accuracy. A higher fill rate may indicate excess stock, while a lower fill rate could lead to potential shortages. Monitoring your fill rate will help you identify demand patterns and determine how much safety stock you need for items with erratic demand or unstable supply. Delays in receiving goods from suppliers can affect your company's ability to fulfill customer orders.
Replenishment cycle KPIs indicate how long it takes to restock inventory after sales. They will inform demand forecasting and impact lead times, backorders, overstocking, demand variability, and supply chain efficiency. A long replenishment cycle indicates that you should account for demand fluctuations. Accounting for seasonal patterns and trends will enable you to optimize your inventory and replenishments.
KPIs indicating how well your suppliers keep up with your needs will affect your demand forecast. Unreliable lead times or stock quantities can result in stock-outs and delays in filling customer orders. Variability because of supplier performance can disrupt your supply chain and call for adjustment of your demand forecasting. Subpar product quality from suppliers will cause returns and reduced demand. Fluctuating costs due to supplier issues will further impact consumer demand and purchasing behavior.
Supply chain demand forecasting techniques in Dynamics 365
You can optimize your supply chain planning by combining qualitative and quantitative techniques. You can enhance supply chain planning and improve inventory, production, and procurement strategies to meet customer demand effectively. Knowing the difference between the two techniques will impact the success of your supply chain demand forecasting, regardless of your industry.
rely on historical data and trends to predict future demand. Analyzing patterns and trends in previous sales data will inform your demand forecast by identifying seasonal variations and consumer behavior.
rely on expert opinions and market research. Insights and predictions made by industry leaders based on their knowledge and experience can inform your supply chain planning. Market research gathers data on consumer behavior, economic indicators, and competitor analysis to help make accurate demand forecasts.
Additional techniques for improved forecasting in Dynamics 365
allows you to forecast demand under various scenarios. Planners can determine the potential impact of changes in variables such as pricing, marketing strategy, or external factors.
Segmenting customers based on demographics, purchasing behavior, and preferences. By analyzing the patterns, planners can forecast demand for different customer segments.
Leading market indicators
This technique involves understanding and observing leading indicators influencing demand. For instance, tracking consumer confidence, employment rates, and housing market trends can provide insight into future demand patterns in retail.
Advanced analytical techniques and machine learning algorithms analyzing large datasets will help you identify patterns and better predict future demand.
It may be advisable to use a hybrid approach, leveraging the impact of various techniques. Select techniques that will align with your business goals and available data.
Tips for improving supply chain demand forecasting in Dynamics 365
Collaborate with customers
Stay close to your customers, note their behavior, build relationships, leverage customer data, and involve them in the forecasting process. Integrate customer data from sales records, loyalty programs, online transactions, etc., into forecasting models for data analysis. This customer-centric approach ensures supply chain operations align with customer needs.
Improve supplier relationships
Balancing inventory levels with supply and demand is complex. A good working relationship with your suppliers will help. See if they can stabilize lead times. Suppliers also have challenges, so keep in touch to better grasp what's happening on their end. With real-time information, you can make adjustments as needed. With demand forecasting, you can also inform them when your needs will change so they can work that into their plans.
Regular review is crucial for improving demand forecasting. Reviewing forecast accuracy, tracking actual demand against forecasted demand, and analyzing the reasons for any discrepancies can help identify areas for improvement.
Use predictive planning software
Invest in supply chain technology that uses advanced analytics and machine learning algorithms. These tools analyze historical data, identify patterns, and make better predictions, improving forecasting accuracy.
Netstock elevates demand forecasting for Dynamics 365