4 Best Methods for Demand Planning and Forecasting in 2022

4 Best Methods for Demand Planning and Forecasting in 2022

CEO & Co-Founder at Flieber

How many units of your top-selling product are you going to sell tomorrow? Next week? What about four months from now? If you’re not 100% sure (and confident) in answering any of these questions, stick around: You’ve come to the right place. 

Sometimes, demand planning and forecasting can feel a bit like you’re supposed to be predicting the future like Nostradamus. You need to account not only for the number of customers who will want to purchase each product in your catalog but also for your suppliers’ timelines, your warehousing space, your transportation timelines, and more. Though this can feel overwhelming, it is far from impossible when you have the right methods and processes. 

Let’s discuss four different methods you can use for demand planning and inventory forecasting in the current environment. For each, we’ll discuss the pros and cons, helping you to choose the method that works best for your business. 

 

The Importance of Demand Planning and Forecasting

You will first need some baseline knowledge to pick your ideal method for demand planning and forecasting. First, what are demand planning and forecasting? Demand forecasting is the process of predicting consumer demand. This process allows you to plan your replenishment timelines, so you always have the proper inventory in place to meet demand. 

Related: 4 Best Demand Planning Dashboards (With Good and Bad Examples)

When you implement strong demand planning processes, your business can enjoy benefits like:

  • Stockout prevention: When you know how much stock you need on hand to meet upcoming demand, you lower the risk of running out of stock. Fewer stockouts means more sales and happier customers. 

  • Reduced storage costs: Better demand planning means less overstock. When you don’t need space for items that aren’t selling, you can reduce your warehousing costs. 

  • Optimized supply chain: Get your supply chain moving like a well-oiled machine by increasing your visibility into its inner workings. 

  • Improved customer experience: When you always have the products you promise in stock, you’ll gain loyal customers more easily.  

  • Increased profit margins: More efficient inventory processes allow you to minimize costs and maximize profits. 

If you’re interested in achieving these benefits for your business, you can make that a reality by implementing one or more of the demand planning and forecasting methods in this post.

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1. Historical Data Method  

The historical data method is the first method you may consider for your demand planning and forecasting processes. In this method, you’ll examine historical sales data to predict how many units you’ll need in the future based on the number you sold in the past.

Strengths of the Historical Data Method:

The historical data method is based on real customer insights, which makes this method feel very grounded. Additionally, the data is easy to understand and built on information that you already have in your sales system.

The more accurate and stable your historical data, the better predictions and estimates you’ll be able to achieve with this method. 

Weaknesses of the Historical Data Method:

Though the historical data method has its advantages, it also has some shortcomings. Firstly, this method doesn’t account for factors like past stockouts, seasonality, surges due to new product launches, or competitor actions. 

Related: Seasonality Forecasting: Know Exactly When To Push Sales (And When Not To)

In short, the historical data method provides a vital piece of the puzzle but ultimately doesn’t give you the full picture. 

 

2. Market Research Method  

Next, you may choose to use the market research method for demand planning. This method relies on data obtained through customer surveys. You can survey your business’s customers to get demographic information, opinions, and other data that can help you decide what to stock in the future. 

Strengths of the Market Research Method:

One strength of the market research method is that it relies on real customer insights to make decisions about the future of your inventory. Rather than just looking at past trends, this method allows you to gain insight into future trends you may have missed.

Additionally, the market research method is a plus for customer satisfaction simply because surveying your customers about your product line shows them you care about them enough to ask. 

Weaknesses of the Market Research Method:

The market research method comes with several downsides attached. Firstly, this method is very time and resource intensive. The time and effort required to survey customers and compile results means this method is impossible to manage continually. 

Additionally, the data you’ll receive in this method is self-reported, which is inherently biased. Just because a customer says they plan to purchase something in the near future doesn’t mean they’ll follow through on that statement. 

This method doesn’t account for actual sales numbers or trends. While this method can be a useful temperature check, you should not use this as your only method of demand planning. 

 

3. Econometric Method 

Method number three that you can use for demand planning and forecasting is the econometric method. This method is a mathematical-based process that combines sales data with outside data known to impact purchasing decisions. For example, you may include trends like personal debt levels, local income rates, and more in your calculations.

Strengths of the Econometric Method:

This method has numerous strengths. When you use the econometric method, you are accounting for past sales data like in the historical data method, but you are able to combine this data with external factors that may impact a customer’s desire to purchase in the future. 

Weaknesses of the Econometric Method:

The main downside of the econometric method for demand planning is that it is time-consuming and challenging to calculate by hand. If you are manually planning for demand, you may not want to pursue this method as you risk human error in your calculations. 

 

4. Algorithm-Based Tool Method 

The algorithm-based tool method is the last method you may choose for your demand planning and forecasting efforts. With the help of a demand planning tool, you’ll be able to forecast your inventory efficiently and effectively. 

Related: Inventory Forecasting Software: Roundup & Review of the Best Solutions

Strengths of the Algorithm-Based Tool Method:

The algorithm-based tool method boasts numerous advantages. Firstly, the predictions created by this method are based on real data. This data includes historical data, current trends, demographics, and more. 

You can also work with an advanced tool like Flieber that uses machine learning to improve forecasting and ensure accuracy. But, of course, nothing is ever one hundred percent predictable. That’s why Flieber lets you make real-time adjustments to your forecasts in the event of supply chain disruptions and emergencies. 

Weaknesses of the Algorithm-Based Tool Method:

The chief weakness of the algorithm-based tool method is that investing in an inventory planning tool can feel costly upfront. Fortunately, if you choose the right tool the upfront cost will be more than offset with the improved efficiencies in your inventory management and demand planning processes.

 

Demand Planning and Forecasting the Simple Way 

As you may have guessed, there isn’t one “best” method for demand planning and forecasting. The true best method in this post is to use a combination of all the tools and methods at your disposal to make the best demand forecast possible.

Flieber’s algorithm can help you make the best decisions possible concerning inventory replenishment and planning. Flieber helps you monitor operations, sales, and marketing data so your forecast and recommendations accurately represent historical and current sales and inventory available, accounting for both in-production and in-transit units.

To see how Flieber can help you optimize your demand planning and forecasting processes, schedule a demo of our solution today!

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