Demand planning and forecasting is a field of predictive analytics and, as its name refers, it is the process of estimating the forecast of customer demand by analyzing historical data.
Organizations use demand forecasting methods to avoid inefficiencies caused by the misalignment of supply and demand across the business operations.
The aim of demand planning and forecasting is to improve the supply chain processes. It also helps to determine parameters like inventory, purchase, and replenishment. It all boils down to striking a balance between having the right amount of stock by making correct estimations of future sales.
When the demand rises above the expected levels, it may result in an out-of-stock situation. Eventually, this leads to reduced customer service levels and customer satisfaction, resulting in a loss of customers.
When the demand is lower than forecast, it will result in excess inventory stock. This may result in a loss of capital immobilized on slow-moving inventory.
The negative consequences of poor demand planning, when a business fails to anticipate demand, include:
Overstocking
Understocking
Inability to spot demand patterns
Inventory mismanagement, causing cash-flow issues
Poor sales and operation process, managing back-order items
