How to have an effective production forecast?
“Do It Right The First Time” – determining the scientific demands is an essential basis for building a supply plan and implementing an efficient production process. Without knowledge of future demand forecasting, all the time and money invested in production planning can be wasted. By generating production demand forecasts, manufacturers can simulate market trends, enabling them to balance supply and demand.
Why is production demand forecasting so important?
More efficient production planning: Forecasting allows manufacturing companies to grasp the factors regarding customers’ demand and market forces. At the same time, meeting compliance with the availability of raw materials constitutes part of the production planning and cycle. From there, companies are able to make decisions more quickly, transparently, and flexibly to adapt to the change of environments or production plans.
Cut the cost, better inventory management and reduction: Forecasting provides manufacturing companies with clarity on the supply situation to determine raw material availability and anticipate customer purchasing habits. Based on this, the company develops a plan to purchase related materials to keep the production level sufficient. In addition to the orders being completed to meet customers’ needs, the inventory is still guaranteed to be at an optimal level.
Increase customer satisfaction: Customer satisfaction in the manufacturing industry is understood as ensuring customers “to have the right product in hand at the right time”. If we take forecasting to be a holistic method of refining, streamlining to enhance a manufacturing company’s operational and logistics fundamentals, then it makes sense how forecasting works to increase customer satisfaction and promote growth and expansion in the short, mid, and long term.
How to increase the accuracy of production demand forecasts?
Identify input data accurately: Forecasting is not a work that is magical or unscientific. In contrast, historical data on sales trends over a company’s 2-5 year period can be used to forecast future demand.
Make sure the input data source has been cleaned: It is impossible to create an accurate forecast based on sales data alone. Instead, it is necessary to identify outliers such as seasonal factors, trends, and promotions… to eliminate. There are some seasons when sales are higher or lower than others, so manufacturers need this information to develop proper production plans.
Organizational stakeholder coordination: For goods demand forecasting, it is essential to collaborate across departments throughout the manufacturing process, such as Sales and Production. For instance, a critical activity in any manufacturing company also involves planning the production and storage of goods to cope with fluctuating market demands. The production department always needs forecast information from the Sales and Marketing department to produce just enough to meet the market demand and balance the supply and demand of that product.
Take note of these before forecasting!
Short-term forecasting is more accurate than long-term forecasting: Short-term forecasting uses more quantitative data and requires less foresight than long-term forecasting. More time renders events more difficult to be predicted, such as changes in trend.
Forecasts are always subject to error: No matter how much data your business has, and how accurate it is, forecasts include assumptions, leaving room for error. Take this into account in your planning.
Aggregate forecasts are more accurate than split forecasts (disaggregated forecasts): The larger the data set, the more likely anomalies can be smoothed out.
The further away it is from the end-user in the chain, the more likely the forecast is to be biased: The further a company is upstream (away from the end-user), the more prone the information it receives is to be biased. The classic example is the bullwhip effect, where order variability is more strongly diffused as it travels from the end consumer to the top of the chain. As a result, the higher up the chain, the more margin of error the company faces.
Forecasting production needs is a fundamental premise to build the most effective production plan. Reduced supply costs, as well as increased labor productivity, will be the first benefit when your production forecast is good.
