2 Introduction to demand forecasting
As highlighted in the 5-step framework above, this chapter will begin our improvement journey by discussing the objective of demand planning. Before jumping into how to make a good forecast, we need to understand why we forecast demand in the first place.
2.1 Why do we forecast demand?
Making smart decisions requires insights. Imagine you want to buy a house. You will want to know the current state of the house, if you should plan for significant expenses, the neighborhood’s current prices, how they will evolve in the future, and so on. In supply chains, most decisions—how much to buy, produce, ship, and store—rely (at least partially) on demand forecasts. As you have a better idea of your clients’ future behaviors and needs, you can make better decisions. This will ultimately result in higher service level, better production and supply plans, less waste, and lower overall costs. To summarize, as demand planners, our objective is to make the best possible demand forecasts so other teams can make better decisions.
Forecasting demand is always a means to an end, not the end itself.
The end is to help decision-makers by providing them with helpful information.