{"id":6584,"date":"2020-10-13T08:11:58","date_gmt":"2020-10-13T08:11:58","guid":{"rendered":"https:\/\/www.mrpeasy.com\/blog\/?p=6584"},"modified":"2024-06-03T13:59:06","modified_gmt":"2024-06-03T13:59:06","slug":"demand-forecasting","status":"publish","type":"post","link":"https:\/\/www.mrpeasy.com\/blog\/demand-forecasting\/","title":{"rendered":"What Is Demand Forecasting and What Can MRP Software Do With It?"},"content":{"rendered":"\n<p>Demand forecasting could be the key to a business\u2019s future. But how does it work and how could it be leveraged in a way that would be most beneficial?<\/p>\n\n\n\n<!--more-->\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"995\" height=\"585\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecasting-e1602571151186.jpg\" alt=\"demand-forecasting\" class=\"wp-image-6585\" srcset=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecasting-e1602571151186.jpg 995w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecasting-e1602571151186-300x176.jpg 300w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecasting-e1602571151186-768x452.jpg 768w\" sizes=\"auto, (max-width: 995px) 100vw, 995px\" \/><\/figure>\n\n\n\n<p><em>You can also listen to this article:<\/em><\/p>\n\n\n\n<iframe loading=\"lazy\" title=\"What Is Demand Forecasting and What Can MRP Software Do With It?\" allowtransparency=\"true\" height=\"150\" width=\"100%\" style=\"border: none; min-width: min(100%, 430px);\" scrolling=\"no\" data-name=\"pb-iframe-player\" src=\"https:\/\/www.podbean.com\/player-v2\/?i=srucp-f33fc1-pb&amp;from=pb6admin&amp;download=1&amp;share=1&amp;download=1&amp;rtl=0&amp;fonts=Arial&amp;skin=1&amp;btn-skin=3\"><\/iframe>\n\n\n\n<h2 class=\"wp-block-heading\">What is Demand Forecasting?<\/h2>\n\n\n\n<p>Demand Forecasting is a process whereby companies predict the demand for products. These estimations of future demand anticipate customer behavior and purchase decisions based on both historical data as well as other inputs from across the organization.<\/p>\n\n\n\n<p>Understanding what to manufacture goes beyond planning the production floor.&nbsp;Of course, there are sales and marketing efforts to inform people of products and collect sales dollars from them.&nbsp;But another important endeavor for any manufacturing company is centered upon demand forecasting.<\/p>\n\n\n\n<p>Demand Forecasting is important to any operation because it helps leaders and decision-makers determine the best strategy for operating their business and in <a href=\"https:\/\/www.mrpeasy.com\/production-planning\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"planning production (opens in a new tab)\">planning production<\/a> to meet demand.&nbsp; <\/p>\n\n\n\n<p>Demand\nforecasting is important because:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong><em>It helps plan budgets and negotiate\nsupplier contracts<\/em><\/strong>. &nbsp;By predicting future demand, a\nfactory can set strategies and develop a transparent and manageable supply\nchain system.<\/li>\n\n\n\n<li><strong><em>It helps improve inventory turns and optimize inventory<\/em><\/strong>.\u00a0 With an accurate demand plan, companies can increase the \u201cturns\u201d on their inventory.\u00a0 This allows the business to run with the minimal amount required to ensure production yet prevent <a href=\"https:\/\/www.mrpeasy.com\/blog\/stockout\/\" target=\"_blank\" rel=\"noreferrer noopener\">stockouts<\/a>.\u00a0 This frees up cash flow and working capital as well as reduces holding costs \u2013 both key concerns for small and medium-sized businesses (SMB).<\/li>\n\n\n\n<li><strong><em>It helps identify constraints to\nsupply and manage bottlenecks, and proactively decide on tradeoffs.<\/em><\/strong>&nbsp;\nBy identifying constraints early, factories can develop plans to manage\ncritical bottlenecks or understand and decide upon tradeoffs.<\/li>\n<\/ol>\n\n\n<div class=\"banner-v2\">\n    <p class=\"banner-v2__desc\">Easily and accurately plan production with MRPeasy<\/p>\n    <a class=\"banner-v2__link\" href=\"https:\/\/www.mrpeasy.com\/sign-up\/\" target=\"_blank\" data-ga-event=\"blog_signup_banner_blue\">Try for free<\/a>\n<\/div>\t\t<style>.banner-v2 {\n    float: right;\n    display: flex;\n    flex-direction: column;\n    justify-content: center;\n    align-items: center;\n    padding: 40px 32px;\n    gap: 16px;\n    width: 356px;\n    height: 205px;\n    background: linear-gradient(199.68deg, #6084E5 13.17%, #5FA7DD 82.1%);\n    border-radius: 4px;\n    margin-left: 12px;\n    margin-bottom: 12px;\n    margin-top: 15px;\n}\n\n@media (max-width: 767.98px) {\n    .banner-v2 {\n         width: 100%;\n         height: 173px;\n         margin-bottom: 0;\n         margin-left: 0;\n    }\n}\n\n.single__content p.banner-v2__desc {\n    margin: 0 !important;\n}\n\np.banner-v2__desc {\n    width: 292px;\n    font-style: normal;\n    font-weight: 700;\n    font-size: 22px;\n    line-height: 29px !important;\n    text-align: center;\n    color: #FFFFFF;\n    margin: 0 !important;\n    order: 0 !important;\n}\n\n.single__content a.banner-v2__link {\n    color: #FFFFFF !important;\n}\n\n.single__content a.banner-v2__link:hover {\n    color: #003557 !important;\n}\n\na.banner-v2__link {\n    display: flex;\n    justify-content: center;\n    align-items: center;\n    width: 181px;\n    height: 51px;\n    padding: 18px 0;\n    border-radius: 4px;\n    background: #003557;\n    font-weight: 700;\n    font-size: 16px;\n    color: #FFFFFF !important;\n    text-decoration: none !important;\n    order: 1 !important;\n}\n\n.banner-v2__link:hover {\n    background: white;\n    color: #003557 !important;\n}<\/style>\n\t\t\n\n\n<h2 class=\"wp-block-heading\">How Demand Forecasting works<\/h2>\n\n\n\n<p>Demand Forecasting works by pulling in data from across the operation.&nbsp;This may include data from production, sales, scheduling, marketing, and finance.&nbsp;These variables are weighed against performance expectations historically to gauge where demand will be over time.&nbsp; <\/p>\n\n\n\n<p>Plans may\nrange from a few weeks to a few months and even years for long-range\nforecasting.&nbsp; However, the longer the\ntimeframe, the less accurate they become.<\/p>\n\n\n\n<p>Data for Demand\nForecasting is gathered in several ways:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">History<\/h3>\n\n\n\n<p>One of the\nmost common ways to assess demand is through consumption-based planning.&nbsp; <\/p>\n\n\n\n<p>This method\nis simple and easily implemented and requires only that a company look at past\ndata to determine future demand.&nbsp; <\/p>\n\n\n\n<p>Consumption-based\nsystems can be manual, but they do not utilize real-time information.&nbsp; <\/p>\n\n\n\n<p>If demand\nbecomes volatile due to major disruptions, consumption-based systems may have a\nhard time adequately ramping up production (causing stockouts) or trouble reducing\nproduction and incoming supply (creating excess inventory and tying up cash).<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Surveys<\/h3>\n\n\n\n<p>Another\ntraditional method of gauging demand is through marketing surveys.&nbsp; <\/p>\n\n\n\n<p>This means that sales and marketing staff conduct written or verbal surveys to understand current demand and to predict the demand for future or new products.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Retailers <\/h3>\n\n\n\n<p>Many factories may rely upon their retail customers to supply them with demand data.&nbsp;Most retailers today have sophisticated software for demand planning, and they can share this data with the factory. <\/p>\n\n\n\n<p>This can also help companies standardize product lines to streamline efficiency or understand when and what to offer for new products.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Demand software<\/h3>\n\n\n\n<p>The growth of cloud computing has seen the rise of demand planning software. These platforms take all the inputs above and use advanced algorithms and analytics to produce demand forecasts that are based on real-time data. It allows the use of all data types and is inherently more accurate because of this.<\/p>\n\n\n\n<p>It is also\nless prone to errors and tends to make supply chain issues more transparent to\nall stakeholders improving collaboration with vendors.<\/p>\n\n\n\n<p>Regardless of the method, or combination of methods, demand forecasting requires that these variables be put into a forecast over time. Timeframes may vary and decision-makers must use the information to develop schedules and strategies required to ensure that production can meet demand.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How MRP software works with Demand Forecasting data<\/h2>\n\n\n\n<p><a aria-label=\"MRP software (opens in a new tab)\" href=\"https:\/\/www.mrpeasy.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">MRP software<\/a> is not at odds with forecasting data or forecasting software. In fact, the two work well together.&nbsp; <\/p>\n\n\n\n<p>Using demand forecast data can enhance the value of MRP software by improving efficiency, usage, inventory requirements, and purchasing functions.<\/p>\n\n\n\n<p>Here are\nsome examples of how MRP software works with demand forecast data:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">BOM functionality<\/h3>\n\n\n\n<p>MRP software is intricately tied to <a href=\"https:\/\/www.mrpeasy.com\/blog\/bill-of-materials\/\" target=\"_blank\" rel=\"noreferrer noopener\">Bill of Materials (BOM)<\/a> management, used to calculate material requirements.&nbsp; <\/p>\n\n\n\n<p>It may even use a multi-level BOM that helps lay out quantities of materials, costing, and other relevant information so the product can be produced accurately on the production floor. <\/p>\n\n\n\n<p>Even the\nmost general forecasting methods use specific finished goods forecasts that can\nbe matched to a BOM, and then \u201cexploded\u201d to all required parts which need to be\nprocured.&nbsp; <\/p>\n\n\n\n<p><em><strong>Example<\/strong><\/em><strong>: <\/strong><\/p>\n\n\n\n<p>If a\nmanufacturer of microwaves forecasts finished goods for a specific model, the\nMRP software will use BOMs and routings to ensure that model is made according\nto forecast, at the right time, and in the right quantities.&nbsp; <\/p>\n\n\n\n<p>In case a forecasting software is used, then the two help to make sure that the supply chain, production plan, and expected demand match.&nbsp; <\/p>\n\n\n\n<p>This can be done even with multi-level BOMs down to the last screw, bolt, and hinge so that the factory floor can manufacture efficiently.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"461\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecast-microwave-1024x461.png\" alt=\"demand-forecast-microwave\" class=\"wp-image-6591\" srcset=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecast-microwave-1024x461.png 1024w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecast-microwave-300x135.png 300w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecast-microwave-768x346.png 768w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecast-microwave.png 1204w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\"><strong>An MRP system can be used to automatically create MOs according to the forecast.<\/strong><\/figcaption><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\">Date of order <\/h3>\n\n\n\n<p>BOM\nexplosion results in total materials requirements when rolled in with sales\ndata and actual orders.&nbsp; <\/p>\n\n\n\n<p>Forecasting\ndata can be applied to help understand the date that materials need to be\nordered, and not only to produce the current orders with material on-hand. <\/p>\n\n\n\n<p>MRP software can also <a href=\"https:\/\/www.mrpeasy.com\/procurement-software\/\" target=\"_blank\" rel=\"noreferrer noopener\">calculate purchase requirements<\/a> considering already available material, and even material which is on order but not yet received.<\/p>\n\n\n\n<p>By using MRP\nsoftware with forecast data, the optimum order date for materials can be\nderived to keep production running smoothly.<\/p>\n\n\n\n<p><em><strong>Example<\/strong><\/em><strong>: <\/strong><\/p>\n\n\n\n<p>If the manufacturing of 500 coffee tables per month is required for the current order backlog, then a procurement schedule is produced, which allows running at that rate. <\/p>\n\n\n\n<p>However, if the forecast shows demand signals due to a holiday season that point to a total demand of 575 units per month, 75 more, then MRP software can generate additional purchase requirements for materials, and tell you when these must be ordered.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"438\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecasting-coffee-tables-1024x438.png\" alt=\"demand-forecasting-coffee-tables\" class=\"wp-image-6593\" srcset=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecasting-coffee-tables-1024x438.png 1024w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecasting-coffee-tables-300x128.png 300w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecasting-coffee-tables-768x329.png 768w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/demand-forecasting-coffee-tables.png 1866w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\"><strong>An MRP software will tell you when to order missing parts at the latest, plus it could be used to automatically generate purchase orders.<\/strong><\/figcaption><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\">Material arrival <\/h3>\n\n\n\n<p>One\nadvantage demand forecasting gives to MRP software is in the arrival of\nmaterial. <\/p>\n\n\n\n<p><a aria-label=\"Supply chain management (opens in a new tab)\" href=\"https:\/\/www.mrpeasy.com\/blog\/supply-chain-management\/\" target=\"_blank\" rel=\"noreferrer noopener\">Supply chain management<\/a> is an intricate balance of lead times. And when ordering materials based on a demand forecast, a complete BOM may have wildly variable lead times for its components. <\/p>\n\n\n\n<p>Using demand\nforecast data helps MRP software plan production floor activities to leverage\nand optimize these delivery dates.<\/p>\n\n\n\n<p><em><strong>Example:<\/strong><\/em><strong> <\/strong><\/p>\n\n\n\n<p>For a make-to-stock product such as headphones, certain components such as shell, nuts, bolts, and screws may come in locally on a short lead time, while electronic components may come from overseas on a much longer lead time of weeks and months. <\/p>\n\n\n\n<p>Having the\ncorrect demand forecast data allows managers to plan for the arrival of short\nlead time material closer to the delivery date of longer lead time material. <\/p>\n\n\n\n<p>This allows MRP software to produce production schedules to take capacity, labor, and inventory into account and to order materials at the right velocity to match delivery lead time.<\/p>\n\n\n<div class=\"banner-v1\">\n    <div class=\"banner__text\">\n        <div class=\"banner-v1__title\">Take the next step in managing your manufacturing company<\/div>\n        <div class=\"banner-v1__desc\">MRPeasy integrates sales, purchases, production, inventory, and finances to provide you with an accurate real-time overview of your business.<\/div>\n        <div><a class=\"banner-v1__link\" href=\"https:\/\/www.mrpeasy.com\/sign-up\/\" target=\"_blank\" data-ga-event=\"blog_signup_banner_white\">Try for free<\/a><\/div>\n    <\/div>\n    <div class=\"banner__img\">\n        <img decoding=\"async\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/themes\/mrpeasy\/assets\/images\/banner.svg\" alt=\"banner\">\n    <\/div>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p>Demand forecasting is a useful tool that can help businesses attain optimal inventory levels, efficient purchasing practices, and overall better supply chain management capabilities.<\/p>\n\n\n\n<p>When used in conjunction with MRP software, it can improve the efficiency and cash flow of your business by providing the necessary functions to utilize the data and use it to plan production better.<\/p>\n\n\n\n<p>By making the supply chain more transparent, it could also allow for better negotiation terms with suppliers.<\/p>\n\n\n\n<p><em>You may also like: <a href=\"https:\/\/www.mrpeasy.com\/blog\/5-tips-for-making-material-planning-more-effective\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"5 Tips for Making Material Planning More Effective (opens in a new tab)\">5 Tips for Making Material Planning More Effective<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Demand forecasting could be the key to a business\u2019s future. But how does it work and how could it be leveraged in a way that would be most beneficial?<\/p>\n","protected":false},"author":4,"featured_media":6585,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[96,93,384],"tags":[387,50,77,4,32,17,18,169],"class_list":["post-6584","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-inventory","category-production-planning","category-supply-chain-management","tag-demand-forecasting","tag-inventory-management","tag-manufacturing-erp","tag-manufacturing-software","tag-mrp-software","tag-mrp-system","tag-production-planning","tag-supply-chain-management"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Is Demand Forecasting and What Can MRP Software Do With It?<\/title>\n<meta name=\"description\" content=\"Demand forecasting could be the key to a business\u2019s future. 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