Demand
for the product is the basis for the sales plans,
as well as supply chain planning. Once the demand
is determined it is possible to estimate market
share and potential sales volume. Demand forecasting
is also basis for supply chain activities.
Procurement, production, warehousing and
distribution depend on total potential volume,
average cycle volume as well as maximum demand
peaks.
The
first point in estimating demand is estimation of
macro economical trends. Second phase is
estimation of demand of specific branch and
consumer group that is the area of interest for
company. Finally, estimation is done for the
potential sales volume of the company. Sales
estimate is based on historical sales, current
market share and trends. The external data are
acquired by market surveys, interviews and
official governmental statistic. Since most of the
companies sell many products in different product
categories, analysis is done for the each category
separately.
There
are various inputs for calculating of the demand
forecasting:
Historical trends
Cyclic oscillations
Following of major economic indicators
Economic models that includes factors of demand
elasticity
Tracking the basic sales determinants (prices, income, substitutes and preferences
)
The
estimation of sales demand is basis for setting
the sales plan on the monthly and annual level.
The sales plan is developed on the annual level.
The sales plan is further developed by time
period, usually weeks, months, quarters and
annual. During the sales planning process the plan
is developed for the every individual SKU. The
factor of seasonal and periodical variation is
taken into account. For example, the soft drinks
have 3 times greater sales volume during summer
than during the winter. The alcoholic beverages
with high alcohol content usually have opposite
seasonality. Commodities like bread or milk have
significantly smaller fluctuation between
different time periods.
Finally,
the sales plan is the base for the whole process
of business planning. Based on demand forecasting the
procurement is developing the plan of acquiring
raw materials, according the period volumes. The
manufacturing is preparing capacities, machinery,
production shifts and maintenance based on sales
demand. The warehouse is preparing capacities,
forklifts, if necessary seasonal rented
warehouses. The distribution is planning the
vehicle fleet according the demand. If it is
necessary, the part of the demand for the vehicle
fleet is outsourced.
As
it is obvious, the demand forecasting is starting point
for the activities among the whole organization.
Since inaccuracies can lead to overstocks and
write offs on one side, or stock outs on the other
side, the sales forecast is should be aligned on
the cross functional level.
