Forecasting horizons: Optimizing the supply chain with predictive models.

Forecasting horizons: Optimizing the supply chain with predictive models.
Imperia Article
Published: 16/8/2023

Effective management of forecast horizons is essential in the supply chain. Demand forecasting systems are an essential tool for supply chain resource planning. They help manage uncertainty and variation in demand, ensuring consistent coverage.

In this article, we will discuss how to apply demand forecasting models across different planning horizons and their benefits throughout the supply chain.

Stages of predictive demand planning

Using a forecasting model to plan for future demand is an ongoing process. This involves constantly enriching the model with real-time data to make more accurate predictions and achieve more realistic planning.

The following are the different stages of predictive demand planning:

  1. Data collection, validation and adjustment:
  2. Initially, data relevant to the model, such as sales history, point-of-sale visits and market trends, are collected.

  3. Generation of demand forecasts:
  4. The demand periods to be forecast (short, medium or long term) are then adjusted and the future demand forecasts are compiled.

  5. Application of business intelligence:
  6. Once demand forecasts are obtained, this new knowledge is integrated into operational processes. This guarantees informed decision support and ensures continuity of services.

  7. Generation of the demand plan:
  8. At this point, an optimal demand plan is created that spans several planning horizons in the supply chain. This section is explained below.

  9. Evaluation and analysis of results:
  10. Finally, the results are evaluated: Was the demand forecasting model accurate, at what points were there deviations, and how large were they? These comparative data, together with the key performance indicators obtained, are incorporated into the model to improve it and make it increasingly accurate.

Demand plan applied to different forecasting horizons

Forecasting horizons: demand planning

Immediate horizon: Operational planning

In this period, constant vigilance is key to making reactive decisions in real time. Demand forecasting models come into play, collecting and analyzing crucial data, from sales history to market trends. Accurate data collection and correction are essential to building a robust model.

Once the data is polished, the model generates predictions of future demand that become the compass for daily operational planning. By aligning sales flow with production operations and automating supplier orders, companies can optimize their resources and maintain adequate inventory levels.

Medium-term horizon: tactical planning

On the media horizon, we are moving towards emerging trends. Monitoring market trends is essential to anticipate events and prepare proactive strategies. This is where forecasting models become valuable tools to identify patterns and opportunities over the horizon of several months to a few years.

The information is transformed into mature reports and value-added analyses. These reports are essential to inform management and the board of directors in defining company strategy. By taking advantage of market trends and adjusting strategy accordingly, organizations can prepare for the future with confidence.

Long-term horizon: Strategic planning

Finally, we talk about long-term horizons, where the possible scenario that awaits the supply chain in 15 years or more is explored. Here, the application of predictive models becomes a tool for strategically reorienting the company according to how the market will evolve. Strategy is not only about being the best among today's competitors, but also about shaping the company into what it aspires to be.

By addressing all three horizons of forecasting: operational, tactical and strategic, organizations can build a comprehensive strategy that spans from day-to-day operational planning to long-term transformation. Applying forecasting models at each horizon delivers significant benefits, from more efficient planning to greater stock control and increased customer satisfaction.

If your company is looking to optimize its supply chain and anticipate changing demands, implementing a demand forecasting model may be the answer. Forecasting horizons offer a solid guide to meet present and future challenges, ensuring that your organization is ready to succeed in a constantly evolving marketplace.

If you are interested in implementing a demand forecasting model in your company, ¡contact us!