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Supply Chain Management: Effectively Forecasting Demand in 2021

Demand forecasting is imperative and plays a prominent role in a business’s overall profitability. Since forecasting is a driver for most business-related decisions, supply chain choices factor directly into those decisions and are incredibly important. Companies must work to forecast demand in 2021 to effectively maintain profitability and longevity.

As we close out the first month of 2021, it seems that this year will be just as unpredictable as 2020. This unpredictability and volatility will make demand forecasting even more challenging, but not impossible.

Companies use past sales data to predict and estimate the purchase volume of goods and services for the near future. However, thanks to the unprecedented events of 2020, even the most responsible planners never experienced disruption as major as COVID during their tenure. Therefore, using past data to predict the future may feel like less of a numbers game and more of a guessing game.

But as we know, when there is a will, there’s a way. Effective demand forecasting accelerates and improves budgeting, sales and marketing, purchasing, and even strategic planning.

Accurate forecasting can result in:

  • Purchases with more favorable terms with suppliers

  • Better allocation and use of resources

  • Improved customer service levels

  • Improved planning and strategy

  • Better organizational efficiency

  • Initiation of self-directed initiatives

While this may seem like a daunting task, here are some prominent factors that should be considered when effectively forecasting demand this year.

More sophisticated risk management

Since the pandemic exposed pre-existing cracks and vulnerabilities in the supply chain, let’s turn these revelations and lessons into action.

When businesses were exposed to these previously undetected weaknesses and had to cease operations or even shut down completely, many wondered, “How could this happen to us?” This prompted a more in-depth inspection of the supply chain. What surfaced was the realization that these business disturbances weren’t that unusual or unpredictable. They are simply the issues of running a business that can—and should be—managed just like other aspects of a successful business.

As a way to evaluate these vulnerabilities and mitigate risk, use scenario planning. To apply the scenario planning approach, write out multiple scenarios and how each would affect the business. Build out at least four different future models of the economy—an assumption based on a total cure, another based on the situation getting worse, and two other situations that would result in different reactions.

Companies often do not spend enough time or resources investing in prevention and business continuity planning. These measures are incredibly undervalued, and the pandemic demonstrated the necessity of this type of planning.

Total optimization over individual transactions

Optimization of a supply chain is the act of making the best and most effective use of the resources and needs available within the cycle.

When individual suppliers and services are not evaluated as the sum of a whole within the strategy, areas in which value and innovation can be squeezed are ignored. Valuing your entire program’s overall optimization and leaning into forecasting with that intention will result in the correct filters for making tough decisions with accurate supporting information.

Bottom-up knowledge

Many business disruptions originate lower in the supply chain where vendors or employees are quietly doing their part to avoid the troubles of everyday interactions. These ‘under-the-radar’ issues bubble up and get too large to hide or ignore when a significant shutdown is looming.

Because of these potential hidden issues, business leaders must have a 360-degree view of the supply chains’ activity. They must understand the small but critical ways individuals or third-party vendors are doing their part to ensure business continuity in the event of a disruption.

With more data analytics, dashboards, and reporting available, companies can stay in front of the seemingly nominal functions and ensure they are used to determine the supply chain forecasting plan.

There is hope...

Business forecasting in 2021 will not be easy, but it is possible. The goal is to plan by getting creative with data and dashboards, gaining a full understanding of the supply chain, and making moves for improvements and efficiency.


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