What is the function of demand forecasting in supply chain management?

Demand forecasting plays a critical role in supply chain management by predicting future demand for products or services. Accurate demand forecasts allow businesses to plan their operations efficiently, aligning their production, inventory, and distribution processes with anticipated sales. This foresight helps companies avoid excess inventory or stockouts, both of which can lead to lost sales and increased costs.

By understanding how much of a product is likely to be needed over a specific time period, organizations can optimize their supply chain activities, from sourcing raw materials to managing logistics. This function not only improves customer satisfaction through better product availability but also enhances financial performance by minimizing waste and improving cash flow.

While evaluating supplier performance, streamlining procurement processes, and controlling inventory levels are important aspects of supply chain management, they are all influenced by the insights derived from demand forecasting. Nonetheless, the primary function of demand forecasting remains to predict future demand, enabling companies to make informed strategic decisions.