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Demand sensing is the future of short-term forecasting
February 2020
Every day companies are confronted with a universal and recurring pain point: poor forecasting. Demand forecasts are a crucial part of the planning process, and decisions based on them have repercussions all throughout your supply chain. By using demand sensing, poor forecasts can be turned into history.
For planners, the forecast is the foundation on which they make decisions, and these decisions affect the entire supply chain, including service levels, inventory and logistics costs.
Traditionally, demand plans are created using statistical forecasting models which are based on sales history data from the previous year. These plans are very accurate on a long- to mid-term horizon, but they are simply not good enough for fast-moving consumer goods (FMCG) industries.
FMCG companies must be able to make day-to-day adjustments to their replenishment plans, and they need to be able to pick up the daily, or even hourly, variations in demand. These short-term variations are impossible to integrate into traditional forecasting.
Therefore, FMCG companies need a more nuanced forecast to be able to anticipate and plan against demand variations that are going to happen in the next couple of days. This more nuanced forecast can be achieved using demand sensing – a technology that fine-tunes the forecast on the very short term.
Demand sensing takes forecasting to the next level. By fine-tuning the demand plan on the very short term, it allows us to create a significantly more accurate, detailed and responsive short-term demand plan that adapts to the reality of the supply chain. The plan is based on what happened hours or days ago, or what is just about to happen – not on what happened last year.
Demand sensing integrates the latest demand signals by considering a wide range of near real-time data from the market and your supply chain. Additionally, it can break down this adjusted demand plan into daily buckets, which supports your planners in making immediate distribution decisions.
Working with demand sensing, we can highlight three key benefits that generate a high impact.