Demand Forecasting for Food Manufacturers
How an accurate estimation of the future demand can reduce wastefulness
In this post we’ve talked about the demand forecasting for manufacturing. But now, let’s go in deep considering one of the biggest industry in the manufacturing area, the food industry, with more than 2 trillion dollars of sales in the United States in 2016. Like in the other manufacturing areas, all the activities of the supply chain are managed and planned following an estimation of the future demand the manufacturer aims to satisfy, in order to avoid losing sales and even customers. However, in the food industry, there is another big challenge besides meeting the demand and avoiding extra levels of stock, for which demand forecasting could be crucial: the short perishability of goods.
That is, when an expiration date is assigned to a product, the time spent on a shelf or in a refrigerator affects negatively its duration. Thus, the stock cost is not the sole problem in this case. So, in the food industry, the production of goods have to reflect the incoming demand, since the out of stock scenario is not desirable and goods should be sold at the beginning of their lifetime, without stocking them one upon the other over time.
However, this is a really hard goal to reach for manufacturers and production planners. A demand forecasting tool can address such problem, although it couldn’t solve it at all (unless it makes use of a crystal ball). It’s important to keep in mind that perfection is not the point in this case, since it is unreachable. In this case, the only thing which really matters is to gradually reduce the waste of goods with a more accurate estimation of the future demand.
A more accurate estimation of the future demand leads to a better inventory optimization of raw materials from one hand and to a production planning which optimizes the stock levels of finished products from the other hand. Thus reducing lost sales and too-long-stock-time of goods with a short perishability.
This is why a demand forecasting tool can be useful for an improved supply chain management.