IA-5

Inaccurate demand forecasting can lead to unwanted stock-out situations, leading to

dissatisfied customer experience and loss in terms of lost sales. Also, inaccurate
demand forecasting can lead to inventory stock pile-up situations due to which the
company’s invested capital would be blocked which could be otherwise be invested in
other business activities.
As a 1st step to finding a solution, the company should have a robust demand
management process wherein inputs shall be obtained from the sales and marketing
team as well as from the brand management organizations. The inputs can also be
obtained from several external 3rd party market research organizations. The company
can also make use of statistical analysis of past data for providing inputs. After
gathering information from various sources, demand a consensus review meeting to
be conducted with important stakeholders to moderate the entire planning process.
Thereafter, once the planning process has been moderated to the requirement of the
customer, the plan has to be communicated down the line in the organization to the
production and operations management team as well as to the supplier organizations
who will decide what to produce, what to procure for production, what items to procure
on priority, etc.
When there a change in demand, the company can experience 3 different kinds of
zones to cater to the requirements. 1st is the free zone when the company can
accommodate the change in the supply to match the demand because the company
is yet to make plans for the production to be carried out. The company will incur no or
minimal cost in this zone as there are fewer or no commitments during this period.
Then comes the 2nd zone which is the trading zone. This is the duration when the
company can make some moderate changes in the material required. The company
has to ask its supplier to change the supply of an item with the other or reduce the
supply. The company and the supplier may have to face some inventory stock pile-up
due to the changed requirement and the company may have to bear the cost. The 3rd
Pand last zone is the firm zone in which the company has to bear a very huge cost if
some change has to be made in the plan. So in this zone, there is almost no scope for
change.
The company can make use of various techniques for demand management
depending upon the volume to be produced and the demand variability. If there is high
volume involved and the demand variability is high, the company has to sit with the
customers to understand their requirements. However, if the demand variability is low,
the company can make use of various statistical techniques which are quantitative e.g.
time series analysis which uses past data to predict the future demand. However, this
method does not take into account the seasonal variations. For this, the company can
use causal methods like regression analysis, which can help predict demand based
on several independent variables, i.e. help determine a cause-effect relationship
between the variables. The causal method can also be used when past data is not
available and hypotheses/assumptions have to be formulated and validated thereafter.
Quantitative methods are used on the existing products. However, if the company
wants to develop new products, the company can also make use of qualitative
methods like market research, expert panel interview, focus group interview, Delphi
method to forecast the demand.