How does demand forecasting influence the management of inventory along companies' supply chain ?

Demand forecasting is like the pivot point in a see-saw, with suppliers on one side and the customers on the other; warehouses, production units, wholesalers and retailers make up the rest of the chain, all of them being the reservoirs of different forms of inventories. Hence a miscalculation of demand in any place of this chain would cause an imbalance in the see saw, affecting the manufacturing time, delivery time, pricing, the brand name and most important of all, the trusted customers of the end product!

An underestimation of inventory would result in the baker giving you a cake without the cherry on the top. And an overestimate would result in him giving you one cake free! And that’s when the devil in us would say “Maybe he’s trying to give away stale cakes!”.

Excess stock would lead to bloated inventory and high cost incurred by the company. Underestimating demand means you are losing your valued customer to your competitor. Absence of any forecasting would lead to the bull-whip effect.

Hence in order to match supply and demand while minimising the errors in forecasting, it is best to follow collaborative forecasting. This would result in inventory in all parts of the supply chain less likely to sit unused and on the other hand, prevent the last minute rush orders.