The Role of Forecasting in a Supply Chain

The role of forecasting in a supply chain cannot be underestimated. Forecasting (and demand planning in general) is tough to do; and yes - forecasting is always wrong. If you take a push-pull view of a firms supply chain, all push processes are performed in anticipation of customer demand, and all pull processes are performed in response to customer demand. For all push processes, a manager must plan the level of production. For all pull processes, a manager needs to plan the amount of capacity to make available. In either case, a supply chain manager must start with a forecast of what future customer demand will be.

In addition to production and distribution decisions, firms also use forecasts of future demand as the basis for other critical decisions in an overall supply chain including:

- Production: scheduling, inventory control, aggregate planning
- Marketing: sales force allocation, promotions, new product introduction
- Finance: plant and equipment investment, budgetary planning
- Personnel: workforce planning, hiring, layoffs

Ideally, decisions throughout the supply chain should not be taken in isolation by function, as they all have an influence on each other, and are best made jointly - with an overall supply chain perspective. All of these decisions are ultimately based on a future forecast of customer demand. Just because forecasting is tough to do does not diminish its importance, nor should it detract from a firms commitment to developing and maintaining the best possible forecasting methodology. The role of forecasting in a supply chain cannot be underestimated.

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