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May 27, 2020

Demand Forecasting: A Must for the CPG Industry

  • Competition
  • Consumer demand
  • Global supply chains
  • Adapting to change

These are all challenges that leaders in the Consumer Packaged Goods (CPG) business face daily, even without a pandemic in the midst. For as long as the industry has been around, using forecasts and predictions to help inform decisions has been a staple. Now, in today’s globalized and digital age, modern demand forecasting has never been more critical and essential for a CPG manufacturer’s success.

 

The Challenges Facing CPG

The CPG industry is a tough one. No matter what is happening in the world, the demand for food, drinks, household goods, and more is ever present—and so is the competition. After all, CPG is one of the largest market sectors in North America, and this two trillion dollar industry is saturated with brands and companies all trying to get their products off the shelves and into consumers’ homes.

 

Making things even more difficult for the CPG manufacturer is the constant need to be adaptable. More than nearly any other market, CPGs operate on the edge, having to respond to unforeseen market changes and trends in real time. And, in a time when supply chains are global, an unexpected disruption halfway across the world can have an impact on their bottom line.

 

New products are released. Consumer demand shifts. Supply chains are disrupted. If a manufacturer fails to keep up, the consequences are high because, for the consumer, switching costs are low. If one brand fails to meet the consumers’ needs and expectations, there are a dozen more waiting to fill the gap. As a business leader, knowing what to do and when in order to stay ahead of the competitors can be difficult. This is where demand forecasting and robust analytics come in—providing the exact information that a business leader needs to keep ahead.



What is Demand Forecasting?

In a nutshell, demand forecasting is the process of taking known data points from across the supply chain and conducting statistical analyses to predict future trends and outcomes. By changing the input values to reflect potential decisions to be made, possible outcomes can be researched so leaders can make better-informed decisions. From the source materials to the point of sale, data is produced throughout one’s supply chain. Demand forecasting can take all of that information, infuse it with seasonal trends and known consumer behavior, and produce insights that leaders can use to shape their business strategy and key decision-making.

 

While there are many types of demand forecasting models based on a business’ exact needs, industry leaders agree that supply chain analytics and demand forecasting are not only the future of CPG, but have also become critical business intelligence tools across every market. Deloitte stated in their 2020 outlook for CPG trends that, “Developing data analytics and intelligent decision-making capabilities” and “leveraging consumer insights to guide investment decisions” are two critical components for any CPG manufacturer to see continued success in this new digital era. That is exactly what demand forecasting accomplishes.

 

How Demand Forecasting Helps CPG

For all the challenges that the CPG industry faces, demand forecasting can help. Whether a business needs to streamline, reallocate resources, or find alternative sources and products to pivot around disruptions, demand forecasting can provide insights to help answer all of these problems and more.

 

  1.  Inventory Allocation
    Getting products into stores and on the shelves is how sales are made. Knowing how much inventory to send to which stores, however, can be tricky. Brands do not want to sell out at one store while excess inventory is incurring storage costs at a warehouse or, worse, creeping ever closer to a spoilage or expiration date.

    Demand forecasting can establish trends to help a manager predict how much inventory is likely to be sold at various locations—taking into account seasonal trends, major recurring events, and other factors. The forecasting tool used at Crisp allows business leaders to tailor these forecasts down to the specific store for highly-customized and accurate predictions.

  2.  Planning
    In January 2020, the US economy was at an all-time high, unemployment was at an all-time low, and the outlook was good for many manufactures and brands. Three months later, those highs and lows were switched when the stock market plummeted and unemployment swept the globe as a result of COVID-19. For CPG manufacturers, consumer demand for products was still there, but both consumer behavior and supply chain availability was heavily altered. Business leaders across the board had very little time to react to such an unexpected global event, even more so for those who already work with short timelines and operate on the edge with little ability to plan far into the future.

    Demand forecasting helps make adaptability and pivoting to unforeseen problems easier. Crisp’s tool provides instant predictions, allowing businesses to make multiple, rapid forecasts to quickly test out various scenarios and make smart, dynamic decisions. Disruption cannot always be avoided, but it can be mitigated.

  3. Adapt to Product Variation
    Beyond the global crises, CPGs need to adapt to changing products and evolving consumer demands. SKUs change, current products are tweaked, and new products are constantly hitting the market. Additionally, a consumer behavior study by Deloitte found that there is a growing demand among consumers for customization and personalization options for every product to better suit their individual needs.

    All of these factors add complexity to an already sprawling supply chain. Managing all the varying data is challenging enough. Keeping up with the constant changes and options in products to decide what changes one’s company needs to make is even tougher. This is another key benefit of a good forecasting model. For example, Crisp’s demand forecasting tool allows the user to generate forecasts for brand-new products that have just hit the market, using a robust archive of existing data on current, related products that  allow decision makers to determine whether to adopt a new product, feature, or option that may be in demand by the consumer.

Conclusion

Demand planning can seem difficult to do quickly and efficiently - but it doesn't have to be. The availability of data and cloud computing power in today’s day and age means that demand forecasting can be used as a tool for every business moving forward. These predictions are especially useful for the dynamic and ever-challenging world of CPG. To learn more about how you can use supply chain analytics and forecasting tools like Crisp to enhance your business potential, contact us today and book a demo.




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