The consumer packaged goods (CPG) industry thrives on anticipating what people want — ideally before they even know it themselves. Demand forecasting, the process of predicting customer demand for products, is the key to success in this competitive landscape. It's more than just a numbers game; it's a strategic imperative that influences everything from inventory levels and production planning to revenue growth and supply chain resilience. And in a world of ever-shifting consumer preferences and near-constant supply chain volatility, getting the forecast right is more challenging than ever.
CPG companies must balance the equally critical objectives of high perfect order rates and lower overall costs. This delicate equilibrium requires timely planning, robust collaboration and rigorous adoption of sales and operations planning (S&OP). Effective S&OP is, in fact, the bedrock of accurate demand forecasting, providing the insights needed to make informed decisions across the entire supply chain while enabling tighter cross-functional integration and the agility needed to respond to volatile demand.
What can be gained
Demand forecasting excellence in the CPG space industry offers a multitude of benefits, ultimately contributing to a healthier bottom line and a more efficient supply chain. To begin, optimized product availability directly translates to increased sales as shelves are consistently stocked with the right products at the right time. Furthermore, minimized waste and enhanced product freshness are achieved through precise stock allocation, resulting in reduced spoilage.
Improved inventory turnover is another significant advantage, as less safety stock frees up valuable capital and enhances supply chain efficiency. Moreover, proactive and optimized markdowns, informed by accurate forecasts, contribute to better profit margins. Enhanced capacity usage also can be realized, as improved visibility into capacity requirements allows for proactive bottleneck resolution and streamlined operations. Finally, forecast-based shift optimization leads to reduced personnel costs in both stores and distribution centers, further contributing to overall operational efficiency.
Making it work
Demand forecasting in CPG requires a nuanced approach, blending historical analysis with a keen understanding of current market dynamics. Again, this is not merely about crunching numbers; it's about building a predictive model that reflects the complex interplay of numerous factors. To effectively implement these considerations within your own company, consider the following:
Historical demand patterns: Begin by establishing a robust data collection system to capture detailed sales data. Leverage time-series analysis techniques to identify recurring trends, seasonal fluctuations and growth patterns. Incorporate a wide range of data sources, including consumer insights, market trends and external factors. Visualize this data to gain a clear understanding of your product's historical performance.
Embrace tactical S&OP: As previously noted, S&OP is critical. Help your team shift from static, top-down planning to a dynamic, collaborative, impact-assessment-based strategy. Be sure to also define roles, responsibilities and metrics clearly for all stakeholders involved in the S&OP process. And it’s helpful to conduct more frequent planning sessions at the regional level to respond to local variations.
Maximize technology: While spreadsheets and manual calculations were once the norm, today's CPG companies rely on sophisticated software powered by artificial intelligence and machine learning. These technologies can process massive datasets, identify complex patterns and generate accurate forecasts at a granular level — by product, location and even time of day.
Internal business decisions: Create a collaborative platform where marketing, sales and product development teams can share upcoming initiatives. Integrate promotion schedules, pricing strategies and new product launch timelines into your forecasting model. Quantify the expected impact of each decision on demand.
External factors: Subscribe to reliable weather forecasting services and integrate this data into your model. Track local events and competitor activities using market research tools and news alerts. Also consider economic indicators including inflation rates and consumer confidence indices.
Consumer and brand insights: Conduct regular consumer surveys and focus groups to gather feedback on product preferences and brand perception. CPG companies, in particular, can learn so much by analyzing social media trends and online reviews to identify emerging consumer demands. Use this data to refine your product development and marketing strategies.
Shipment histories: Implement a transportation management system to track shipment data in real-time. Analyze delivery times, transit costs and potential bottlenecks. Also identify areas for improvement in your logistics network.
Supply constraints: Conduct regular capacity planning meetings with your production and procurement teams. Identify potential limitations in raw material availability, manufacturing capacity and storage space. Anticipate potential related problems and develop contingency plans to mitigate constraints.
Foster collaboration and prioritize transparency: Establish strong relationships with suppliers and retailers to share data and improve visibility across the supply chain. Ensure that the demand forecasting system is transparent and that all partners understand how forecasts are calculated.
Financial targets: Finally, align your demand forecasts with your company's overall financial goals. Collaborate with finance teams to understand revenue targets, cost constraints and profitability objectives. Use forecasting to assess the financial impact of different scenarios and make informed decisions.
As technology continues to advance and consumer behavior becomes even more unpredictable, accurate planning will be more and more essential. By mastering the art and science of demand forecasting, CPG companies can proactively predict consumer demand, positioning themselves for long-term success.
The Resilient Supply Chain Benchmark is designed to help you understand industry best practices and evaluate your own capabilities. Explore our benchmark today and take the first step towards a more resilient supply chain!
