Importance for Forecasting in Supply Chain Management

When a company increases its dependence on suppliers, such as through outsourcing, it exposes itself to risks associated with the supplier's operations and expanded logistics. Forecasting techniques are frequently used to measure and control these risks. A strategic approach to supply chain management involves identifying and tracking factors that can adversely impact costs and and place constraints on capacity.

In the face of uncertainty, forecasting methodologies are used to predict demand or future impact on operational systems. There are a number of forecasting techniques and methodologies. For example, historical data is often used to predict future events. This may assist in identifying potential weather patterns that can impact transportation systems. Keep in mind that while there are certain techniques used to account for errors, the potential for error in forecasting can be high.

A supply chain is a network of facilities used to procure and transform raw materials into final products that are ultimately delivered to an end user. The ability to effectively forecast demand impacts the total flow of materials and coordination of their delivery throughout the supply chain. Proper inventory controls minimize out-of-stock and overstock problems.

Supply chain management software is used to provide real-time data that can be used as a predictive tool and to identify supply chain delays. It improves efficiency in logistics and helps with planning of transport activities. Standard metrics measure and project process performance times and ultimately the effectiveness of management and supplier practices.

A service level agreement, or SLA, is an agreement that identifies the minimum service quality necessary to meet business needs between a service provider and its user. The increased use of computer control functions in quality systems management has resulted in a surge of interest in the SLA to increase supply chain accountability. Implementing SLAs clarifies expectations and serves as a forecasting benchmark of supply chain expectations.