Best Practices in Demand Forecasting for F&B Companies

Without complete visibility and supervision of your food and beverage company’s supply chain, it interrupts business operations and leaves your customers unsatisfied. You might have faced such issues before and would never like to go through the same experience again. An efficient supply chain requires demand forecasting, plant capacity, intelligent scheduling, and inventory planning. As a food and beverage company, you should be ready to cope with the immediate future and be prepared to meet the demand in the long term. 

How Does the Supply Chain Function in F&B Companies?

Most companies lack knowledge about how to improve their supply chain operations as they do not follow demand forecasting and planning techniques. Businesses still use traditional and outdated methods instead of modern up to date forecasting methods. Forecasting made on the aggregate level is more reliable than at the location or item level. 

With the right demand forecasting software, the forecasts will be more accurate and thus help run the supply chain operations smoothly. 

Understand the Inventory Situation

Safety stock, customer service levels, and batch size are some of the essential factors of the inventory. It would help if you had a proper inventory management plan to meet consumer demand at the right time. The situation gets more complicated if you have multiple sales channels with various inventories and warehouses. A robust demand forecasting software can estimate demand at the aggregate levels and help place replenishment orders for individual SKUs to stock them to the optimal level so that sales are not affected. Food and beverage companies can thus increase revenue with proper inventory management. 

Moreover, the industry deals with many perishable goods with a short shelf-life. Therefore, an accurate forecast is needed to estimate the right quantity of products that need to be stocked. Otherwise, capital  gets locked up in dead inventory or slow-moving inventory, leading to inventory wastage. 

You should know the value of the ‘days of supply’ and ‘cover period’ metrics, which you might already use in your planning.  If you calculate the demand by just taking the annual demand and dividing it by the number of forecasts, you would miss out on significant aspects such as seasonality, production costs, and trends . Thus you should be accustomed to how some of these aspects work if you have to manage an inventory:

  • Product Volume – Low-volume products must be manufactured less often and have a more extended cover period to reduce changeover costs. In contrast, high-volume products must be manufactured more often and have a short cover period. You should also consider the expiration dates for eliminating waste production.  

When you are considering inventory effectiveness, you should ensure that the inventory is utilized before they reach their expiry date. Inventory is of different types, such as businesses might stock fresh vegetables or food items which have a low shelf life and after that they become stale. Thus, the inventory should be monitored in a way that the products are sold before the expiration date. 

  • Safety Stock – With a low stock level, service levels are higher and vice versa. You should understand the interconnection between these numbers as your business can scale better growth and not bear the burden of overstocking. 

Every product should be delivered quickly and thus supply chains are becoming more complicated. Lead time is a significant factor while deciding safety stock, especially for those businesses where the inventory arrives from another region or country by plane or ship. When a lot of time is needed for inventory to arrive, it impacts inventory and thus inventory strategies should be created keeping these factors in mind. 

Inventory planners should consider these factors when planning inventory, but it might not be easy to achieve manually. This is where demand forecasting software comes in, an advanced forecasting tool can consider all the factors that influence demand and generate accurate and dependable projections. 

Types of Forecasting

Long-Term Planning Forecasts

If you project demand for the long term and use the usual 12-months-out forecast pattern, your forecasts should be accurate as they would affect your business for a long duration. Long-range forecasts actively influence production planning, budgeting, and distribution. You can create a reliable supply chain only with a systematic approach. A robust demand forecasting software that can consider massive amounts of data helps to provide stability, maintain adequate inventory levels, higher customer service levels, increase throughput in manufacturing, reduce freight costs and boost confidence. 

Medium-Term Planning Forecasts

With proper techniques and estimates, mid-term planning can be done for demand allocation, inventory levels, and distribution depending on production capacity. Companies should set inventory levels for finished goods according to the locations before creating a master production schedule. The inventory policy system should assist the planner in setting reorder points, replenishment batch sizes, and safety stock levels depending on location needs and customer service levels. With this, you can balance service levels and inventory investments while holding a minimum inventory. 

Short-Term Planning

Short-range production plans involve replenishing stock at distribution centers, including warehouses that ship to different locations. More challenges will be associated if a third-party logistics provider is involved in your distribution network. The main aim is to guarantee that all the locations have an optimal inventory to meet demand with minimum excess. The plant’s frequency and volume of shipments are determined while considering the plant’s capabilities. A proper distribution planning system can enhance efficiency, reduce transportation costs, improve customer service levels, and allow smooth communication between the production, sales, and distribution teams. Unanticipated changes in demand cannot be avoided, but you can expect fewer disruptions with the right demand forecasting software

Final Thoughts

Demand forecasting is done by looking at the past sales data, and an efficient demand forecasting software can provide accurate predictions by looking at all the factors that influence demand. With proper forecasting, you can maintain an optimum inventory that minimizes waste and reduces overstocking costs. Thus, food and beverage companies can supply consumers with more fresh products within the expected delivery time.

About Fountain9

Fountain9 is a Y Combinator backed company, which offers predictive inventory planning and optimization software for e-commerce, DTC and retail companies.

Their  flagship product, Kronoscope uses AI to accurately predict future inventory imbalances which lead to out of stock situations or wastage, and also recommends best ways of minimizing their impact.

Kronoscope is powered by state of the art demand sensing and pricing engine which takes into account several factors like historical sales trends, seasonality, holidays, markdown events and pricing changes to predict future inventory requirements and optimize prices. Predicted inventory demand is also aligned with supply side data to identify ideal suppliers and replenishment quantities that minimize chances of stock outs or inventory wastage.

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