Part 4: Benefits of Better Logistics Forecasting

Less operational capital tied up in inventory and infrastructure

Free cash flow means that businesses have more resources to expand and practice good financial management. Accurate logistics forecasting means that stock levels and consumer demand are closely aligned, resulting in less capital being tied up in unsold products.

There are benefits from infrastructure savings too—right-sizing stock levels results in more efficient use of storage space, transportation, and the supply chain network. It also allows for future planning around areas including the warehouse and logistics labor force required to handle changing demand levels.

Lower supply chain risks due to multiple projected scenarios and impact analysis

Forecasting over different time frames and taking into account multiple internal and external factors results in a much more solid foundation for understanding the likelihood and impact of supply chain risks. This allows stakeholders to more accurately balance mitigation and contingency plans based on the most likely outcomes.

Greater competitive advantage due to increased product availability 

Consumers have come to expect near-instantaneous availability or next-day delivery for products—if they can’t get the product from you, it’s easy for them to go to a competitor. Logistics forecasting ensures there’s enough inventory to meet demand and helps get goods closer to the consumer. This enhances consumer perceptions and customer service, building trust in your brand and products.

Stronger focus across multiple distribution channels

The modern enterprise is expanding far beyond traditional, brick-and-mortar retail. The enormous shift towards e-Commerce, together with omnichannel selling through social media or via third-party marketplaces are increasingly dominant. Forecasting accounts for all of these unique needs, allowing for precise, fine-tuned control of inventory and products, aligned to distribution channels.

Higher revenues and profit margins from stronger cost control and realistic budgeting

Logistics reporting places a greater focus on cost control, as efficiencies in the supply chain directly contribute to less waste. Greater cost efficiencies, combined with meeting consumer demand results in higher revenues and profit margins. Businesses can also take advantage of multiple scenarios and forecasting timelines, allowing for more realistic budgeting over the short-, medium-, and long-term. 

Increased confidence in lead times and “just in time” manufacturing

Closer alignment with suppliers, figuring in lead times, and understanding potential delays means you can be more confident that stock will be where you need it, when you need it. This reduces reordering life cycle times and allows for more investment in “just in time” manufacturers that can help you reduce costs further. You can also model end-to-end lead times, from initial ordering through to final distribution, and optimize the demand/supply lifecycle.

Preparing supply chain partners to send, receive, and process goods

Increased visibility, transparency, and timeliness of forecast data mean that suppliers, manufacturers, and logistics providers can plan more easily. This also makes the upstream and downstream impacts of disruptive events much more predictable, allowing for quicker recovery from incidents.

Closer alignment to consumer and marketplace trends and behaviors

Consumer and marketplace demand can change quickly, based on multiple trends and factors. Strong logistics forecasting reacts quickly to these changes, allowing for rapid replanning to balance supply, capacity, and demand.

Quantifying the benefits of better logistics forecasting

The consolidated benefits of improving logistics forecasting accuracy can deliver significantly higher revenues and profits. Although forecasting ROI differs significantly from industry to industry, some studies have helped quantify some overall benefits.

According to information from the Institute of Business Forecasting and Planning: 

• A 15 percent improvement in forecasting accuracy will deliver a three percent or better improvement to the bottom line
• A one-percentage-point reduction in forecasting errors at a $50 million turnover company provides savings of around $1.5 million if they were under-forecasting, and around $1.3 million if they were over-forecasting
• Improving forecast accuracy, inventory availability, and demand management increases revenue by between 0.5 and three percent

Read the previous post in our series: optimal strategies for logistics forecasting or the next post in our series: how to improve your logistics forecasting.