Electronic components supply forecasting is a true balancing act that, when done right, can lead to cost reduction, timely order fulfillment, and satisfied customers. Consider these areas when planning ahead for supply and demand of electronic parts.
Electronic components supply forecasting, when done skillfully, makes sure that the right number of parts are on hand, without saddling the organization with too much expensive inventory.
If incoming purchased goods match the outgoing end product, then that critical balance has been achieved. More art than science, forecasting can optimize the supply chain in ways that cut costs, increase efficiency, and generally improve business outcomes.
Qualitative or quantitative: What’s the best method?
There are two inventory forecasting methods that procurement professionals can leverage to make solid forecasting decisions: quantitative or qualitative. Qualitative forecasting takes its cues from subjective opinions and insights, while quantitative forecasting leverages historical demand data to make an educated guess.
Which is better?
The answer is both. By using more than one method organizations can gain better insights into what’s going on in their specific supply chain and in the general marketplace. Quantitative forecasting often uses past sales data (and the ability to make a prediction is only as good as the data—so going further back in history is preferable). This method also takes into account factors such as demand trends and seasonality. Qualitative forecasting, meanwhile, relies on educated deductions based on gathering information from both inside and outside of the organization. Whenever possible it’s good to pursue a hybrid model.
Further, organizations should do both short and long-term forecasting of electronic components. Short-term methods look at roughly a calendar year and are critical to inventory planning, replenishment, and procurement. The short timeframe is subject to many variables such demand fluctuations and lean-time variations. Long-term demand forecasting, on the other hand, can be used in major strategic and investment decisions, such as new product planning.
Electronic components supply forecasting by type
There are many types of electronic components supply forecasting that can help organizations improve business planning. Here are a few:
- Supply forecasting: This method looks at the supplier base and tries to gauge what product these suppliers will have and in what quantities.
- Demand forecasting: This method analyzes potential customer demand for an end product for some period of time (whether it is a week, a month, or a quarter.) Other considerations: cultural trends, seasonality, and consumer confidence.
- Price forecasting: This method puts how supply and demand shifts may affect components prices. It also considers other factors that may impact prices such as potential weather events, economic trends, etc.
The why’s of a solid forecast
Forecasting is an essential part of a robust supply chain plan. It touches every aspect of the organization, including budgeting, financial planning, sales and marketing plans, raw material planning, production planning, and risk assessment and mitigation. It can help businesses succeed in a variety of ways:
- Capacity planning: Using data about current inventory levels, availability, and expected orders, forecasting can be used to effectively schedule production, improved capacity utilization, and knowledgeable allocation of resources.
- Supplier and partner relations: A well-informed allows the organization to set expectations with suppliers and distributor partners. It also may give purchasing manager a better negotiating position.
- Inventory optimization: Optimization of inventory leads to reduction of products being over- or understocked.
- Budgeting: By having a rolling forecast (created through forecasting) to fall back on, you can correct early and often and avoid the need for big course corrections.
- Risk assessment and mitigation: A solid forecast gets an organization out in front of potential problems by identifying and measuring the likelihood of potential risks.
- Component life cycle monitoring: Every component has a measurable lifecycle and good forecasting allows organizations to be ready when a part reaches its natural conclusion of availability.
To summarize: Electronic components supply forecasting done well delivers a number of business benefits. By choosing the right method, OEMs can apply gathered wisdom to make better business decisions throughout the entire lifecycle of the products it makes and purchases.