Demand variability is common in many manufacturing industries. Many companies, therefore, carry high levels of inventory due to the difficulties in adjusting work schedules when demand increases. For example, manufacturers would like to know how much of each SKU should be loaded into each truck for the following day. The forecast for each store should be fairly accurate based on the past performance of each store. This would then enable businesses to manage demand and consequently help in production planning and operations for the future.
According to Gartner, companies that excel at demand forecasting have:
- 15% less inventory
- 17% better order fulfillment
- 35% shorter cash-to-cash cycle times
- 60% higher profit margins
- 1/10th the stock-outs of their peers
However, many manufacturers and distributors are using outdated forecasting methods to develop business strategies. IoT solutions collect data on usage and buying patterns, giving product manufacturers the ability to evolve from traditional forecasting to planning based on actual consumption. Information is readily available for decision making as you can track your inventory including existing supplies, at the click of a button. All this data which acts as inputs to advanced analytics can be used to discover trends and patterns to make manufacturing schedules more efficient and making sure that brands sell as much as possible without oversaturating the market.
With IoT, businesses can collect real-time data to get an accurate and complete picture of their inventory in real-time. This enables businesses to optimize stock purchases, reducing the risk of low or excess stock. From tracking assets to providing real-time information about inventory status and location, IoT has optimized how businesses handle their inventory. But what are the top benefits of IoT-based demand forecasting?
1. Improve inventory management
The lack of timely data can result in supply and demand mismatches. Real-time data can be used for increased forecasting accuracy and, in turn, can improve business outcomes. IoT sensors offer real-time visibility of actual stock levels and can automatically trigger replenishment orders when required. This results in increased sales from reduced stock-outs, optimized inventory levels, and lower logistics costs as stock is delivered only when required. IoT solutions provide real-time visibility into stock levels helping businesses adjust quickly to demand fluctuations, ultimately resulting in greater revenues.
2. Improve labor scheduling
Deploying the right people at the right place and time is a complex process. Factors such as unpredictable demand, seasonality, holidays, etc. play an important role in labor scheduling. Losing sales due to understaffing or incurring higher labor costs as a result of overstaffing can have a significant impact on the bottom line. Many manufacturers and distributors are using antiquated forecasting methods to create their plans for the upcoming buying season. IoT solutions empower companies by providing a way to capture data in real-time, directly from consumers. Combined with data in other enterprise applications like ERP and HCM systems, it provides labor planners with accurate projections of sales, transactions, and foot traffic over time and you can build more accurate schedules to avoid over or understaffing.
3. Maintain stock levels
When your inventory levels are low or out of stock, you are forced to change your production schedules which ultimately affect your manufacturing capacity and lead to additional costs. On the other hand, storing excess inventory in your warehouse locks in the capital and prevents you from investing in more profitable aspects of your business. IoT-based demand forecasting can help you decide the optimal stock levels saving warehouse space and reducing operational costs.
4. Optimize production planning
Using IoT solutions to gather inventory data, and advanced analytics to analyze this data is one of the best ways to optimize your production. When you set up your processes based on the estimated demand, you have the opportunity to speed up your entire production cycle. IoT data can improve data access across your supply chain and increase collaboration between departments, allowing manufacturers to optimize production planning by creating accurate forecasts for each product line. Internal collaboration ensures better access to historical information and market insights; whereas external collaboration provides insights into purchase orders, periodic forecasts, and supplier details, etc.
5. Improve business strategy
Companies make sales projections and allocate resources based on demand forecasting. For example, if a manufacturer expects higher demand for a particular item, they can ramp up production to meet the increased demand. Demand forecasting also helps reduce risks and make better financial decisions that increase profit margins, cash flow, improve resource allocation, and create more opportunities for growth. IoT data helps businesses gain better visibility into inventory accounting, helping them reduce their operating costs and overall spend. Accurate IoT-based demand forecasting can provide the foundation for all strategic and operational plans.