HOW IS

DEMAND
FORECASTING
CHANGING?

A report brought to you by

 of their forecast and discover the tools and

A demand forecast techniques they are using to upgrade the

forecasting process. The results of our
is crucial to make research are presented in this Guide. Here,
informed business you will find helpful benchmarks and

decisions. insights offered by peers on the latest

demand forecasting techniques, forecast
granularity and periodicity, and
expectations for the future.
For many, a well-executed S&OP process
should start with a demand forecast on
The survey was completed by 301
one end and supply and resource plans to
professionals working in supply chain,
meet that forecast on the other. But in
finance, sales and commercial/trading
today’s volatile and uncertain world, the
roles. Respondents operate across several
future is getting harder and harder to
regions, including North America, Europe,
predict. What kind of enabling technology
Latin America and Asia Pacific. Various
are companies using to improve forecast
industries are represented, ranging from
accuracy and keep up with the changing
chemicals to consumer electronics, food
pace of business?
and beverage, and manufacturing.

We conducted research to assess how

supply chain teams perceive the accuracy

About AIMMS
AIMMS is a forward thinking platform
provider democratizing the use of
supply chain planning so everyone is
self-enabled to make better decisions.

www.aimms.com 2
 Which function is responsible for managing
the forecast process and who is accountable
for accuracy?

To better understand the practice of demand forecasting among respondents, we asked

them which function is responsible for managing the process and who is accountable for
forecast accuracy. 61% of respondents stated that the Supply Chain function is primarily
responsible for managing the forecast process at their organizations. This was followed
by Sales at 22%.

5 key takeaways from this guide

Demand forecasting is considered either important or extremely

1 important by 77% of organizations. It’s considered a crucial part of the
business planning process.

Excel is still the dominant technology. 40% use it for demand forecasting
2 but dissatisfaction is high.

65% of organizations issue their forecast as a single set of numbers.

3 The technologies used by most may hamper their ability to issue the forecast
as scenarios.

The most common technique used for demand forecasting is still

4 statistical modeling of historical demand, as reported by 74% of
respondents.

Machine learning is the least used technique but is currently being

5 investigated by 42% of respondents. It’s seen by many as the magic
bullet.

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 Which function is responsible for managing
the forecast process and who is accountable
for accuracy?

To better understand the practice of demand forecasting among respondents, we asked

them which function is responsible for managing the process and who is accountable for
forecast accuracy. 61% of respondents stated that the Supply Chain function is primarily
responsible for managing the forecast process at their organizations. This was followed
by Sales at 22%.

100% Which function is responsible for managing the forecasting process?

90%

80%

70% 61%
60%

50%

40%

30% 22%
20%
9%
10% 5% 3%
0%
Sales Commercial/trading Finance Supply Chain Other (please specify)

When asked who is accountable for forecast accuracy, 30% of respondents stated that a
mix of the above-mentioned functions (Sales, Commercial/trading, Finance, and Supply
Chain) is accountable at their organizations. This was followed by an even 30% who
stated that the supply chain function is accountable for accuracy, and 27% who stated
that sales is accountable at their organization.

From a business point of view, the fact that most organizations consider Supply Chain to
be accountable for forecast accuracy may be a source for concern, as supply chain teams
may inadvertently constrain their view of demand based on their knowledge of current
supply.

100%
Who is accountable for forecast accuracy?
90%

80%

70%

60%

50%

40%
30% 30%
27%
30%

20%
7%
10% 5%
1%
0%
Sales Commercial/trading Finance Supply Chain A mix of the above Other (please specify)

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 How important is demand forecasting
as part of the overall business planning
process?

We asked respondents to rate the importance of demand forecasting between 1-10.

31% of respondents stated that demand forecasting was an extremely important part of
their business planning process, rating its significance with a 10. This was followed by a
combined 46% who rated it with an 8 or a 9.

How important is demand forecasting as part of the overall business process?

100%

90%

80%

70%

60%

50%

31%
40%

30% 24% 22%

20%
10%
3% 4% 4%
2%
10%
0%
0%

1 -Not important 2 3 4 5 6 7 8 9 10 -Extremely important

How do professionals rate their demand

forecast’s accuracy?

Results show that demand forecasts are seen as crucial for business planning, but how
does their accuracy fare? We asked participants to rate their satisfaction with the
accuracy of their demand forecast on a scale of 1 to 10. A combined 47% rated their
satisfaction between a 5 and 7. Only 2% rated their satisfaction with a 10 (extremely
satisfied).

100%
How satisfied are you with the accuracy of your demand forecasts?
90%

80%

70%

60%

50%

40%

30%
15% 16% 16%
20% 13% 12% 13%
5% 5%
10% 4% 2%
0%

1 -Not satisfied at all 2 3 4 5 6 7 8 9 10 -Extremely satisfied

www.aimms.com 5
 The vast majority of respondents consider that improving forecast accuracy is a priority
at their organization. 38% consider it extremely important and a combined 41% rated
the importance of improving forecast accuracy with an 8 or a 9.

On a scale of 1-10, how important is it for your organization to improve forecast accuracy?
100%

90%

80%

70%

60%

50%
38%

40% 23%
18%
30%
10%
20%

5%
10%
1% 3%
1% 1% 0%
0%

1 -Not important at all 2 3 4 5 6 7 8 9 10 -Extremely important

The typical range of absolute forecast error at an item level is reportedly 20-40%
according to 42% of respondents. This was followed by 0-20%, according to 28% of
respondents. 11% of respondents indicated that their typical range of forecast error at
an item level is over 50%. This shows why organizations consider improving forecast
accuracy extremely important. The symptoms of high forecast error can be clearly
observed in what respondents expect to gain with more accurate forecasts.

What is the typical range of absolute forecast error at an item level?

0-20% 28%

20%-40% 42%

40%-50% 18%

>50% 11%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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 What kind of benefits do
organizations expect to gain by
improving forecast accuracy?

When organizations over-forecast an item, they end up with too much stock. Where they
under-forecast, they face service issues, more expediting and unstable supply chain
plans. That explains why respondents consider improving accuracy to be extremely
important. They expect to gain several benefits form this. 78% of them reported
reduced inventory holding among the top 3 benefits, followed by more stable and
reliable supply chain plans (at 71%) and better customer service (at 65%). More
predictable financials is seen as an expected benefit by 43% of respondents.

100%
How would improving forecast accuracy benefit your business?
90%
78%
80%
71%
65%
70%

60%

50%

40% 43%
30%
30% 32%
20%

10%

0%
Reduced inventory Better Less expediting More stable and reliable More predictabl Improved x-function
holding customer service SC plans financials collaboration

Which demand forecasting technologies

and techniques are organizations using?

39% of respondents stated that they use spreadsheets for demand forecasting, followed
by 30% of respondents who use a specialist forecasting package. 23% use bundled ERP
functionality. Only 3% don’t use any form of technology.

100% What technology do you use to support your demand forecasting process?
90%

80%

70%

60%

50%
39%
30%
40%

30% 23%

20%
5% 3%
10%

0%
We don’t have a process We don’t use any Spreadsheets Bundled ERP functionality Specialist
technology forecasting package

www.aimms.com 7
 Are organizations satisfied
with the tools they use?

Only 2% of respondents stated that they were extremely satisfied with the tools they
use for demand forecasting. Neutrality appears to be the norm, with 49% of
respondents rating their satisfaction with their current technology between a 5 and a 7.
27% are not satisfied.

How satisfied are you with the current technology you use to support your demand forecasting process?
100%

90%

80%

70%

60%

50%

40%

30% 18%
15% 16%
20% 13%
8% 11%
8% 7% 4% 2%
10%

0%

1 -Not satisfied at all 2 3 4 5 6 7 8 9 10 -Extremely satisfied

Nearly 45% of respondents who use spreadsheets as their demand forecasting

technology are dissatisfied, showing that this toolset is not robust enough. The majority
of those who use bundled ERP functionality are indifferent, at 42%, and 20% are
dissatisfied with this toolset. 61% of those who use a specialist forecasting package
reported being satisfied.

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 How often do teams review and
adjust their demand forecast?

With demand volatility on the rise, organizations are hard-pressed to adjust their plans.
51% of respondents stated that they review and adjust their forecast on a monthly basis.
25% do this on a weekly basis. Only 7% do it daily. The type of technology used may
influence their team’s ability to do this more frequently.

How often do you review and adjust your demand forecasts?

100%

90%

80%

70%

60%
51%
50%

40%

30% 25%

20%
7% 8% 6%
10% 3%

0%
Daily Weekly Monthly Quarterly Annually Ad-hoc

48% of people using spreadsheets reported reviewing their forecast on a monthly basis;
21% do this weekly and 15% once per quarter. Those who use a specialist forecasting
package review their data a bit more often. 53% do it on a monthly basis, 31% weekly
and 13% daily. The majority of those using bundled ERP functionality perform monthly
reviews, at 55%, and 26% review their forecast on a weekly basis.

www.aimms.com 9
 At what period of granularity do
teams forecast demand and how
detailed are their forecasts?

More than half, 53%, forecast at monthly granularity, followed by 26% who do so on a
weekly basis. The fact that a good number of organizations forecast on a weekly period
speaks to the degree of volatility faced by businesses today.

At what period of granularity do you forecast?

100%

90%

80%

70%

60% 53%
50%

40%

26%
30%

20% 12%
5% 5%
10%

0%
Daily Weekly Monthly Quaterly A combination of the above

33% of respondents aggregate their forecast at an item level and 21% aggregate it at
a product and location level. Only 24% of respondents aggregate the forecast at the
lowest level of detail.

Which of the follwing most closely describes the level of detail of your final consensus forecast?
100%

90%

80%

70%

60%

50%

40% 33%
24%
30%
21%
16%
20%
6%
10%

0%
Lowest level of detail Aggregated at Aggregated at a Aggregated at a product Some other
item level product family level and location level aggragated level

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 How is the final consensus
forecast shared for planning
purposes?

The majority of respondents (65%) share their forecast with the business as a single set
of numbers. This is an interesting data point. Given the fact that most organizations are
not very satisfied with their forecast accuracy, we would expect them to prefer sharing
the forecast as a set of scenarios. However, only 15% stated that they share the forecast
as a set of multiple but discrete scenarios. 20% share the forecast as a range per item.
The ability to forecast in more detail and assess different scenarios may be limited due
to the types of technologies and tools currently in use.

100%
How is your final consensus forecast issued?
90%

80%
65%
70%

60%

50%

40%

30%
15% 20%
20%

10%

0%
As a single set of numbers As a set of multiple but discrete scenarios; As a range for each item in the forecast
ex. expected, stretch, worst case

58% of respondents use forecast accuracy to determine target inventory levels at their
organizations. 42% do not.

Do you use forecast accuracy as input for calculations to determine target inventory levels?

Yes
58%

No 42%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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 How are demand
forecasts evolving?

When asked how they see their organization’s product portfolio evolving over the next
3-5 years, 53% of respondents stated they see the number of items increasing and 43%
of them expect to see increased item/product churn. Only a small percentage see
portfolios staying the same, or shrinking. This shows that complexity is poised to grow
even more.

How do you see your product portfolio evolving over the next 3-5 years?
100%

90%

80%

70%

60%
53%
50% 43%
40%
28%
30%
12%
19% 17%
20%

10%

0%
Largely staying Number of items Increased item/ Number of items # fast moving items # fast moving items
the same reducing product churn increasing reducing vs. to increasing vs. to
slow moving slow moving

When we look at product portfolios in more detail, we find that 41% of respondents
expect the number of items to grow at a quicker rate than sales. This makes generating
a forecast even more challenging.

How do you see the growth rate of the number of items increasing relative to the growth
rate of sales evolving over the next 3-5 years?
100%

90%

80%

70%

60%

50% 41%

40%
35%

30% 24%

20%

10%

0%
Number of items will grow at about `Number of items will grow at a Number of items will grow at a
the same rate as sales quicker rate than sales slower rate than sales

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 Interestingly, while many anticipate more complexity in their supply chain, respondents
are optimistic about the future. 61% think their forecast accuracy will improve over the
next 3-5 years. Only 9% think it will get worse.

How do you see forecast accuracy evolving over the next 3-5 years?

Getting worse
9% (28)

Staying about the

same
29% (88)

Improving
61% (183 )

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 How are organizations
preparing for the future?

Most respondents who are dissatisfied with their current demand forecasting technology
expect the number of items/products in their portfolio to increase at a quicker rate than
sales. What kind of techniques are organizations investigating to improve forecast
accuracy?

56% of professionals are looking into statistical modeling of historical demand at their
organizations, and 41% are looking into machine learning. Another 41% is currently
investigating demand sensing. Other techniques that are being investigating include
‘best fit’ functionality and segmentation.

Which of the following techniques are you currently investigating?

Machine
learning 41%

Stat. modeling 56%

of hist. demand
‘Best Fit’ 29%
functionality
Segmentation 35%

Multi level 33%

forecast...

Outlier analysis 28%

Causal factors 29%

Demand Sensing 41%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Only 9% of respondents are already using machine learning to generate demand

forecasts. The majority (75%) are using statistical modeling of historical demand. 44%
use segmentation. ‘Best fit’ functionality is currently used by 29% of organizations,
suggesting that demand planners are still heavily involved in model manipulation

100%
Do you make use of any of the following techniques?
90%

80% 75%

70%

60%

50% 44%
40% 36%
29% 29%
30%
26%
18%
20%
9%
10%

0%
Machine learning Stat, modeling of ‘Best Fit’ Segmentation Multi level Outlier analysis Casual factors Demand sensing
hist. demand functionality forecast hierarchies

www.aimms.com 14
 60% of respondents indicated that they were somewhat to extremely curious about new
techniques like DDMRP to decouple execution from the impacts of forecast accuracy.
Most of those reporting interest in DDMRP are in a supply chain role. Many of them
work in the chemicals, consumer goods, food and beverage and manufacturing industry
and currently see a typical range of forecast error of 20 to 40%.

How curious are you about new techniques and approaches like DDMRP as an
alternative to constantly striving for forecast improvement?

100%

90%

80%

70%

60%

50%

40%

30% 25%
20%
20% 15%
8% 10% 12%
3% 3% 3%
10%
1%
0%

1 -Not curious at all 2 3 4 5 6 7 8 9 10 -Extremely curious

www.aimms.com 15
 With ongoing challenges like coping with
A new day for demand seasonality and far-reaching geopolitical shifts
on the horizon, it’s not surprising to see that
forecasting? professionals are eager to improve forecast
accuracy. High forecast error also tends to
hamper engagement and buy-in from other
actors in the business. So, improving forecast accuracy goes hand in hand with improving supply chain
plans and collaboration across departments.
To better understand the practice of demand forecasting among respondents, we asked
them which function is responsible for managing the process and who is accountable for
Some are relying on several techniques to improve their forecasting process and cope with sudden
forecast accuracy. 61% of respondents stated that the Supply Chain function is primarily
changes in demand. Many are also investigating relatively new ones, like machine learning, and are also
responsible for managing the forecast process at their organizations. This was followed
curious about DDMRP. Like many of the respondents in our survey, we also choose to be optimistic
by Sales at 22%.
about the future, and we heard their needs loud and clear. That is why we have added demand
forecasting capability to our SC Navigator suite of supply chain planning applications. Due to be
launched
100%
Q1 2020.
90%

80%

70% 61%

AIMMS SC Navigator allows you to:

60%

50%

Easily define a multi-tier forecasting Allow our learning algorithm to

40%

30% 22%
hierarchy
20%
to enable forecasting at continually fine tune and refine the
9%
different
10% levels of aggregation 5% choice of
3% model and its parameters
0%

Automatically detect and treat

Sales
Easily Finance
Commercial/trading
create different demand
Supply Chain Other (please specify)

outliers in historical data scenarios and understand the impact

on the supply plan, when used in
When
Take asked who
advantage is accountable for forecast accuracy, 30% of respondents stated that a
of automated
conjunction with our S&OP
mix of the
statistical above-mentioned
method functions (Sales, Commercial/trading, Finance, and Supply
selection with our
application
Chain) is accountable
forecasting at their
engine selecting organizations. This was followed by an even 30% who
the most
stated thatmethod
appropriate the supply
basedchain function is accountable for accuracy, and 27% who stated
on the
that sales
historic is accountable
demand data at their organization.

From a business point of view, the fact that most organizations consider Supply Chain to
be accountable for forecast accuracy may be a source for concern, as supply chain teams
may inadvertently constrain their view of demand based on their knowledge of current
supply.
GET IN TOUCH NOW
TO GET A DEMO

GET A DEMO

www.aimms.com 16
Are you surprised by the
results? How does your demand
forecasting process stack up?
Connect with us and find out how you can
improve your forecast and collaborate better
across departments with advanced analytics.

Chris Gordon
VP & Product Lead SC Navigator
chris.gordon@aimms.com
T: +1 425 458 4024

Kees Ramselaar
New Business Development
kees.rameslaar@aimms.com
T: +31 23-5 511 512

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