Dec 17, 2024 // Gabi Auerbach
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In economically difficult times, such as the current recession in Germany, demand forecasting is becoming one of the most important tools for companies. Rising uncertainties, falling demand and volatile markets require precise forecasts to use resources efficiently and remain competitive.
But how does a demand forecast work, and how can companies make their demand planning more precise to operate successfully despite a weakening economy? In this blog post, you will learn everything you need to know about the possibilities of demand planning and the potential of modern forecasting software.
The German economy is in the doldrums. According to the latest figures from the Leibniz Institute for Economic Research at the University of Munich (Ifo), more and more German companies are complaining about a lack of orders.
‘The German economy is currently struggling with a serious decline in orders, affecting almost half of all companies across all sectors,’ Klaus Wohlrabe, deputy director of the Ifo Center for Macroeconomics and Surveys and director of surveys, told IPPEN.MEDIA. According to the latest figures published on 11 November, 41.5 percent of companies report a lack of orders – a further increase from 39.4 percent in July – and the highest figure since the 2009 financial crisis, as reported by the news portal Merkur.de (German) on 13 November this year.
These alarming figures underscore the urgent need for companies to act now to optimise their sales and demand planning. Especially in times of declining orders, demand forecasting becomes a key tool for making operations as resilient as possible and for turning challenges into opportunities.
The question ‘What is a demand forecast?’ can be answered simply: it is the methodical prediction of sales figures and future demand. It is indispensable for companies because it forms the basis for strategic decisions.
But why is the demand forecast important for companies?
Demand forecasts support efficient demand planning. They help to optimise the balance between supply and demand. They also help to avoid overproduction and thus high storage costs. In addition, demand forecasts help to better plan finances and avoid bottlenecks. Especially in a recession, when demand fluctuates greatly, inaccurate planning can cause significant losses. With an accurate demand forecast, these risks can be minimised.
Creating a demand forecast is a complex process. Companies analyse historical sales data, considering all influencing factors such as sales promotions, seasonal fluctuations or price changes. Intelligent forecasting tools help to master this complexity and make reliable predictions based on objective data.
By using artificial intelligence and mathematical algorithms, companies can quickly identify trends and patterns even in the most complex data sets. The predictions of AI-supported forecasts are also so agile that they can be continuously adapted to current circumstances and thus further refined. In addition, AI-based software solutions help companies to quickly uncover anomalies with their forecasts and to react to external influencing factors, such as major regional events.
To calculate a precise demand forecast, two aspects play a central role:
On the one hand, ‘demand forecasting’ – this mathematical method aims to estimate future demand as accurately as possible.
On the other hand, ‘demand planning’, in which individual departments can integrate their human expertise and market assessments based on mathematical demand forecasting.
The integration of these two functions into modern planning tools ensures that companies can react quickly to market changes and thus significantly reduce costs. This is because reliable demand planning forms the basis for production planning and for determining the required resources.
In times of increasing complexity and uncertain markets, the use of AI in demand forecasting is a welcome stabilising factor. Artificial intelligence enables companies to analyse huge amounts of data quickly and to make reliable forecasts based on this information.
Nevertheless, the enormous potential of AI remains largely untapped: according to a recent Bitkom study (German), 82 per cent of companies recognise its economic relevance, but only 13 per cent actively use it.
AI can help with new products or unknown market conditions, uncover relevant patterns and provide well-founded forecasts – a task that humans alone can hardly cope with given today's complexity.
The advantages of AI-supported forecasting tools are manifold. For example, the use of AI makes predictions more accurate because it considers external factors such as seasonal sales fluctuations and is constantly evolving. In addition, AI makes it easier to automate processes, significantly reducing the manual planning effort.
Furthermore, AI-based planning leads to optimised stock levels, more reliable production plans, less waste and thus reduced expenditure. The transparency and improved planning quality achieved by demand forecasts also have a positive effect on the entire sales & operations planning (S&OP). This means that supply and demand can be better balanced and strategic goals can be more easily achieved across teams. The flexibility that comes with AI-based planning tools also enables companies to respond quickly to changing market conditions.
A demand forecast is much more than just a tool for supply chain planning – it is a reliable compass that provides companies with orientation in uncertain times. Particularly in a recession, when orders are declining, a well-founded forecast forms the basis for more resilient sales and operations planning. It helps to minimise risks in a targeted manner and to exploit new opportunities across departments.
AI-supported demand forecasts provide the precision and flexibility needed to ensure long-term stability. Companies that actively shape their demand planning and use modern technologies turn uncertainty into opportunity. This is how they prove that growth and success are possible even in challenging times – because every economic downturn is always followed by an upswing.
What measures are you taking to exploit the potential of your demand planning?
About our Expert
Gabi Auerbach
Expert for Supply Chain Optimization
Gabi Auerbach has been working for INFORM GmbH since 2000 and is mainly involved in the topic of integrated supply chain planning.
