Demand Forecasting: Why It Is Important to 3PLS

Demand forecasting is the process of predicting customer demand for products and services. This is a common practice used by manufacturers, retailers, and supply chain companies. But what about 3PLs? Is it essential for them to forecast customer demand? Read on to find out.

Demand Forecasting

What is demand forecasting?

Demand forecasting is a process of predicting future demand for your products. So, It’s important because it allows you to plan for future demands. If sales are slow, you can adjust your stock and avoid having too much or too little product.

There are two main types of demand forecasting: quantitative and qualitative. Quantitative forecasting uses statistical methods to predict demand. In contrast, qualitative forecasting uses subjective judgment.

Demand forecasting is used in many industries—such as retail, manufacturing, and healthcare. It is also applied at the individual level or the organizational level. Forecasting is also essential. This is because it helps 3PLs to determine how to handle customer demands.

Quick read: How 3PL Warehouses Can Calculate Customer Profitability.

Why is demand forecasting important to 3PLs?

Demand forecasting is essential to 3PLs. It enables them to manage their inventory better. Knowing what their customers will need can ensure that they have the right supplies.

If a 3PL does not have enough inventory, it may miss out on potential sales. Besides, they may also be unable to fulfil an order from a customer who needs something immediately. But, if they have too much inventory, the extra goods will go wrong. 

In addition to helping with inventory management, demand forecasting can reduce costly mistakes. The mistakes could result from orders placed at incorrect times or too early. So, there may be insufficient demand for those items when they arrive. Better still, there will be an excess stock that may go bad.

  • It helps you to plan.
  • It helps you to avoid over-ordering and stockouts.
  • It allows you to understand your customer’s needs.
  • It helps you to reduce costs of inventory and labour.
  • It improves service levels by avoiding stockouts.

Companies that do not have good demand forecasting will find themselves in panic. They must check what is going on with the market. This can be very time-consuming for even a small company.

How much do you need to do a Demand forecast?

A demand forecast estimates the quantity of a product or service demanded. It is a necessary component of any business plan. It can help you determine how much inventory to buy, how much space to rent, whether or not to borrow money, etc.

However, there’s no one-size-fits-all solution for creating a good demand forecast. Every company is different. So, the variables that go into your demand forecast are also based on your industry and market. So, how do you determine if you need more information? How do you do if you have enough information already? 

The old saying “too much of a good thing” doesn’t apply to demand to forecast. You’re not looking for more information—you’re looking for better communication.

The more you understand your customers’ expectations, the better. And the easier it will be to make accurate predictions about what they’ll buy in the future. But how do you get that information? Here are some steps you can take:

1. Scrutinize your current inventory. How much is still in stock? What’s the oldest item on hand? What does that mean for your customers if you’re running low on anything?

2. Keep an eye out for new trends or emerging markets in your industry. What’s driving them? Do they suggest new products that might be worth developing?

3. Reach out to customers directly through surveys and interviews. This will help you determine how they use your products and additional features. 

How often should 3PLs do Demand forecasting?

Demand forecasting is an essential aspect of the logistics process. Besides, it’s a job that’s often left to third-party logistics (3PL) providers. But how often should 3PLs be doing their demand forecasts?

The answer depends on the industry and the size of the operation. For example, if you’re in the food business, you’ll need to be more accurate with your forecasts. Experts recommend doing demand forecasting every two weeks. So, you will have 12 different estimates at any given time.

Who owns the forecast?

The person or group responsible for the accuracy of the forecast is called the “ownership.” Ownership can be a single person, or it could be a group of people. The owners are responsible for making sure that predictions are accurate.

How do you measure accuracy? There are many ways to measure accuracy. But most companies use some form of standard deviation to measure demand prediction. For example, if your SD was 10%, 80% of your forecasts were within +/-10% of actual demand.

What happens if there is a mistake in Demand forecasting?

The best way to answer this is to look at the consequences of getting it wrong. An incorrect forecast could cost you many if you’re trying to get funding for a new product. It could mean that investors reject your proposal. You may be planning how much inventory should be kept on hand. So, inaccurate estimates can lead to lost sales and wasted resources.

In each of these cases, the consequences will vary depending on the severity of the mistake. Besides, it will depend on its impact on your business or product. So here are some things that could happen: If there’s no real impact – You might not even notice anything has happened! 

Suppose there’s a minor impact. The consequences might not be enormous. But they will still cause problems for your company.

If there is a mistake in the forecast, it’s essential to create a process for correcting it. You may need to update your forecasting model or change how you calculate demand. Whatever the case, ensure that all stakeholders know the correction.

Suppose you found that part of your model was too conservative. In that case, you will use more accurate data in the future when creating new forecasts.

Good demand forecasting can keep your company profitable and competitive.

Good demand forecasting can help you be more profitable, competitive, and efficient. Here’s how:

  • In a volatile market, there are risks that your company will be left without resources. By predicting demand and ordering accordingly, you’ll cut risks. At the same time, you will save time and money on unnecessary inventory purchases.
  • Suppose you accurately forecast future demand for your products or services. In that case, you can use this information to plan.
Demand Forecasting


Looking at the numbers and playing out different scenarios can be intimidating. But it’s a crucial part of any business. A 3PL that doesn’t give its demand forecasting adequate time will lose the market. It’s essential to have someone dedicated to this task (or use software that can help). For more details, contact sales support.

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